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How You Can Align Workforce Performance with Corporate Strategy: Performance Management with mySAP HR

by Dr. Martina Schuh | SAPinsider

January 1, 2003

by Dr. Martina Schuh, SAP AG SAPinsider - 2003 (Volume 4), January (Issue 1)
 

Annual employee appraisals are just around the corner. Is this just another time-consuming formality at your enterprise where you need to justify the distribution of tight compensation budgets, long-awaited promotions, or dismissals?

Many organizations are now actively trying to divest themselves of traditional appraisal systems characterized by rigid approaches that cannot meet current business challenges. Instead, they need adaptable performance management systems that can handle sudden, strong shifts in corporate direction as well as leave room for performance planning and ongoing communication. How, for example, would you address issues related to takeovers or mergers with your current appraisal system? For some companies, the answer is, “We can’t.” And in the same breath, they’re telling us they need a system where employee evaluations can adapt to their ever-changing corporate structure and strategies.

We’re now seeing a persistent stream of interest among customers in closing the gap between corporate imperatives and employee behavior. At the executive level, successful organizations enact nimble enterprise strategies to quickly react to changing business conditions. As those strategies get pushed down the organizational hierarchy, employees are facing constantly changing tasks, shifts in responsibility, and the challenge of an increasingly complex working environment. Performance management solutions must be able to support these conditions. Appraisal systems that can set only backward-looking, rigid, long-term objectives clearly saddle organizations with a competitive disadvantage.

It is for this reason that organizations are now clamoring for flexible, strategic, and future-oriented performance management systems that allow enterprises to quickly and effectively convert organizational goals into concrete and measurable employee objectives. And this is precisely what the Objective Setting and Appraisals function of mySAP HR is designed to do:

  • It supports the organization in setting up a performance management process that integrates an enterprise’s strategic planning with measurable employee objectives, employee appraisals, and compensation planning and administration.

  • It provides a standardized process for planning reviews and performance assessment, and in so doing, saves time and money by streamlining HR processes.

In this article, I will highlight from a business perspective how the Objective Setting and Appraisals function can help enterprises achieve alignment between strategy and employee behavior. Along the way I will apprise the IT team of how this function is implemented.

When implementing the Objective Setting and Appraisals function, IT teams will find that:

  • Predefined content is ready for plug-and-play setup.
  • The solution was built to be easily tailored to the specific needs of different organizations.
  • Tight security on a variety of levels protects sensitive data.
  • The solution supports different user interfaces.
  • The solution offers the flexibility required in today’s variable working environment.

Meshing Employee Goals with Corporate Strategy

Effective performance management ensures that employee behavior and goals are aligned with the corporate strategy. Ultimately, this means that each employee actively contributes to the fulfillment of the enterprise’s business performance, so the essential prerequisite is that employees are familiar with the enterprise’s strategy. Moreover, it is common business practice to reward employees according to team and enterprise success.

This is supported in mySAP HR through its integration with SAP Strategic Enterprise Management (SAP SEM). Within the SAP SEM Corporate Performance Monitor (SEM-CPM), you can create and manage “balanced scorecards” — a strategy management approach that aligns goals with action1 (see sidebar below).

Balanced Scorecard Approach

A balanced scorecard is a strategic management system that enables you to manage a network of strategic objectives to achieve enterprise goals. A balanced scorecard not only contains tangible financial goals, but also intangible factors such as the availability of strategically important skills. It depicts a tried-and-tested strategy management method to:

  • Derive concrete goals from enterprise strategies
  • Develop strategic initiatives for the aspired-to goals, determine responsibilities, and relate goals to the budget
  • Link key performance indicators to each of the objectives to measure goal achievement

The enterprise scorecard can be cascaded through the levels of the organization, resulting in area or departmental scorecards; for instance, you can set up an HR scorecard (see Figure 1). This helps clarify the enterprise strategy for all parties involved, and can then serve as the basis for individual objective-setting agreements.

Figure 1 The HR Balanced Scorecard (Perspective Overview and Strategy Map)

Note!
The organizational structure, typically the foundation of strategy management, can be transferred from mySAP HR to SAP SEM using an ALE distribution scenario.2

Integration between SAP SEM and Objective Setting and Appraisals provides the following options:

  • Objective-setting agreements are the access point for an employee’s objectives, targets, weighting of goals, and part and final appraisals. From here, employees can link to a balanced scorecard, so that with a single mouse click, they can jump from their individual objective-setting agreement to their department’s balanced scorecard. If no scorecard is assigned to the employee’s organizational unit, the system displays the next appropriate scorecard from a higher organizational level to familiarize employees with the strategy.

  • Employee-relevant strategic objectives from the balanced scorecard can be inserted into the objective-setting agreement. These objectives form the framework for the employees’ own objectives, and help employees to relate their own objectives to departmental, area, or enterprise goals.

