MANAGEMENT APPRAISAL in the PostMerger Process

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MANAGEMENT APPRAISALin the Post-Merger Process

• Presentation by Erik Slingerland

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WHAT IS A MANAGEMENT APPRAISAL?

• Management Appraisal is an assessment of the
  business capabilities and the market value of an
  organizations human capital
• Business Capabilities. It defines and identifies
  individuals characteristics that deliver
  superior business performance
• Market Value. It provides you with an up-to-date
  assessment of how your team rates against the
  market
• It is designed to support the commercial
  requirements of the business
• Pragmatic. Focused on business performance
• Systematic. A refined and reliable process

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WHEN COULD YOU USE A MANAGEMENT APPRAISAL?

• When Major Decisions Depend on Human Capital
• Merger/Acquisition
• Succession planning, internal promotion
• Rapid growth, major reductions
• When There Are Big Issues But Limited Resources
• Turnaround situation
• Due diligence
• When Things Change
• Outside Market or Competition
• Inside Ownership (e.g. privatization),
  strategy, structure, size, or the CEO

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MANAGEMENT APPRAISAL PROVIDES A NUMBER
OFSPECIFIC OUTPUTS

• An assessment of human capital against
  organizational demands
• A benchmark of human capital against the market
• A comparison with executives across geographies
• An objective evaluation of leadership bench
  strength
• A pragmatic assessment of executives potential
  within the context of the business
• Clear recommendations and options for filling key
  positions
• A basis for strategic human capital planning and
  development

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THE VALUE OF A MANAGEMENT APPRAISAL FOR MERGER
AND ACQUISITION TRANSACTIONS

• Identifying human capital needs for the new
  company
• Core executive competencies to lead the new
  company
• Objective evaluation of the senior leadership
  team of each organization
• Benchmark executive talent
• Support selection decisions for the new
  organization
• Target key people for new roles
• Anticipating potential obstacles
• Cultural issues and integration challenges
• Areas of competency strength and weakness
• Helping the individuals and organization to move
  on
• Reduce anxiety and ensure fair treatment
• Provide feedback and development plans for each
  executive to support individual growth and
  strategic planning

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THE VALUE OF A MANAGEMENT APPRAISAL FOR DUE
DILIGENCE

• Evaluating the companys human capital
• Objective evaluation of the senior leadership
  team
• Evaluating the capability to deliver planned
  objectives
• Benchmark executive talent
• Assess bench strength of executive talent
• Anticipating potential obstacles
• Provides advice to the acquirer on team
  management
• Areas of competency strength and weakness
• Future areas of concern
• Enabling pragmatic evaluation of people costs
• Identify the scale and scope of areas for
  development
• Identify the size of future needs against todays
  capabilities

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THE MANAGEMENT APPRAISAL PROCESS IS ALSO OF
SIGNIFICANT VALUE TO YOUR MANAGERS

• The nature of the approach should be
  non-threatening and could even be enjoyed by the
  participants
• Opportunity to talk about their own achievements
  and aspirations
• Remains business focussed
• Opportunity to share personal views with third
  party
• The approach chosen should take local
  considerations into account
• Local language of executive if necessary
• Location of interviews
• The output is designed to be helpful to the
  individual
• All appraisal team members should be trained in
  giving feedback
• Personal feedback on strengths and development
  needs is seen as objective and constructive
• Provides foundation for individual development
  plans

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ACHIEVING GOALS REQUIRES ALIGNED BEHAVIORS AND
COMPETENCIES
Goals
Behaviors

• Goals are achieved through specific behaviors and
  actions

• Competencies categorize and describe behaviors
• Scaled competencies specify the range/degree of
  those desired behaviors

Competencies
Structured Interview

• Future behavior is best predicted by past actions
• Defined performance expectations and key
  situations to overcome
• Questions about how someone accomplished what
  they did - specific examples

Defined Competency Set

• Results Orientation
• Market Knowledge
• Strategic Orientation

• Collaboration
• Team Leadership
• Change Leadership

• People Development
• Customer Intimacy/Focus
• Intercultural Sensitivity

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EXAMPLE OF AN EVALUATION METHODOLOGY
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WHAT IS A COMPETENCY?

• A measurable characteristic of a person that is
  related to success at work. It may be a
  behavioral skill, a technical skill, knowledge,
  or ability.
• Results Orientation
• Each competency has a set of behavioral
  indicators, e.g.
• Works on assigned roles and tasks works to
  complete tasks
• Introduces a new model that successfully
  transforms an existing business
• We order these behavioral indicators by relative
  difficulty and sophistication thereby scaling
  each competency

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SCALED COMPETENCIES PROVIDE THE BASIS FOR
APPRAISALS
Transforms business model
Results Orientation
Redesigns business practices
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Example
Improves business practices
6
Drives to exceed goals
5
Driven by goals
4

• People demonstrating this competency drive
• for improvement of business results.
• Low levels They are dissatisfied with poor
  performance and drive to set goals
• Moderate levels They go beyond goals set for
  them and drive towards higher, world-class goals
• High levels They intelligently transform a
  business for significantly improved results

