Now more than ever, organizations need to optimize their workforce in today’s economic climate of falling revenues and shrinking profits. Companies have long used stack-ranking to manage their people and identify employees to manage out or up, GE for example categorizes their workers as being top, middle and low performers with 20% high, 70% middle, and 10% low performer distribution. They regularly manage out the bottom 10%. Stack ranking is a powerful tool, but does it work? 

Professor of management at Drake University in Iowa, Steve Scullen, found that forced ranking, including the firing of the bottom 5% or 10%, results in an impressive 16% productivity improvement.

Companies that are able to quickly compare the performance of their people to find high and low performers have an advantage over those who cannot. Low performers actually cost the company money, so when a business manages them out, they see an immediate benefit. The opportunity cost is even higher. If high performers contribute about 5 times as much as low performers, as our friend and thought leader Dr. Peter Cappelli has found in his research, the opportunity costs is huge. Imagine how much more value the company could generate if they could replace low performers with high performers.

These kinds of optimizations are on everyone’s mind in todays slowing economic environment. SuccessFactors decided to tailor a solution for optimizing the workforce by building a tool that allows managers to stack rank their employees.

Of course stack ranking isn’t just about managing out low performers, but it is also about ensuring that you are able to find and cultivate your best talent. Those top performers who contribute 5 times as much as the low performers should be rewarded, leaders should be identified and trained. Competencies should be compared and managed across teams to ensure that the right capabilities are in place. Stack ranking is a great tool not only for optimizing your workforce, but also for building it. 

Already rich with performance management data, the SuccessFactors Stank Ranker helps managers to:

• Visually Rank Talent – Instantly identify your top-ranked players so that you can optimize your team by motivating and cultivating your best people. Give limited rewards to top employees that deserve extra recognition, or quickly identify low performers to let go when faced with tough layoff decisions.
• Go Beyond Performance Reviews –Stack Ranker expands the formal review process by letting you capture new characteristics for a more holistic assessment. For example, you can incorporate factors like criticality of the role into ranking or other criteria to serve as tie breakers.
• Assess Everyone at Once – Quickly assess your entire team across critical competencies and criteria in real time — all in one place. Side-by-side rating promotes more accurate relative assessments.

Stack Ranker was designed to help companies act now. Organizations simply cannot afford to carry the dead weight of low performers in these uncertain times. Furthermore, they need to move quickly or they will be outflanked by their competitors. Tools like Stack Ranker are critical to succeeding in today’s environment.

Everyone puts on a little weight during good times – vacations and holidays are notorious times for over eating, relaxed behavior and good feelings. Well for businesses, the vacation has come to an abrupt end. After years of easy credit and a booming housing market, the bottom has fallen out from under companies more quickly than anyone had expected, and the economic uncertainty looks as if it will continue for some time.

What will businesses do with all of the excess weight they put on during the good times, when they were content and growing with the rest of the economy? Well for those of us who have had to lose holiday pounds before, we know there are a lot of ways to get back in shape. The obvious solution is calorie restriction, cutting back on the excess – but this technique alone will leave you weaker than before you put on the weight. When the economy recovers, companies who depend on cutting calories alone will emerge weak and unable to take full advantage of the changing and improving business environment. Cutting calories alone leads to smaller muscles and a weaker body.

The best approach to losing weight is an approach that optimizes your body. Sure calories will have to be cut, but if you plan and execute carefully, you can ensure that you don’t lose any muscle. You might even emerge leaner and stronger than before. This should be the goal of every company planning layoffs and workforce adjustments for the economic downturn. To optimize the workforce in a downturn you should:

• Lay off people based on data from the performance management system, so your strongest “muscles” aren’t lost
• Find the positions within the company that are critical to your success, and ensure that successors are named for those positions
• Identify the key competencies that drive your success, and ensure that they are cultivated during the downturn, so you can emerge with strength

Companies often focus too much on cutting, or building one part of their organization. Strong arms won’t help you win a footrace. Optimizing the whole body is the best way to lose holiday weight – for companies it is the difference between remaining competitive and falling behind. Use the data in your talent and performance management system to optimize your workforce. Now more than ever companies need to be smart about managing their resources, including their talent.

