MAKING KRAs DELIVER KEY RESULTS FOR YOUR ORGANIZATION Valforma Technology Services Valforma Technology Services Homepage: http://valforma.com Email: [email protected] 1 Whitepaper Making KRAs Deliver Key Results For Your Organization Abstract It’s appraisal time. Sam, a loyal employee, albeit an average performer at office, is confident that like in the last five years, he will be rated as “Meets Expectations” and receive his usual 10 percent pay hike. Sam has, after all met all the KRAs set for him. But the new manager who has joined in this year has a surprise in store for him – no pay scale revision. But he’s met all his KRAs, argues Sam. KRAs and compensation are not related, says his new manager. Should compensation revision be linked to KRAs? Or is Sam’s new manager right in his approach? Isn’t it natural that Sam is flustered and demotivated? Hasn’t this happened in your organization at some point in time? Key Result Areas (KRAs) are one of the fundamental building blocks of the employee goal setting and performance review process in an organization. But KRAs can easily turn into sources of employee discontentment and disenchantment. In this white paper, we discuss the challenges with setting KRAs and the impact of having a faulty KRA framework in an organization. We also introduce the Valforma framework for KRA management that has helped several organizations optimize their KRA framework and use them effectively to maintain a competitive and motivated team. Valforma Technology Services 2 Whitepaper Making KRAs Deliver Key Results For Your Organization Contents Abstract .................................................................................................................................................................. 2 The KRA Conundrum .............................................................................................................................................. 4 What makes KRAs so unpopular? ................................................................................................................... 4 Subjectivity ........................................................................................................................................... 4 KRAs and appraisal; appraisal and compensation ................................................................................ 4 Measurability ........................................................................................................................................ 5 Frequency ............................................................................................................................................. 5 Impact on your organization ........................................................................................................................... 5 Optimizing Organizational KRAs: The Valforma Way ............................................................................................. 5 Ensure alignment with organizational goals ................................................................................................... 5 Maintain objectivity ........................................................................................................................................ 6 Make them measurable .................................................................................................................................. 6 Retain fluidity .................................................................................................................................................. 6 Disassociate evaluation from compensation .................................................................................................. 6 About Valforma ...................................................................................................................................................... 8 Valforma Technology Services 3 Whitepaper Making KRAs Deliver Key Results For Your Organization meant to be a collaborative effort between the The KRA Conundrum manager and the individual team member, more KRAs, or key result areas, are the primary often than not, goal setting is a one-­‐way-­‐street responsibilities, general outcomes, or goals that with the employee receiving KRAs as a direct an employee is accountable for. KRAs are used to diktat from the manager. Such KRAs tend to be measure subjective and do not have the buy-­‐in of the the performance of employees periodically -­‐ an employee who achieves all KRAs concerned employee. is a deemed to have fulfilled her primary KRAs responsibilities towards the organization. KRAs are compensation therefore considered an integral part of Most organizations link KRAs with their (semi-­‐
performance measurement and hence career annual or annual) appraisal process, and hence progression for an employee. employee compensation. However, this direct link What makes KRAs so unpopular? KRAs are undoubtedly useful for providing visibility into what an employee is expected to do at work. These clearly stated goals and responsibilities help managers evaluate the and appraisal; yet, KRAs are often a sticky subject in organizations. and has an adverse impact on the importance and effectiveness of KRAs. KRAs lose their importance as the guidelines for the tasks assigned to employees. For example, by applying KRAs as the only parameter performance of their team members. And appraisal to determine MERCER'S GLOBAL PERFORMANCE MANAGEMENT SURVEY 2013 STATES THAT 89% OF RESPONDENTS SAY THAT THEY "LINK PERFORMANCE AND PAY DECISIONS." Employees don’t like compensation, both average high performers and who “achieved their KRAs” them, managers have a hard time setting them, become eligible for a raise. This can undermine and the HR has an even harder time managing the value and motivation of key performers who them at the organizational level. show promise beyond the KRAs set for them. Subjectivity The bell curve effect KRAs are linked to tasks that employees