Choosing the right employee performance-management software for your organization has only grown more complicated in recent years.
Although employee performance-management solutions have been on the market for nearly 15 years, never before have human resource professionals been confronted with such a wide array of applications.
Spending on performance-management software -- one of the fastest-growing segments of the human-capital management software market -- reached $730 million last year, according to AMR Research in Boston, and is expected to grow at an annual rate of 10 percent over the next five years.
In fact, an AMR Research study found that when it comes to HR systems, performance management ranks as the second-highest strategic investment behind core HR, which encompasses payroll and benefits management (see chart on page 31).
Driving this unprecedented demand for performance-management tools are factors such as Sarbanes-Oxley and globalization. These days, companies are searching for new ways to keep tabs on compliance, employee productivity, business performance and workforce competencies across the enterprise.
But while performance-management solutions promise to help HR professionals achieve these goals, the challenge of making sense of today's offerings can be overwhelming.
For starters, HR professionals must decide whether to purchase a solution from a core HR provider or a niche vendor. Core HR providers such as Oracle and SAP deliver out-of-the-box, enterprisewide applications that are easy to integrate. Niche vendors such as Synygy and MindSolve, on the other hand, typically narrow their focus to a particular end-user functionality.
Other vendors have broadened their footprint through consolidation: Last year alone, Workscape acquired Performaworks while Authoria gobbled up Advanced Information Management. The result is an ever-evolving and confusing software landscape.
"There's just so much noise in the marketplace that a lot of buyers are having trouble really understanding what the true value proposition [of a performance-management solution] is to a company," says Troy Kanter, president of human-capital management at Kenexa, a Wayne, Pa.-based company whose CareerTracker application supports goal and competency management, as well as leadership development.
Further complicating matters is the fact that there isn't any single definition for performance management. Fortunately, according to a June 2004 Gartner study, Employee Performance-Management Software MarketScope, there are common functionalities among today's solutions. These include goal management, competency management, appraisal management and assessment management.
However, overlapping capabilities aren't enough to help HR professionals decide which solution is the right fit for their organization. Promises of one-size-fits-all solutions and easy-to-implement tools may be enticing, but Patrick Shannon, a principal at Mercer Human Resource Consulting in New York, says finding the best solution often entails discovering "what's best for your own company."
"You really have to look at . . . what you're trying to achieve to find the best software product," says Shannon. For this reason, he recommends taking an in-depth look at the performance-management solutions competitors are using and the benefits -- and pitfalls -- they've encountered along the way.
He also suggests following "a design team approach" to selecting a vendor by including executives and managers from other corporate departments in the solution-assessment process.
All For One
Paul Schmitt wasn't afraid to take a bite out of the vendor-selection process. Schmitt is the vice president of organizational effectiveness at Petco, a San Diego, Calif.-based pet-supplies retailer.
For years, the company's performance-management processes amounted to little more than an "annual performance appraisal that was basically dusted off once a year." But while Schmitt was desperate to automate Petco's performance-management process, he didn't think choosing a vendor should fall squarely on the shoulders of HR.
"While [HR professionals] may be experts in crafting a performance appraisal, we're not the sole experts in how to deliver a performance appraisal, how best to use the technology or how best to use the processes in the real-world environment of a Petco store," says Schmitt.
So Schmitt formed a steering committee comprised of Petco's senior-level executives from departments including information systems, operations, communications, marketing, training and HR.
Schmitt believed that by pooling resources, knowledge and expertise, the steering committee would be able to select a vendor that best reflected the entire enterprise's needs, rather than those of a single department.
Over the course of six months, this cross-functional team gathered monthly to develop performance-management best practices, determine what metrics should be used to measure employee performance and review request-for-proposal applications submitted by a total of 12 vendors.
Following this, the steering committee conducted face-to-face meetings with its top three choices before eventually selecting Kenexa.
Petco rolled out Kenexa's CareerTracker in January of this year. Today, the company performs annual performance appraisals, as well as quarterly updates to ensure that employees are on target for meeting performance-improvement milestones -- a feat that Schmitt says would not have been possible without the steering committee's input and expertise.
Deborah Fuller adopted a vastly different approach to selecting a vendor. Rather than rely on the guidance of a steering committee, Fuller, the director of corporate training and development at Scholastic, a New York-based publisher and distributor of children's books, crafted strict criteria by which to carefully assess vendors.
She began by examining how long a vendor had been offering performance-management solutions, the vendor's business focus and how easily Scholastic could work with the vendor.
After narrowing down her choices to three providers, Fuller met with each of them to receive an in-depth product demonstration. During these presentations, Fuller looked at technological factors such as user-friendliness, the solution's ability to accommodate career-development planning and remote-access functionality for mobile workers.