Aside from being the title of a great song from one of the greatest rock bands ever -Iron Maiden- Be Quick or Be dead is a great metaphor for today’s business environment. No matter how you look at it speed is picking up and someone will take advantage of it at someone else’s expense. Now more than ever with falling valuation of assets, lack of liquidity, and reduced consumer confidence the notion of “survival of the quickest” is the real deal. Darwin famously stated that it is not the strongest but the most adaptable to change that survives, and this is true as true in the business world as it is in nature.

Actually if you think about it, when is the best opportunity to actually go on the offense and make a change? When the going gets tough or when everything is gently pointing upwards? Companies will either be acquired, stripped of assets, or go on the offense to acquire underpriced assets when markets and demand soften up. The real deal then is obviously to make sure you quickly can get your organization aligned and executing on the new company’s direction, and that you drive the calculated synergies of a merger or acquisition home. With people being by far the biggest expense for any given business (on average 70% of operational cost) how you deal with your joined workforce must logically be the most important factor in any M&A situation.

“In any merger or acquisition, investment banks and equity analysts will provide you with a plethora of figures quantifying the synergistic strategic benefits of the union. Yet what determines whether a merger succeeds or fails is really its people.” – Jean-Pierre Garnier, ex-CEO of GlaxoSmithKline

Logically then, companies with better people processes and a serious focus on people performance should do better in a merger. To test this hypothesis, SuccessFactors research examined the performance of ten of our customers that specifically cited challenges resulting from a merger or acquisition as their business drivers for investing in SuccessFactors. The results were clear – the ten companies that leveraged SuccessFactors to drive the merger home completely outperformed their competition in 12 month revenue growth, 12 month income growth, return on equity and price to book ratio. These mergers were not just successful on paper, they worked in the real world.

Download the SuccessFactors Research Data Sheet: Mergers & Acquisitions to see just how successful our customers are and how they are winning in these uncertain economic times.

Making mistakes can be a good thing if you learn from them. Making the same mistakes again and again is stupid and costly.

The economy goes in cycles. I know it feels like a long time ago, but do you remember that we had a pretty quick and tough downswing that started in March 2000? 2001 and 2002 felt like a nuclear winter to a lot of people and businesses. I’m not saying that the current situation has the same underlying factors and patterns as the last time that we had this tough economic climate, but businesses and people are to a large extent equally as affected by it as before. Smart companies learned from the mistakes we made the last time the economic cycle entered a downswing and avoid repeating them.

So what did we learn from the last downswing? Some companies really lost and others came out of the economic turmoil even stronger, making real gains relative to the competition. Business, like sports, is very competitive and relative. Making a relative gain is easier when everybody is hurt rather than when all are performing well and happily taking orders serving demand. Furthermore, it was clear that those companies that avoided facing the new situation lost. Inaction is never the solution for advancing down the field. So companies that tried to take advantage of the economic downswing with clear actions won.

Here are some mistakes that losers make to learn from:

• Losing companies that get caught up in internal reconfiguring and take on an inward focus also tend to forget about their customers need and the value provided to them
• Losing companies fall for the pressure to cut people across the board when called on to downsize and reduce costs
• Losing companies alienate talent with poor decisions made through an extreme focus on short-term results; alienation which can last years thereafter.

SuccessFactors Research has recently written the paper Winning Through Talent in Uncertain Times, addressing how companies can get ahead when times are tough. Learn from your competitors’ mistakes, smartly align your resources, and turn an economic downswing into an economic opportunity for your company.

At SuccessFactors, it is easy to take virtual teams for granted. We began with a global vision, and from the start worked across geographies in virtual teams. Simply put, we got things done – the actual mechanisms, e-mail, PRDs, webcasts, were not nearly as important as the attitudes of the team members. Not long ago SuccessFactors Research, along with Jim Ware and Charles Grantham from the Future of Work, took a look at how the workforce is changing. One clear result – more people will be working remotely. The days of knocking on the office door, or ducking into a coworker’s cube to ask a question are coming to an end. 

