Staff motivation. The struggle for efficiency. Time to act!
Crisis, whether internal or external, forces people to learn and companies to change. As long as the company is profitable and there is no hint of problems, the owner and director are unlikely to be ready for major changes.
Low efficiency in business (like a hidden disease), is dangerous because in times of crisis it threatens not only sustainability, but the very existence of the company. In addition, few people like to harden themselves, take vaccinations and apply preventive measures. The first thing that comes to mind during an ailment is to “take an aspirin” (for the company - to abandon investment projects, cut advertising and some employees) to remove the symptoms, often without solving the underlying problems of the business. The logic of point, urgent measures during the acute phase of the crisis seems quite justified. However, “symptomatic treatment” leads to the fact that when the need for deep, structural changes becomes obvious to everyone, the company has neither the resources nor the time to make serious changes.
The most difficult thing, in my opinion, in management is orientation to the needs of the market (read - customer) and motivation of personnel. How many copies have been broken in the search for an ideal motivation system, how many articles have been written, but the efficiency of personnel in Russia is still one of the lowest in the world. Management guru Peter Drucker in his book “Management Challenges in the XXI Century” predicts a breakthrough in the efficiency of human labor, which will lead to a multiple reduction in the number of workers with an increase in the efficiency of the enterprise. The economic crisis requires effective management, but few companies in Russia can boast of solving this task. Before the crisis, the growth of salary expectations was much faster than the growth of employee output. The economic crisis has cooled the overheated labor market, and this is the time to turn to the experience of Western colleagues in terms of improving the efficiency of your company.
The first thing that comes to a manager's mind during the crisis is to optimize the cost of the payroll, i.e. cut back, furlough, lay off. But, if you think about it, the main value in business is created by people, their knowledge, skills and talents. The competitiveness of an enterprise is determined by its employees. And it is the most highly paid (“expensive”) employees who create the most value, and it is hardly possible to save a lot on low-paid employees. It is wrong to believe that talented and efficient specialists will not be able to find a use for themselves in the changing environment. They are probably the quickest to adapt and achieve personal success in new situations. Those companies that can quickly adjust to the new crisis conditions will be able to hire highly qualified personnel who have entered the labor market as a result of the downsizing boom. And with skillful leadership, talented employees will undoubtedly lead the company to market leadership. So, if you choose a leadership strategy in a crisis situation, then you need to make a confident step towards business change and improving the effectiveness of your existing staff.
The relationship between strategy and company performance
The success and effectiveness of a company is determined by how quickly and with what resources the company achieves its strategic goals. The system of motivation in the organization must be built with a focus on the strategic goals that face the business, otherwise it can only bring damage to the integrity and sustainability of the enterprise. In a crisis situation, the fundamentals of strategy - the organization's mission, strategic vision - are unlikely to undergo a major adjustment, while strategic goals will most likely have to be revised. Depending on what business opportunities and threats the management sees in the crisis, it is necessary to identify possible scenarios for the development of the economic situation at the enterprise, and then to form new business goals. Schematically, the relationship between the elements of a formalized strategy can be represented as follows (based on the ideas of D. Norton and R. Kaplan in terms of building a balanced scorecard):
Figure 1 Elements of the formalized strategy of an enterprise
In this article we will consider the last two elements of strategy implementation - the choice of organizational performance indicators and actions to achieve goals. And we are interested in how, using a formalized approach to strategy implementation, to achieve an increase in the efficiency of both the staff and the work of the enterprise as a whole.
How attractive for a manager does the proposal to increase business efficiency by 10-30% in a fairly short period of time look? I suggest making a small calculation. In different industries, labor costs vary from 20% to 60% of total costs. These costs remain one of the largest in the budget of almost any enterprise involved in the real economy. How much can the profit of the enterprise grow (even in a crisis), if the efficiency of your employees will increase by 1.5-2 times (with the same labor costs, the output will increase by 50-100%). It is hard to imagine a more accessible resource with a great potential of return at the disposal of a manager. Nevertheless, it is much more difficult to manage personnel efficiency than to manage financial efficiency.
