How Best Practices in HR Performance Management are Bending the Market
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By Micah Fairchild
Better, Faster, Stronger: Is This the Year of the Employee Appraisal?
You know the drill. Once a year, you shuffle into the boss' office to have your annual performance appraisal. Will it be positive or negative this year? Will this take as long as it did last year? Why do we even go through this pointless exercise? The list of questions goes on and on, and unfortunately you're not alone in those thoughts. According to a SuccessFactors study, nearly 75% of all participants were only partially satisfied with their companies' performance appraisal process and 60% of employees said "reviews don't do anything to help their future performance". These sad statistics are due in large part to the fact that performance appraisals have come to be little more than an exercise in paper-pushing and a gargantuan waste of time and resources (human resources and otherwise).
Given this state of performance appraisals (and the fairly well-documented disdain most employees have for them), it may come as surprise to know that automated performance management systems appear to be moving into their prime. Indeed, according to Tom Keebler of Towers Watson, "the need for robust talent and performance management programs and enabling technologies has never been greater"; and a recent study by Towers Watson indicates that of the organizations (400+) included, 41% listed talent/performance systems as one of the top issues on their organizations' radars. Further, a 2011 study by Gartner (Magic Quadrant for Employee Performance Management Software) provides additional evidence of this, noting that even in a recessive economy, "some vendors grew their [Employee Performance Management (EPM)] software revenue more than 25%".
Is Performance Management suffering from a Public Relations problem?
In large part, the attitude disparity we see here is directly derived from the influences of best practices in performance management that organizational leadership sees. As the latest CedarCrestone HR System Survey shows, significant and increased attention (up 35% since 2009) is being given to "attracting, engaging, and retaining employees with critical skills and competencies". This means having consistent, clear, and relevant feedback that drives performance while aligning the employee with the organization (in both goals and commitment). While the economy might have forced companies to compartmentalize these best practices for a time, new centered focus is on moving towards solutions that aren't just about going through the motions. "Performance appraisal [and] assessment solutions can [aid in this]", says Gartner's Jeff Freyermuth.
But this isn't just the old school paper-based forms adapted to work on-line. Rather, companies that are buying into the EPM implementation swing are seeking out tools for their managers, employees, and HR professionals; tools that aid in the management of learning, development, career management, compensation, and succession—all of which are a far cry from the dreaded time-waster described in the first paragraph. Says Keebler, "Companies [are viewing] talent and performance management technologies as a critical component of their workforce attraction and retention initiatives".
Major Players in the Employee Evaluation Software Market
Due to the fact that the software that guides employee appraisals is Employee Performance Management (which is often in turn guided by broader Talent Management) the major players in this market tend to be those with integrated solutions. Gartner's 2011 research identified six companies as market leaders.
Halogen Software: Offered through multiple delivery channels, including hosted and on-premises. Relatively inexpensive and easy to use, the fundamentals (especially for performance management) are particularly strong, but compensation management above simple tasks will be tough.
StepStone Solutions: Offered via perpetual license or Software as a Service (SaaS). Best-in-Class performance management software functionality, but currently geared more towards European markets.
SuccessFactors: Offered through the SaaS model. Best-in-Class performance management with well-configured integration for compensation management, but like others falls short when faced with complex compensation issues.
Taleo: Also offered through the SaaS model. The broadest solution base of these leaders, has Best-in-Class Compensation Management, but both compensation and performance management solutions are relatively new to the market.
Plateau: Offered through on-premises installation or SaaS. Even though associated more with learning management, performance management and compensation management both show strong functionality.
Cornerstone OnDemand: Offered exclusively through the SaaS model. Best-in-Class performance management, but full integration for talent management may not materialize given the newer compensation management module.
Regarding the adoption of Employee Performance Management software solutions, the field is pretty much wide open. As seen from those vendors just mentioned, companies can select from an increasingly wide array of appraisal applications and vendors—from best of breed SaaS solutions to those performance systems integrated with ERP applications. In fact, several dozen companies now have some type of performance product on the market and "There are so many products and price points available, [that]…there aren't many organizations [whose leaders] say they can't afford the software or can't find one that meets their needs", says Mercer's Colleen O'Neil. That being said, Gartner's Hype Cycle analysis indicates that the greatest "bang for your buck" is integration with other talent management system pieces. Indeed, performance appraisals even as well-intentioned as they may be, should still be only a part of a larger HR strategy. As with so many other Human Resource initiatives, performance appraisals are simply a mechanism to match up employee and organizational goals. As such, take heed says Gartner's James Holincheck, "Without the right goals, objectives, or […] competencies defined […], then you will not achieve desired business outcomes".