  • In SAP SEM, performance overviews for employees or teams can be created, containing any elements from any scorecard in the system. The result of the overview is a score, which can be used to appraise an employee’s objective automatically. This function helps to set and manage team objectives, and prevents resentment and strong competition among team members because they are all measured by their team’s success.

The Objective Setting and Appraisals function can be used for:

  • Objective-setting agreements and appraisals

  • Standard appraisals

  • 360° feedback

Objective-Setting Agreement and Appraisal

Objective-setting agreements like the one in Figure 2 are specifically designed for modern, future-oriented performance management requirements. They allow managers to:

  • Formulate and weight objectives individually

  • Use predefined common objectives

  • Include requirements from the employee’s job, position, and tasks automatically

  • Add qualifications from the qualification catalog
Figure 2 Objective-Setting Agreement (This view is from the planning status mode where, in this example, objectives can still be changed, but appraisal columns are set.)

At any time during the performance feedback cycle, managers can add, change, or delete objectives, set due dates or execution periods, and include targets such as the number of billable days. Various scales are available to rate objectives, including a point scale from 1 to 5 for evaluating competencies, and a percentage scale for evaluating achievement of measurable objectives.

Standard links within the objective-setting agreement take users of the objective-setting agreement to the employee’s qualification profile3 and the organizational unit’s balanced scorecard. Objective-setting agreements permit several independent appraisals (called part appraisals) per person within the same objective-setting agreement, including a self-appraisal and appraisals from colleagues, managers, and subordinates. Role-specific access and display rights coupled with status management support an efficient process of setting objectives, reviewing current performance, and preparing a final evaluation. Privacy features ensure that appraisers can make their personal assessment without being influenced by others’ opinions.

  • Business Add-In (BAdI) technology provides enhancement possibilities by extending standard functions, for example:

    • A bonus-relevant objective for the consulting team is to reach at least 180 billable days per employee per year. By implementing the appropriate BAdI (in this case a Value Determination), you can read the actual value automatically from the workforce resource planning system and compare it with a set target.

    • One of your manager’s objectives is to increase the qualified headcount by 15% during the next three months. You want to provide the manager with access to a corresponding customer report that enables him to analyze the situation regularly. Implementing the right BAdI enables a link that can be used to call the report from within the objective-setting agreement.

41 BAdIs Available!

There are 41 BAdIs4 with 62 standard implementations that provide the openness and flexibility required to tailor the application to suit the individual needs of customers without the need for additional modifications. To name just a few examples, BAdIs allow you to add:

  • Links to other applications in the SAP system

  • Calculation and determination rules for target or actual values

  • Layouts for print and web display

Standard Appraisal

Traditionally, standard appraisals support a straightforward process of objective setting and evaluation. They allow only one weighted appraisal for each objective, and are used for classic performance appraisals that are not preceded by an objective-setting process. This type of appraisal is still supported in mySAP HR, although, because it is based on past performance, it doesn’t support a future-oriented strategic approach.

360° Feedback

The 360° feedback option can contain the same elements as standard appraisals or objective-setting agreements. However, appraisers each receive an appraisal document that they can complete anonymously. Often used for manager evaluation, 360° feedback can provide feedback that is far more honest than a personal evaluation, especially if it is completed anonymously.

Note!
This solution can be configured to trigger follow-up processes after an appraisal has been completed:

  • Objective Setting and Appraisals supports compensa- tion policies that are based on performance results. Appraisal
    results can be used to generate proposals for compensation
    adjustments automatically.5

  • Objective Setting and Appraisals automatically transfers new or updated qualifications from the employee’s objective- setting agreement to the employee’s qualification profile after the final appraisal.

Predefined Content Ensures Easy Implementation

The objective setting catalog is the backbone of the performance management system. It allows implementation teams to define and administer an unlimited number of templates that users need for performance management purposes. For instance, your users probably need a different template for managers than they need for the staff working in Research and Development. In the objective-setting catalog shown in Figure 3, templates are displayed on the left window in a hierarchical view; customizing settings can be entered in the right-hand window, as shown for the “Performance Feedback UK” template.

Figure 3 Objective-Setting Catalog

The catalog plays a central role in implementing your performance management system. Instead of maintaining individual tables, you simply activate predefined templates for objective setting, standard appraisals, or 360° feedback, and tailor them to suit specific customer requirements. You can do this without changing screens and without additional programming — all you need is a mouse. If necessary, an integrated status-management function allows you to run planned objectives through an approval process.

For specific requirements, the objective-setting catalog provides access to technical Customizing settings that enable you to enhance the performance management system using relevant tables and BAdIs.

What About Security?

Objective Setting and Appraisals comprises a four-level security concept that allows you to control access to confidential data:

  • Standard HR authorizations determine which data a user can access for specified employees.

  • Structural authorizations restrict the user’s access to the objective settings of employees who work in a specific area of the organization — the objective-setting agreements of all employees in the Human Resources department, for example.