High efficiency of personnel at an enterprise is often the result of long-term work of the company's management to create an atmosphere of effective and productive labor at the enterprise. The key point in this is the motivation system existing at the enterprise. Such a system includes both material incentives and elements of non-material encouragement. Moreover, in conditions of high competition for labor resources, the latter may come to the fore. Nevertheless, wages traditionally carry the key stimulating effect, and the motivational mechanism of wages is of decisive importance. In the employee's mind, wages are psychologically associated with the recognition of his authority at the enterprise, indirectly determines his social status, affects job satisfaction and personal motivation. Through salary an employee can evaluate his own production results in comparison with his colleagues. That is why it is necessary to pay serious attention to the mechanisms of material motivation when building a motivation system at the enterprise.
Every manager at least once in his life solves for himself the problem of improving the efficiency of employees. If the company has been working in the market for a long time, it usually has its own little know-how in the field of material motivation of personnel. But motivational schemes are often limited to sales divisions, and all others, at best, receive bonuses by subjective decision of the head. But such evaluation at high workload of top managers is unlikely to be adequate and, most importantly, regular. We can effectively manage only what we can reliably measure. Accordingly, the first thing to do is to find an adequate assessment, a coordinate system for motivational schemes. It is impossible to do without purely objective indicators when building a motivation system (sales, profit, customer satisfaction) or only subjective ones (compliance with corporate standards, customer focus, discipline). Such a system of coordinates should include the most significant aspects for the business.
Building a strategy-oriented motivation system
It is important for a manager at any level to be able to link business goals with labor motivation. In this case, the material motivation system will be the mechanism that will help the manager to highlight and celebrate the employee's successes, directing his/her efforts towards achieving the business goals.
If we consider the mechanism of material motivation as an element of recognition of work results, then it is necessary to abandon the idea of equalizing the remuneration of employees with different qualifications and productivity. This approach leads to demotivation and reduces initiative. The system of material motivation should include both the fixed (salary) part of labor remuneration and the non-fixed part, the amount of which will be determined by the production results. It is important that this connection remains obvious not only to the manager, but also to the employee, otherwise a non-transparent approach in the distribution of bonuses based on the results of work will cause dissatisfaction in the team instead of productivity growth.
Motivation issues, especially material ones, are the most painful. If the manager decides to change the payment system, it is highly probable that he will face resistance and misunderstanding of the staff. It is likely that during a crisis it will be easier for the management to argue the need to restructure the payroll system than during a period of stability or rapid growth. In addition, the manager needs to explain the reasons for the changes and the goals of the new payroll system. A motivation system based on goals is a system of managing personnel expectations. And the task of management is to make sure that these expectations are positive. Employees should be oriented to receive a financial bonus for high performance.
The fixed part of labor remuneration (salary) is often determined by the employee's qualification level, length of service, his/her production potential, while the non-fixed part (bonus) is determined by the performance in work.
To create a system of coordinates for calculating the financial bonus, it is convenient to use three basic indicators describing the performance of personnel:
Indicators based on objective data (KPI - for example, volume or income from sales, number of customers, defect rate),
Indicators based on subjective data (discipline, customer focus, appearance);
An indicator reflecting the implementation of planned activities, fulfillment of assignments given to an employee with a predetermined result.
These indicators can be used to describe the job duties of an employee and assess the quality of their fulfillment.
The set of KPIs for employees may vary greatly depending on the set of functions performed by them. Indicators based on objective data usually have the highest weight compared to other indicators. The importance of such indicators can be changed depending on the change of priorities in the market and strategic priorities of the company itself, in this case it is necessary to simply change the weight of the indicator. Objective data for the most indicators can be easily obtained from modern automated accounting systems. They can store information on sales volumes (margin, profit) as well as other financial and non-financial information.
Performance indicators, it is necessary to choose from four main areas of the monitoring for the activities of the enterprise:
Financial performance indicators. The source for financial data, can be both accounting system and automated budget management system.