Would like to make things better
3
Fulfills assigned tasks
2
1
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SAMPLE BEHAVIORAL INDICATORS

• Results Orientation
• Level 1 Fulfills assigned tasks
• Works on assigned roles and tasks works to
  complete tasks expresses desire to do the task
  well or right
• Demonstrates or expresses frustration with
  others' inability to do the job
• Level 4 Drives to exceed goals
• Sets own or team goals with relevant metrics
  which go beyond normal expectations to new,
  stretching, or challenging-but-achievable goals
  or targets
• Identifies opportunities to exceed goals and
  works towards them, even under adverse
  circumstances
• Level 7 Transforms business model for enduring
  high performance
• Introduces a new model that successfully
  transforms an existing business or creates a new
  business, fundamentally changing the way the
  company or industry operates for the better
• Creates a new business or technology opportunity
  that is significantly different or better
• Creates and implements a world-class best
  practice, adopted by others

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DIFFERENT ROLES ARE LIKELY TO REQUIRE VARYING
LEVELS OF CAPABILITY
VP Marketing
Transforms business model
Redesigns business practices
Operations SVP
Finance VP
7
Improves business practices
Operations VP
6
Drives to exceed goals
5
Support Functions
Driven by goals
4
Would like to make things better
3
Fulfills assigned tasks
2
1
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REQUIRED COMPETENCY LEVELS ARE SET FOR EACH JOB
BASED ON BUSINESS OBJECTIVES
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WHAT REPORTS DOES THE PROJECT SPONSOR TYPICALLY
RECEIVE?

• Reports on each individual
• Career summary
• Competencies contrasted to role demands (required
  levels)
• Key strengths and areas for development
• Benchmarking against the market
• Potential for other roles
• Summary reports on the organization or group
• Pragmatic business assessment of the
  organizations human capital
• Key organizational strengths and areas for
  development overall and by function, geography,
  or business unit
• Summaries of benchmarking, potential and
  performance
• Advice on appointments

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TYPICAL OUTPUT OF APPRAISAL PROCESS
COMPETENCIES AGAINST ROLE REQUIREMENTS
Gaps between person and required levels
Demonstrated competency levels
Role- and customer- specific competencies
1
2
3
4
5
6
7
GAP
1
Competency A
0
Competency B
1
Competency C
1
Competency D
(-1)
Competency E
(-2)
Competency F
(-1)
Competency G
1
Competency H
Role-specific required levels
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TYPICAL OUTPUT OF APPRAISAL PROCESS BENCHMARKING
Outstanding
Good
Some Reservations
Major Reservations
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TYPICAL OUTPUT OF APPRAISAL PROCESS
POTENTIAL/PERFORMANCE
Star
Potential Talent
Person with ability to make significant
contribution in the future, but is not currently
doing so, either because of inexperience in role
or lack of fit to role
Performer with potential for multiple increases
in responsibility
Evaluate Further
Talent
Person with ability to make a contribution in
the future, but is not currently doing so.
POTENTIAL
Performer with significant promotion potential -
scale/scope
Performer
Reassign or Re-scope
Performer with limited promotion potential (more
likely scale than scope)
Person with limited potential to contribute more
to the organization
PERFORMANCE IN CURRENT ROLE
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A MANAGERS EXPERIENCE AND CURRENT
RESPONSIBILITIES ARE INITIAL INPUTS
EDUCATION 1974 BS, Chemical Engineering,
University of Wisconsin 1986 MBA, Finance,
University of Chicago LANGUAGES English (mother
tongue), French, German MOBILITY To be confirmed

• CURRENT TITLE Division President
• DIRECT REPORTS 8
• TOTAL STAFF 2,510
• SALES /OR BUDGET 420
• OTHER SCOPE ISSUES Integrating major acquisition
• REMUNERATION 285K salary bonus

Interview Date 1 Jan 2002
PROFESSIONAL EXPERIENCE
FROM TO POSITION COMPANY LOCATION 2000 P
resent Division President ABC Industrial Co.,
Inc. Milwaukee, WI 1996 2000 SVP Marketing and
Sales Acme Growth, Inc. Chicago,
IL 1986 1996 Partner Strategic Consulting
LLC Chicago, IL 1976 1984 Various Sales
Marketing Positions First International,
Inc. Various to VP Sales
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A MANAGER IS APPRAISED RELATIVE TO THE
JOB-SPECIFIC REQUIRED COMPETENCY LEVELS
STRENGTHS
ASSESSMENT VS. REQUIRED LEVELS

• Very driven to succeed, record of delivering
  results
• Analytical with strong financial acumen and
  ability to effectively evaluate strategic
  alternatives
• Has strong conceptual capability, good strategic
  vision, and can translate that vision into an
  actionable plan
• Very capable at developing long term customer
  relationships and generating new business
• Has a passion for customer service

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2
3
4
5
6
7
GAP
Competency A
Competency B
Competency C
Competency D
AREAS FOR DEVELOPMENT
Competency E