The question arises, as companies expand opportunities to work remotely, how can they ensure that their virtual teams stand up and deliver? How can companies recreate the seamless virtual teams that I have taken for granted at my time with SuccessFactors? The folks over at OnPoint Consulting have done some research on virtual teams and found that successful teams have members that:

• Show Initiative
• Are willing to assume Leadership/Responsibility
• Share Processes
• Have a clear understanding of their contribution to the company
• Provide timely feedback
• Are willing to  expend extra effort
• Work together well
• Help each other

Well, it has been said that man cannot move mountains. Technically, this is true – fortunately  people are more flexible than their geography. In fact, with great human capital management, you most definitely can move mountains, and should. Let’s talk about the mountain facing managers in most companies, the performance Bell curve.

Looking at low, medium, and high performers, it’s obvious that the lion’s share of people in a company will be middle-performers (particularly a company with many employees). They are the mountain.

A lot of companies unintentionally focus on their top and bottom performers – the very worst are let go or disciplined and retrained, while the best performers are recognized and rewarded – but what about everyone in between? More often than not, they are ignored because they are doing “okay” and because fixing performance problems in the middle of the curve requires more effort and greater understanding of the individuals.

Managing the high and low performers is important, but rarely matches the impact of moving the mountain in the middle of the curve. If the bulk of your workforce is in the middle performing, logically the most of your people costs are there, and therein lay your greatest potential for improvement. Think about it numerically, if your company has 35 slackers, 200 middle performers, and 35 rock stars, increasing the performance of those 200 middle performers would have a far greater impact than say, firing or retraining the 35 slackers!

Moving that mountain, shifting that bell curve to the right, increases the performance of everyone, including the heart of most workforces – the middle performers.

Companies should focus on moving the entire curve to the right, elevating the performance of everyone. Pulling that curve to the right takes some effort, but the potential payoff is tremendous. To start, you can lure some of your middle performers to the right with a transparent, and strong pay for performance system. If it is clear that higher performers are getting a lot more than the middle performers, real impetus to perform can be created – in fact an article highlighting our research on the spread of pay was recently published in Talent Management magazine, which clearly shows companies with a larger spread of pay between performance levels do better!

Of course pay for performance is just a start. Giving your middle performers clear career paths, opportunities to advance their skills, and managing their competencies can help you to pull the performance curve at your company to the right. Maybe a person needs training, would fit better in another department, or has an issue with his or her manager, etc. With great HCM, you can get to the heart of the problem and move mountains in your organization.

Last week my colleague Chris blogged about the differences between competencies and skills – over the course of my consulting experience, I developed a simple framework for putting skills and competencies to work.

Think about throwing a spear – the first thing the thrower needs is energy/momentum. The spear will not fly very far unless the thrower invests enough energy in his or her throw. Second, the thrower must have developed the physical coordination to shift his or her weight and pull back the long, weighty spear in preparation to throw. Coordination is a competency that is widely applicable to a number of sports, but critical for throwing the spear. Finally, the thrower must be able to aim the spear. This is a skill specific to throwing the spear, which is markedly different from throwing other objects, such as a ball.

The People Core Assessment© pyramid, illustrates this framework. The base of any successful action in energy and engagement – no task will get done without them. Competencies sit above energy, and tell you whether or not you have the capabilities required to succeed. Finally, the specialized skills required to complete the task form the apex of the pyramid.

From experience in coaching talented cyclists as well, I’ve found support for this same thinking in one of the greatest books: The Cyclists Training Bible by Joe Friel. Mr. Friel suggests similar thinking for building up peak performance through a few selected races over the year. Build core strengths and capacities first, then more specific skills with higher intensity as the race progresses. A common mistake of endurance athletes is to work on the top of the pyramid without having a foundation in place. This is true for our day to day management challenges as well.

When you are confronted with a people management challenge, start at the bottom of the pyramid and figure out if your people are invested in the tasks at hand – do they have the energy and motivation required to carry the project forward? Winners rarely win by accident, people have to want to win. Second, take a good, hard look at the competencies of the people on your team. Do they have the core abilities needed to win? Finally, figure out what specific skills you need to develop in your team and make sure they have those skills, which are the tools you will use to attack the challenges at hand.