Market and customer metrics. CRM-system implemented at the enterprise can provide, data on customers as much as possible, in addition, the introduction of CRM-system itself will be a significant step in improving the efficiency of sales and marketing. Without such a system to assess the effectiveness of marketing efforts is extremely difficult.
Internal processes. Implemented quality management system in accordance with the ISO standard, involves measuring the indicators of production processes in the company. It is advisable to use them when drawing up a matrix of employee efficiency.
Employees and infrastructure. An automated personnel management system can help here. It is possible to keep records of the level of employee competencies on paper, but it will be difficult to evaluate these data in dynamics.
The choice of indicators to assess the performance of employees is a creative task, but when defining a set of such indicators, it is necessary to be guided by the formalized strategy and the composition of organizational goals set within it.
A separate element in the employee performance appraisal system is his/her fulfillment of assignments and tasks set by the management. Such tasks are formulated within the framework of existing goals, but have their own significance. It is important to prioritize these tasks and set criteria for their performance. At the end of the working period, the employee responsible for monitoring the fulfillment of tasks indicates which of them have been accomplished and which have not been achieved. Taking into account the weight and number of completed tasks, the final indicator is calculated, which affects the overall performance of the employee.
The third group of criteria on the basis of which the employee's performance is evaluated are subjective criteria: compliance with procedural restrictions and periodic procedures, as well as compliance of his/her work with the expectations of “internal customers”. We will call such subjective assessments procedural or corporate standards. To unambiguously understand the requirements for employees to meet such standards, management needs to describe these requirements and the criteria for evaluating against them in detail.
All three groups of indicators are combined into a single matrix through which the performance of each employee is planned and evaluated.
Use of automated tools in performance management
On the one hand, a serious task in the formation of the motivation system is the correct choice of performance indicators, and on the other hand, it is necessary to ensure that all indicators are kept up to date over a long period of time. This is extremely difficult to achieve without an automated system. Without automation, we will have to use only those indicators that we can calculate manually or replace objective data with subjective evaluation, which is often unacceptable for an incentive system. For example, instead of constantly evaluating customer satisfaction by several criteria (e.g., satisfaction with the product, service, salesperson's skill level) and saving this data for further analysis, we can replace it with a subjective assessment of the manager of the degree of “customer focus” of the salesperson. But the personnel's trust in the motivation system built on the subjective assessments of the management will be low. In any case, in order to find the correct indicators for evaluating the efficiency of an employee, one cannot do without a large sample of data. Sometimes it is very convenient to take several periods of work in retrospect and calculate what efficiency the employee had during this period to check the correctness of the composition of indicators. Another argument in favor of an automated system is that it ensures regularity of data collection and analysis. It is very important that evaluations, tracking of indicators and accounting of task fulfillment are made with a predetermined frequency, otherwise “forgetfulness” of the staff can bury any ambitious plans of the management. The inevitability of summarizing results should become part of the operational practice of the employee and the manager. It is difficult to do this without an automated system. For this purpose it would be necessary to allocate a whole group of employees responsible for the collection of indicators their storage and analysis, but here without delays and the human factor can not do without. Therefore, the only right way is to automate the collection and storage of indicators, accounting of subjective evaluations and calculation of the bonus itself.
Let's consider how this system can be applied in practice. Below is the organizational structure of the enterprise:
Figure 2: Automated system of management by objectives
Building this organizational structure is an important element of the system implementation, on the one hand, part of the information can be obtained from HR systems on hiring/firing/moving employees, if the company stores information in HR systems on the work-structure, but most often HR systems store information on the staff placement de jure, while in the program it is important to create an organizational structure de facto. According to this structure the rights of employees to the system are distributed, and moreover, this information is historical - if for example we change the structure in some period (people come and go, move within the company), then in the system this information is stored and, as a consequence, at each moment of time the actual structure of these people who occupy these positions is visible.