must The effectiveness of a good KRA process is further perform, be they repetitive or one-­‐time activities. diluted in organizations that follow relative KRAs may be time bound, result oriented, effort measurement techniques of appraisal such as the oriented or a combination of the three. Although bell curve. While the KRAs are set according to the Valforma Technology Services 4 Whitepaper Making KRAs Deliver Key Results For Your Organization tasks and the role of the employee, the artificial “banding” of team members to “fit” the bell curve skews the performance indicators. So, even if an employee meets, even exceeds, all her KRAs, she may not get the expected appraisal in relative terms, leading to discontent. KRAs are, in a sense, double-­‐edged swords. While they are undoubtedly necessary as a benchmark for evaluating performance, they can also be a cause for major discontent among your people. An evaluating KRAs can lead to the following: KRAs often tend to be difficult to measure. Take for example, common KRAs such as “Send a daily report” Impact on your organization ineffective process for setting, rolling out, and Measurability earning and “Ensure customer satisfaction”. While the former is easily measurable, the latter is not. Customer satisfaction is by nature very difficult to measure; and the yardstick by which the employee and the manager “measure” this KRA can vary drastically. •
Employee disengagement; lower morale; lower productivity •
Inefficient employee retention leading to inefficient team structures •
Favouritism and bureaucracy leading to unhealthy corporate culture. This leads to subjectivity in evaluating the KRA. Optimizing Frequency KRAs: The Valforma Way In most organizations, KRA-­‐setting is an annual, or at best, a bi-­‐annual affair closely linked to the appraisal cycle. So, for example, a KRA to “Complete the Excellence Examination conducted in August” would be evaluated only Organizational The key to making KRAs effective and, more importantly, reducing the potential downsides, is to approach the entire process scientifically and systematically. in say the month of December when the Ensure alignment with organizational appraisals begin. In the event of an employee goals not meeting this KRA, the non-­‐compliance is likely to go unnoticed for about four months! Depending on the criticality of the KRA in question, the adverse impact of such non-­‐
compliance may be significant. In order to be effective, KRAs must be derived scientifically. KRAs must cascade from the organization’s goals. So, the KRAs of the management team cascades into KRAs for the next level of hierarchy, and so on, to ensure that the entire organization is working towards a common strategic objective. Valforma Technology Services 5 Whitepaper Making KRAs Deliver Key Results For Your Organization Maintain objectivity Retain fluidity KRAs must be objective and leave little room for KRAs must not be constrained by time. Not only subjectivity or interpretation. As a manager, you must it be possible to measure your KRAs on any must spell out KRAs in as clear terms as possible given day during the year, but you must also be with a clearly defined action item associated with able to revisit, tweak, or completely change KRAs them. Invest some time in explaining the KRAs to anytime during the year. Taking our “Complete your people. Your employee must completely the Excellence Examination conducted in August” understand, accept, and own responsibility for the example further, you must be able to evaluate KRAs being assigned to him. whether this KRA has been met at the end of Make them measurable As a corollary to objectivity, KRAs must be August and immediately replace this KRA with the next appropriate goal; perhaps, the next level of the examination due in the month of November. measurable. It is important to define a unit of measurement and then set the value that Disassociate determines whether the KRA is met. In the compensation “Ensure Customer Satisfaction” KRA example we mentioned earlier, you could set the unit of measurement as the “number of customer complaints received during the month’ and then set the acceptable value for this unit of measurement to two. So, if the number of customer complaints during the month is less than two, the KRA is deemed to have been met. Valforma Technology Services evaluation from KRAs must only be used as a benchmark for performance, not compensation. It is best to disassociate performance evaluation with compensation reviews. After all, compensation reviews are influenced by many other factors such as the bell curve fitment, organizational performance, future goals and outlook of the 6 Whitepaper Making KRAs Deliver Key Results For Your Organization company, etc. Again, compensation reviews may your KRA framework. Talk to Valforma’s Human be scheduled only once or twice during the year, Capital Management team, and we can work but KRA reviews must be an on-­‐going process. together to put together a KRA framework that There are many more specific and subtle aspects to be taken into consideration while optimizing can deliver the key organizational results you expect. Valforma Technology Services 7 Whitepaper Making KRAs Deliver Key Results For Your Organization About Valforma Valforma is transforming the way organizations think about creating value, unlocking their true potential, and adopting change that will put them firmly on the path to success in the future. Through our suite of complementary services ranging from management consulting, human capital management, technical architecture, solution development, and outsourcing-­‐as-­‐a-­‐service, we empower our customers to strategize, drive, and realize transformational change. Valforma is founded and led by a multi-­‐disciplinary team of professionals with over 100 man-­‐years of experience to their credit. We’re here to deliver Value and drive Transformation. Find out more about us at www.valforma.com. Valforma Technology Services 8