Firms in the United States are targeting 4.9 percent growth in 2011, and a new study from Hay Group finds they're going to demand an increase in work force productivity to meet that goal.

The study, released Tuesday, reports global growth goals in most cases, outstrip International Monetary Fund (IMF) local economic forecasts for GDP growth. The U.S. growth target is well above the U.S. economic growth forecast of 2.8 percent reported in the latest figures released by the IMF.

“U.S. business leaders face a significant challenge as they work to achieve aggressive growth targets with a workforce that is already stretched thin,” said Katie Lemaire, vice president at Hay Group. “To fully harness the power of their employees, executives need to take a fresh look at how performance is really managed to ensure people are enabled to drive organizational performance.”

Hay Group's study is based on research among 1,660 senior decision-makers in large firms across more than 30 countries worldwide. In the U.S., 250 senior decision-makers participated in Hay Group’s research.

The performance challenge

A strong majority of U.S. business leaders – two-thirds (66 percent) – admit their growth targets present a challenge. To achieve these growth targets, U.S. business leaders say they need to increase productivity by 6 percent on average, with the majority (69 percent) intending to ask even more from their workforces.

Meanwhile, more than half (54 percent) fear their employees are already too stretched to deliver current business objectives.

“In response to the economic downturn, U.S. business leaders focused solidly on controlling costs,” added Lemaire. “Now, as they look to improve business results and get more discretionary effort from their people, it’s time for them to shift their focus to performance management.”

Spotlight on performance

U.S. business leaders understand that improving individual performance is critical to achieving their growth targets. The majority (68 percent) plan to implement more rigorous individual performance management this year.

More than two-thirds (68 percent) of U.S. business leaders agree that individual performance management is an important driver of overall business performance. And more than half (56 percent) believe it makes a difference to the bottom line.

Performance mismanagement

However, most companies don’t practice what they preach – less than a quarter of firms align their performance management system to company strategy (13 percent).

At the same time, while the majority of U.S. business leaders (93 percent) stress that culture has an important influence on the effectiveness of performance management, only a quarter (27 percent) of firms align their performance management strategy to company culture and values.

And despite this clear misalignment in performance management programs, 27 percent of business leaders admit to spending 10 percent or less of their time managing poor performance.

“Businesses that want to improve performance management don’t need to throw out their existing systems,” added Lemaire. “Rather, they need to think about how to enhance their current system by having leaders provide more direction and clarity, so that employees know how their efforts tie into the broader strategy and impact results. It’s also critical that leaders create a culture of dialogue throughout the year, rather than relying on a once-a-year conversation about performance. However, the power of an organization’s culture as a whole should not be underestimated.”

Nearly two in five U.S. business leaders believe managers in their firms fail to use their performance management process effectively (36 percent) and do not actively support the performance management process (40 percent). Almost a quarter describe their process as a ‘tick-box exercise’ (23 percent).

“Most organizations view performance management as a process for controlling compensation. Leading organizations treat it as a management process that empowers employees to drive performance and creates discretionary effort.”

Instant Insights /

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