In the figure below you can see how you can use the automated system to collect, store and analyze indicators. In the center top part, tabbed tabs show sets of indicators with planned and actual data, and at the bottom of the screen is a list of employee tasks:
Figure 3: Sales Manager Scorecard
The most important indicators for the position get the most weight in the matrix, for example in the example above the main indicator is sales volume. In addition, the department head has S.M.A.R.T. tasks, and these tasks are separate parts of projects. Standards are highlighted as a set of indicators assessed using a subjective approach, these could be, for example, “document collection and retention performance” and “customer focus”.
After the data on the objective indicators are collected in the system, the manager or the employee to whom the relevant function is assigned puts the fact of fulfillment of each task and evaluates it according to the subjective indicators. As a total for each employee, a percentage of his/her efficiency coefficient is calculated. Based on a predetermined algorithm, the amount of the financial bonus is calculated. The condition for receiving the bonus can be, for example, the following rule: “If the efficiency is less than 60% - no bonus, if the efficiency is from 60% to 75% the bonus will be 50%, and if the efficiency is more than 95% - the employee will receive a bonus of 100%”. Here is how the matrix of efficiency and bonus size distribution for an accounting department employee can look like in an automated system:
Figure 4: Setting the algorithm for calculating the bonus
Thus, we get an objective indicator of an employee's efficiency - a coefficient calculated mathematically on the basis of planned target benchmarks that were known to the employee in advance and for which he or she was psychologically ready. This is a kind of a mini-contract that the manager concludes with his/her employees on a monthly/quarterly basis on the achievement of certain results. If the employee achieves the specified indicators, he/she will be rewarded, if there is a significant underperformance - the question of dismissal may arise. Besides, in a changing market situation, you can easily remove and add indicators, change the size of target values and the weights between them. This will allow the company to be much more dynamic and manageable. In addition, employees will closely monitor the set of indicators that will be the basis for calculating their financial bonus and build their actions to obtain the maximum result.
An important element of the motivation system at the enterprise are non-material incentives. One of such techniques is rating, with the help of which it is possible to determine the most successful and lagging employees. Having the calculated performance indicators, the manager can make a rating without much time:
Figure 5: Automated calculation of employee rating
Recommendations for implementing a management by objectives system
Thinking about the introduction of a motivation system based on the achievement of targets at the enterprise, most managers begin to doubt its viability. Alas, some of them will be right. There are several important factors that determine whether such a system will really work at the enterprise for a long time:
Support of the system from the first person of the enterprise, who determines the business strategy: the owner or top manager. Without it, this system will remain on paper at best. The will and consistency of the manager will be rewarded many times over in the form of increased business performance and improved relations between staff and management, which will appear when the system actually begins to function.
Staff readiness for change. The manager needs to objectively assess how timely organizational changes at the company will be. The crisis has put many companies in tough conditions of survival. It should be recognized that most of the staff is more willing to accept a change in the remuneration system than the prospect of losing their jobs. Therefore, with the right vector of organizational changes, it is possible to get the necessary growth of labor productivity in the existing conditions of the crisis.
Availability of a tool that will support this system in working condition. With all the wealth of choice of automation systems more affordable platform for small, medium-sized businesses than TeamPerform is difficult to find. On this platform is already implemented functionality CRM, operational accounting and budgeting, there is also a software product for the introduction of motivation system.
Staff participation in changes. It makes sense to start the implementation of the system of management by objectives with the training of managers and staff. Without training in the technology of setting goals and evaluating results, it will be impossible to convey the unconditional rationalism that is embedded in this technology. In addition, it is necessary to conduct explanatory work with employees, showing them the advantages of a result-oriented motivation system. Perhaps, of all available, this is the most humane system of motivation, which can be implemented at the enterprise without significant personnel and structural changes.The introduction of a new motivation system is not a panacea for any enterprise and the decision on the expediency of its implementation should be made by the owner or manager. But it should be recognized that improving the efficiency of personnel is a task that can bring significant returns for the business in the short term. Creation of a system of management by objectives will help managers not only to determine the priorities for the business, but also to convey to employees those tasks that are significant for the company in difficult economic conditions.
