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Posts Tagged ‘OKR’

The impact of the pandemic on performance management practices

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Image Source: aleksandrdavydovphotos | Canva

The COVID-19 pandemic has left a strong mark in all aspects of our lives. It has impacted society – our habits, routines, and the way we interact. It has pressured the economy, its financial stability, and the way we do business.

Thus, what has changed in the way managers are doing performance management in these volatile times?  

1. The way we do strategic planning

Before the pandemic, risk management, scenario planning, and business continuity plans were specific to large corporations. Nowadays, even small organizations will have a plan B ready for different scenarios of the COVID-19 evolution. There are industries, like retail, where all planning revolves around foresting based on historical data. Nowadays, using data from the past to plan the future seems a futile attempt to regain the feeling of control.  

Moreover, most organizations, regardless of their industry, rely on annual if not 3 to 5 years planning. It is obvious that in the present circumstances and given the complexity of managing a business nowadays, these strategic planning practices seem useless. 

2. The importance given to performance measurement

More than ever before, real-time data is a vital management tool. Access to data is critical in managing a crisis. One of the positive side effects of the pandemic was the pressure to digitize operations that create opportunities for data collection and better measurement of operations.

3. The way employees can be evaluated

Remote work and hybrid systems (combining work from home with office time) are no novelty, but in the COVID-19 circumstances, they gained significant recognition and became the norm rather than the exception for many organizations.

Managers and team leaders can no longer directly observe employees. There is a series of soft competencies, like communication, collaboration, proactivity, and creativity that are very difficult to evaluate in an online working environment, and yet they are essential skills for many jobs.

What is the way forward?

1. A different way of planning

Risk management must be an inherent part of organizational strategy, regardless of the company size. You don’t need a risk management office to have a proactive management approach and handle risks well. Small organizations can use their performance scorecard and populate it with leading KPIs or Key Risk Indicators. 

For example, setting a red line level for # Days in accounts receivable can help you manage better cash flow, monitoring # Safety non-compliances can provide insights into the risk exposure to # Work accidents resulting in mortality. Identifying different scenarios in key areas of business and having contingency plans can give any organization a heads-up in case of a crisis.

Strategic planning must concentrate on shorter time horizons and reassess a series of factors that organizations may not have considered on a quarterly basis. 

Government interventions, international economic context, competitors’ reactions, customers’ preferences, customers buying power, suppliers’ situations, internal capabilities and optimization potential, and employees morale and productivity are factors that have changed post-pandemic and need to be investigated.  Moreover, agile strategic planning processes must be set in place to enable the organizations to react fast to changes.

2. Changes in the performance measurement framework

In the face of chaos, the most effective tool to put everyone on the same page is to use clear objectives, KPIs, and initiatives, even short-term ones. The challenge is to adapt the measuring and reporting of performance to respond to tight deadlines. Data must be available fast, preferably in real time.

Thus, identify five to 10 KPIs that are easy to use, concise (tackle the problem directly), and can be collected with high frequency (weekly, monthly). These will be the ones that help you navigate a crisis. Now is the time to replace complex measurements and reports with simple yet relevant tools.

In the medium term, most likely for many organizations, the entire strategy must be reconsidered and linked to relevant performance scorecards in which simple measurements can be combined with more complex KPIs to provide a holistic overview of performance.

3. Focus on building the right mindset for each job than defining the specific job outputs

Many organizations invest a significant amount of time in identifying the right KPIs and targets to capture as precisely as possible the employee’s performance or productivity. Moreover, the more complex the job is, the more difficult it is to capture all contributions in relevant KPIs. In a volatile business environment, such an approach makes targets and KPIs obsolete the moment they are communicated. 

The performance criteria used for employee evaluations should be flexible, easy to adapt and more focused on the extent to which the role is successfully achieved, as compared to looking at operational details. For example, it should be less important if the employee delivered one or three safety awareness sessions to factory workers if their awareness level is at the desired level. 

One methodology that can be used at the employee level is the Objectives and Key Results Framework. OKRs are set and reviewed quarterly, but they can be changed even more often if the result set is no longer of interest. They emphasize on the importance of personalizing the objectives and key results and making the employee accountable for setting and monitoring them. Not all key results have to be KPIs; some of them can be reflected by completing an initiative or other types of results.  

The end purpose of an OKRs system is not to compare employees or indicate what percentage of your staff are high performers. This methodology aims to facilitate communication, clarify expectations, align work activities to corporate strategy, and to provide a tool for managers and employees for discussing individual performance and improvement opportunities.

You can learn more about OKRs through The KPI Institute’s Certified OKR Professional Course.

A brief primer on team performance measurement

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Working in a team can create synergy, since a good team will likely produce better results than individuals working separately. However, measuring team performance is even more challenging than measuring the performance of each employee separately, since you have to take into consideration each and every member’s performance, in relation to the others’, as well as the overall team’s.

In general, employees are members of departments. A department is a subdivision of an organization and an individual, generally, can only be part of one department. That being said, nowadays, teams are more flexible in how they are formed and how they operate: a team can be a temporary group formed to work on a specific task or project. Therefore, employees can be members of only one department, but several teams.