  • Authorization object Appraisal Systems: Appraisal Document (P_HAP_DOC) restricts a user’s access to specific templates. In addition, you can use this authorization object to differentiate a user’s access rights based on structural authorizations. You can define where, in the accessible organizational structure, a user has “read” or “write” authorization. In this way, for example, you can specify that the recruitment manager can change the objective-setting agreements of his own subordinates, but have read-only access to those of his colleague’s subordinates.

  • Role-based access rights on the template level ensure that users can only read or change information that they are permitted to access in the objective-setting agreement. For instance, when colleagues and managers evaluate other employees, you can define that those colleagues cannot display the managers’ evaluations.

Implementation Options

There are three options for implementing Objective Setting and Appraisals, depending on your system capabilities:

  1. You can take full advantage of Objective Setting and Appraisals by implementing the following mySAP HR capabilities:

    Personnel Administration
    Organizational Management
    Compensation Management
    Personnel Development
    SAP SEM to benefit from integration with the Balanced Scorecard
    SAP BW to use the comprehensive reporting capabilities

  2. You can use Objective Setting and Appraisals as a standalone application if you set up at least one mini master record for each participant, consisting of the Actions (0000), Organizational Assignment (0001), and Personal Data (0002) infotypes. However, this is a limited configuration: employees cannot view their own objective-setting agreements because they do not have access to the system, and SAP Business Workflow is not fully supported.

  3. You can also use Objective Setting and Appraisals if the participants in the performance feedback or appraisal processes — that is, your employees — have their user IDs registered in the system. In this configuration, employees can view their own objective-setting agreements. SAP Business Workflow is fully supported.

For technical issues that may arise during implementation, see SAP Note 497777.

Support for Different User Interfaces

In addition to web interfaces, Objective Setting and Appraisals also supports the SAP GUI interface. As part of R/3 Enterprise, Objective Setting and Appraisals is based on Web Application Server 6.20 technology. This made it possible to realize web interfaces as Business Server Pages (as shown back in Figure 2) that can be included in mySAP Enterprise Portals using generic iViews. The result? Enterprises that base their IT strategy on Enterprise Portals can implement Performance Management equally as efficiently as those that use traditional SAP interfaces.

Availability and Plans for Enhancements

Objective Setting and Appraisals is available with HR Extension 1.10 for R/3 Enterprise as of Q1/2003. In the long run, this will replace the mySAP HR Appraisal System.

Planned enhancements to the performance management system will be delivered with HR Extension 2.00 for R/3 Enterprise. These will include full workflow support (workflow templates) and comprehensive reporting capabilities based on SAP Business Information Warehouse (SAP BW 3.20).

An iView for the basic Objective Setting and Appraisals functions is delivered with the Manager’s Self Service 50.2 business package as of the end of 2002. Future planning includes integration with Incentives and Commissions Management, thereby delivering standard scenarios for an even easier implementation of a value-based performance management system.

Conclusion

Annual employee appraisals do not have to be just another time-consuming and burdensome formality. Instead, they can become an important milestone in a flexible, future-oriented performance management system that:

  • Effectively supports workforce alignment with the enterprise strategy

  • Increases employee motivation and willingness to perform by outlining clear objectives and responsibilities

  • Reduces expenses by streamlining HR processes

With the new Objective Setting and Appraisals function, mySAP HR supports customers who want to turn away from traditional, backward-looking appraisal systems and toward flexible, forward-looking performance management systems.

For more information, including collateral materials, demos, and presentations on Strategic Alignment and Performance Management with mySAP HR, SAP customers can log on to http://service.sap.com/hr.


1 Readers unfamiliar with SAP SEM-CPM and its balanced scorecard functions can refer to http://service.sap.com/sem or www.sap.com/sem. For more on the HR Balanced Scorecard, see the article “Personnel Management with the Balanced Scorecard” by Sandra Bauer at www.sap.info.

2 The prerequisite for integration is the existence of an RFC connection between the two systems. The HR organizational structure can then be transferred to the SEM system using ALE. (For a description of the ALE scenario, see SAP Note 336547, Integration of HR and SEM.)

3 Profiles are used in mySAP HR's Personnel Development functions to maintain special attributes and information on an object. For example you can set up qualification profiles for employees, containing all their skills and competencies, and requirments profiles for jobs or positions.

4 BAdIs have the following naming convention: HRHAP00_...

5 Technically speaking, generating proposals for compensation adjustment automatically requires one of the following in a matrix dimension of the relevant compensation guideline:

  • An overall appraisal (using template ID) or
  • A group of objectives (using template ID and criteria group ID) or
  • Any of the objectives (using template ID, criteria group ID, and criterion ID).


Martina Schuh joined SAP in 1999. She has been dedicated to the subject of HCM Analytics from the outset. Since 2001 she has been product manager for HCM Analytics, including Performance Management and Workforce Cost Planning and Simulation. Martina can be reached at martina.schuh@sap.com.

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