Ask anyone which is worse, an unskilled person or an incompetent person and I’d bet money most will answer incompetent. Why? The difference in meaning is subtle, but profound. An unskilled person can be trained. The word incompetent implies that the individual at hand does not have the aptitude to succeed or grow – they lack the basic competencies to get the job done.

I mention this because one of the most common mistakes made in Human Capital Management is confusing skills with competencies. Skills can be learned, certificates can be earned, etc. Competencies take much longer to develop. For example, a skill might be profient in C++ (a programming language), but a competency might be high capacity for problem solving. Problem solving is important for programming in any language, and can be applied to many other challenges in the workplace.

SuccessFactors Research conducted a study of competency management of our own customers, and was able to identify what some winners do in various industries. The implication was pretty clear, companies that effectively manage the competencies of their people have greater potential to do better. But competencies aren’t just about overall company performance – they are highly relevant to individuals. If you can figure out which competencies are the most important for a given position, you can better place and develop people to succeed in that position. Competencies aren’t just leading indicators of success for your company, but also for your people.

Is the rising cost of people threatening your business? The War for Talent has put a crunch on the people supply, driving up the price of talent. In fact people now account for about 70% of operating cost, depending on the industry – and this number is rising! People are the fuel for execution, but managers don’t have to lose sleep over this shortage. They just need to realize that people really are assets, and while they might cost a bit, they have the potential to learn, grow and ultimately contribute more.

It would be great if business could just turn on the tap and have access to great people all the time, but that is just not the environment we are in today. The answer to this problem is pretty clear – develop the resources that you have. The people already in your company probably have a lot of untapped potential. Look around the office, is everyone really engaged and motivated? There are a lot of ways to get more from your people, grow their skills and competencies, align their goals – but it all starts with energy.

If your people are having an energy crisis, you need to deal with it. Without motivation, it won’t matter if people have the best skill set in the industry. Fortunately, manager’s have a lot of tools to increase energy and engagement. The Conference Board did a comprehensive study on engagement and found 8 factors other than pay that motivate and energize people: Personal development opportunities, clear path for advancement, line-of-site between individual contribution and company performance, trust and integrity, nature of the job, pride about the company and relationship with one’s manager. We talk about engagement in detail in our paper Drive Top and Bottom Line Results with People Performance.

It’s okay to have a capitalist view of people performance. Supply and demand are just as important in the realm of talent as they are in the commodities market. In fact, we will be hosting a webinar on August 13^th with best-selling author and venture capitalist, Rich Moran. Erik and Rich will discuss what makes a great hire and how to keep them. The cost of capital is on the rise and we now live in a world where it’s not about hiring across the street. It is paramount to have the right people in the right place to make sure your company is capital efficient.

Companies embrace the idea of Succession Planning and Talent Management with great enthusiasm, but rarely put the mechanisms and tools in place to effectively follow through on their initiatives. SuccessFactors Research recently conducted a survey of Succession and Talent Management capabilities across the U.K. and Ireland, and found that this is indeed the case. Companies have initiatives in place, but do not back them up with effective processes and support.

For example,  76% of all companies in the survey were found to have some kind of succession plan in place, yet 40% of companies lacked any process or capability to identify future talent. You simply cannot identify successors effectively, if you do not have a regular process in place  to identify talent within your company. Talent reviews should be the starting point, not the end point of the talent management process. Managers should have plenty of tools to help identify talent. 360 reviews, performance reviews, and competency assessments can all be used to make reasonable assumptions about the potential of an individual.

Losing your best talent can be disastrous during these tough economic times – making Succession Planning a top priority for organisations wanting to build growth and be successful. Organisations routinely encounter turnover across a variety of key positions which often results in significant disruptions if no replacement is readily available. You need to know what you have, at all levels in the organisation, before you can start to think about successors.

SuccessFactors is presenting a  webinar focused on effective succession planning in the U.K. and EMEA, Effective Succession Planning: It’s not just for your CEO, on Tuesday, July 22nd, register here. You can learn more about the tools available to managers, and bring your own questions to our team. You can also read more about the state of Succession planning and talent management in the U.K. and Ireland in the related SuccessFactors Research Data Brief.