The first step is to link the team results to the organization’s goals, by cascading the objectives and KPIs from the organizational level to the team level. It is not very productive to have a well-performing team whose work does not help the organization reach higher performance goals.

Key aspects of team performance measurement

There are many indicators and measurements that can be useful when considering measuring your team’s results. In what follows, we’ve put together a list of the most widely employed benchmarks, so that you may get a general feel for what is considered useful to keep track of.

Employee attendance: Employee attendance is an important aspect of team performance since absenteeism incurs excess costs and will have an unwanted effect on team productivity & employee morale.

Moreover, late employees can be the source of annoyance or frustration, which will reduce team cohesion and further reduce a working unit’s effectiveness. Therefore, attendance related KPIs should be the first ones to track, when we talk about team performance:

  • % Absenteeism: Indicates the percentage of employees within the team who are repeatedly and/or unexpectedly absent, out of the total team members.
  • $ Lost time accounting: Measures the potential revenue lost because of idle workers or wasted hours within the team.
  • # Time lost by starting work late: Measures the volume of time lost due to employees starting their working hours late.

Client satisfaction: Every team has an internal/external customer, which is why satisfaction can be a good measurement unit. Improving customer satisfaction will eventually result in a more efficient production process, better service and ultimately, lead to more satisfied external customers. The most important KPI to measure in this regard is the following:

  • % Customer satisfaction: Measures the level of satisfaction exhibited by the team’s customers (current employees, distributors, vendors, departments, or external clients), towards the inter-functional services provided, be it communication, productivity and/or responsiveness.

Employee retention within the team: A low retention level or a high turnover level is usually connected with low levels of efficiency and productivity, which in the end can lead to a negative impact on an organization’s overall results.

This aspect can be influenced not just by the team performance, but also by the HR department’s performance, the working environment and work policies, the supervisor, as well as the promotion and professional development opportunities for the future. However, high level of employee turnover within a specific team could indicate team-related problems. The most important employee retention KPIs to measure are the following:

  • % Employee turnover: Measures the rate at which employees leave the team in a given time period (e.g., month, quarter, year).
  • % Employee retention rate: Measures the total number of employees retained at the end of the reporting period, expressed as a percentage from the total number of employees that were in the team at the start.

Employee satisfaction: Studies suggest a direct correlation between employee satisfaction, employee engagement and increased performance. Employee engagement can be increased through various company efforts, such as facilitating the development of skills for its employees, giving them a sense of trust and integrity, and clarifying their opportunities for future career development. The most important indicators to take into consideration, when looking to improve or maintain employee satisfaction, are the following:

  • % Employee satisfaction: Measures the employees’ satisfaction and motivation level, with aspects regarding their job and working environment: job responsibilities, team and management, workplace, and professional development.
  • # Employee Engagement Index: Measures the engagement level of employees in their work activities and responsibilities, in terms of enthusiasm, commitment and discretionary effort.

Productivity of individuals: Productivity of individuals is a key element of team performance. The following KPIs help measure a team’s contribution to the organizational goals, and the contribution of its members to the general team results:

  • $ Profit per employee: Measures the team’s contribution to the overall profit pool. It is a particularly important ratio in customer-focused businesses, such as those in the service sector.
  • $ Sales per employee: Measures a team member’s productivity and efficiency in generating sales.
  • % Human Capital Return on Investment (ROI): Measures the return on investing in a team’s human capital, after adjusting for the cost of financial capital.
  • $ Human capital value added: Measures the value added through productive activities, by a team’s members. Reflects the adjusted operating profitability figure, calculated by subtracting all expenses except for labor expenses, from revenue, and dividing the adjusted profit figure by the total headcount.

OKRs or KPIs?

In some specific cases, where the productivity of a team is not directly linked to the organizational revenue or profit (ex. support teams), it is more advisable to use OKRs (Objectives and Key Results), instead of KPIs (Key performance indicators), to measure productivity. OKRs contain a well-defined objective and one or more key results. OKRs help define how to achieve a goal through concrete, measurable actions. So, in case of the support teams, these results should be measured to track team performance, as they will be able to paint a more accurate picture of their efforts.

Conclusion

It is a complex process to measure team performance; therefore, it should be analyzed from numerous angles, according to each team’s specialization and workload. It should be noted that the aforementioned indicators are not the only ones which can portray a group’s results. However, if you are looking for a quick introduction into this topic, these KPIs will serve as a sustainable foundation on which you can build your employee management system.

Find out more about the team and employee performance measurement from our Certified Employee Performance Management course  or learn more about the OKRs from our Certified OKR Professional course.

Management techniques: modern methods explained

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management methods  

In most cases, in small businesses within the service sector, the lack of managerial education of entrepreneurs negatively impacts the quality of the entire managerial process.

This is one of the reasons for employing modern methods of management in small companies from the third sector, in order to obtain qualitative management, even though in some specialty researches, these methods are recommended only for managers of large enterprises or businesses.

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