However, it was the promise of leveraging sophisticated technology without consuming precious IT resources that ultimately convinced Fuller to choose a performance-appraisal solution from Gainesville, Fla.'s MindSolve.
Through its Web-hosted service, MindSolve's application software resides on its own servers and is accessed by users through a Web browser using HTML. The perks of a hosted solution for a company such as Scholastic is a rapid implementation process, lower costs and built-in IT support.
"[Implementation] was such a huge undertaking, it was important for us to know that we wouldn't have any technical difficulties and that it was all on [MindSolve's] shoulders," says Fuller, noting that Scholastic's relatively small HRIS team would never have been able to take on a task as "huge" as an enterprisewide deployment of an employee performance-management system.
Know Your Limits
Taking inventory of a company's internal resources -- and not just a solution's key features -- is fast becoming a critical approach to vendor selection. Given the complexity of today's performance-management solutions, many companies simply can't afford to ignore their own technological limitations.
"As customers are looking at solutions and evaluating which to pick, they really need to be thinking about their own internal infrastructure -- how much IT staff they have to dedicate to implementing a whole new application," says Stacey Epstein, senior director of marketing communications at SuccessFactors, a provider of performance-management solutions based in San Mateo, Calif.
In an effort to maximize internal IT investments, a growing number of businesses are selecting vendors based on existing relationships. In 2001, Motoman, a custom robotic solution provider in West Carrollton, Ohio, turned to Norcross, Ga.-based Employease for its open enrollment and record-keeping solutions.
At the time, according to Deonda Myers, Motoman's HR director, Employease wasn't offering a performance-management solution. As a result, the company spent years relying on Excel spreadsheets and a chaotic, anniversary-based review schedule to track employee performance.
"We would have to gather all the paperwork manually, enter the information manually and get that information over to payroll, so it took a lot of time," says Myers.
That is, until Employease released a performance-management module, which Motoman promptly deployed in early 2003. Confident that this new solution would easily and cost-effectively integrate with Motoman's existing Employease applications,
Myers admits she didn't even bother to research other vendors' solutions. In fact, she says companies that take a "piecemeal" approach to developing a performance-management system are likely "to end up with several different software solutions and that's not the way to integrate."
Not all companies, however, have the luxury of being able to select from a wide array of vendors. Capital One Financial Corp. is a prime example. In 2003, the McLean, Va.-based financial-services company began searching for a performance-management vendor.
The nine-month process was cut short, however, by the realization that very few solutions would actually accommodate Capital One's size and growth potential.
"There are only two or three solutions out there that make sense for large enterprises like Capital One," says Matt Schuyler, Capital One's vice president of HR. "PeopleSoft provided the most flexibility and was able to be adaptable to where we were heading."
With nearly 15,000 employees, Capital One has evolved from a credit card issuer to a $10 billion-dollar-a-year financial-services company offering mortgage services, auto financing, credit insurance and other consumer-lending products.
At the core of Capital One's growth is a healthy appetite for acquisition -- the most recent conquest being an arrangement to buy New Orleans-based regional bank Hibernia. Most companies would be hard-pressed to find a performance-management solution capable of keeping up with Capital One's staggering expansion.
However, by rolling out customizable performance-management applications from PeopleSoft (now Oracle) in December 2004, Schuyler says Capital One has been able to easily add new employees to the system and take advantage of additional functionality.
When it came time for Ruth Bramson to search for a performance-management solution, developing employees -- not empires -- was at the top of her list of criteria.
For this reason, Bramson, chief HR officer for the Commonwealth of Massachusetts, was keen on finding a tool that allowed for cascading goals. SuccessFactors' technology proved to be the ideal system. The technology allows the Commonwealth to align its managers' goals with the overall goals of the administration.
For example, using SuccessFactors' Total Goal Management tool, a chief financial officer can set the goal of reducing the cost of workforce management. The CFO can then electronically cascade this goal into the director of labor relation's employee-appraisal form so that his or her objective is now to contain the cost of new union contracts.
This goal is then further tweaked so that a regional director's objective is to cut a police force's overtime expenses. By being able to "tweak goals so that they are specifically relevant to an employee's area," Bramson says, SuccessFactors' technology has helped employees gain a holistic view of the organization.
"If people can see where they fit into the whole picture, they're much more likely to be excited about what they're doing and to see how their piece of the action really is important," says Bramson.
Just as no two companies are the same, there is no single criterion to determine whether a particular solution is best suited to an organization. From steering committees to cascading goals, today's companies are taking a variety of approaches to the vendor-selection process.
What holds true for all companies, however, is that now is the time to begin the search for a performance-management solution.
Says Capital One's Schuyler: "Companies have the opportunity to play generational leapfrog. A lot of the mistakes of the past have been corrected in the tools of the present."