• Needs to delegate more effectively to key
  subordinates when appropriate
• Should focus more on operational detail,
  especially when managing less capable
  subordinates
• Should proactively motivate his team through
  continual communication and other techniques
• Needs to communicate the companys vision more
  effectively to the overall organisation and use
  this to generate focus and enthusiasm

Competency F
Competency G
Competency H
Managers Name
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RECOMMENDATIONS ARE MADE REGARDING FIT TO ROLE
AND POTENTIAL FOR ADVANCEMENT
SUMMARY
He has had a long successful career in the
industry, having worked for several leading
multi-national companies, as well as benefiting
from a short period in the entrepreneurial
environment of this company. Most of his
experience has been in sales and marketing,
covering all aspects of these functions. This
functional experience along with his consulting
background helped him develop a strong strategic
and business acumen, which is not found
frequently in individuals in this industry. He
has made a very significant impact in his short
time with this company, being the principal
architect of the companys strategy and driving
the companys rapid growth. Under his
leadership, we believe the company will continue
to thrive and move successfully towards its
ambitious targets, although he will face certain
challenges in this exacting mission. He should
pay particular attention to enhancing his team
leadership and people development capability,
skills which were not as important in his
previous sales and marketing positions. He also
must delve more deeply into the details of
operational execution, an area for which he has
less passion. He must be willing to help in
problem solving and focus the organization on the
most important issues, particularly in the next
few months while the integration is underway. We
believe that his relative lack of attention to
these issues recently is not a lack of
competence, but more a question of being focused
on other issues. His tremendous enthusiasm for
the business and his exceptional desire to
succeed will help him to continue building on the
momentum he has built with the business to date.
POTENTIAL AND PERFORMANCE
Potential Talent
Star
Evaluate Further
Performer with Potential
Performer with Potential
POTENTIAL
PERFORMANCE IN CURRENT ROLE
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TYPICAL OUTPUT OF APPRAISAL PROCESSORGANIZATIONA
L COMPETENCY PROFILE
Sample Competency Profile of Organization
Below Target
Above Target
On Target
1. Competency A
2. Competency B
1
3. Competency C
1
4. Competency D
4
5. Competency E
5
6. Competency F
7
7
7. Competency G
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TYPICAL OUTPUT OF APPRAISAL PROCESS SUMMARY
REPORTS (I)
Benchmarking in Current Role
Outstanding 33
Meets best-in-class external candidate benchmark
44
Good 32
Is an external benchmark candidate with some
areas to improve
42
Some Reservations 10
Falls short of external benchmark - has clear
limitations
14
Major Reservations 0
Not qualified vis à vis external benchmark
0
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TYPICAL OUTPUT OF APPRAISAL PROCESS SUMMARY
REPORTS (II)
4 5
2 3
Potential Talent
Star
4 5
23 30
POTENTIAL
Evaluate Further
Talent
37 50
5 7
Reassign or Re-scope
Performer
PERFORMANCE IN CURRENT ROLE
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TYPICAL OUTPUT OF APPRAISAL PROCESS HUMAN
CAPITAL BALANCE SHEET
Outstanding
Some Reservations
Major Reservations
Good
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EXTERNAL CONSULTANTS ADDED VALUE AT EACH STEP OF
THE PROCESS AND BEYOND (I)

• Developing competency models
• Leverage global experience
• Business perspective
• Evaluation
• Ability to benchmark against local and global
  markets
• Objectivity of a third party
• Capacity to execute with discipline
• Uniform, global quality standard

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EXTERNAL CONSULTANTS ADDED VALUE AT EACH STEP OF
THE PROCESS AND BEYOND (II)

• Feedback
• You may not be familiar with your entire talent
  pool
• Many executives unwilling or unable to deliver
  feedback effectively
• Managers appreciate a market-based assessment
• Helps to motivate change
• Development Plans
• Has greater impact when agreed with third party
  and client
• Assists with long-term career planning
• Succession Planning
• Comprehensive and integrated fact base developed
  quickly
• Consistent and objective competency-based
  evaluation

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NEXT STEP IS TALENT MANAGEMENT

• 1 Management Appraisal accurate assessment of
  the leadership capital
• 2 Talent Management informed decisions and
  implementation of appropriate action
• Develop and coach
• Plan succession
• Retain and build teams
• Management Appraisal allows strategic management
  of human capital - managing the talent pipeline
• Leveraging organizational strengths
• Minimizing organizational weaknesses
• Planning for the long term

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TO SUMMARIZE A MANAGEMENT APPRAISAL PROCESS
SHOULD .

• be firmly grounded in the companys specific
  business aims
• The appraisal criteria should be designed to
  reflect the companys strategic priorities
• It is important to ensure they also reflect the
  market
• provide output that will help identify human
  capital priorities for the company
• Objective and consistent evaluation of the senior
  echelons of the company
• Benchmarking existing executive talent against
  the market
• Highlighting relative strengths and weaknesses of
  individuals and of the organisation as a whole
• be specifically designed to enable action,
  making this dynamic rather than static
• Executives are given individual feedback flowing
  logically into development plans
• Analysis will generate divisional, functional and
  geographic data providing a platform for
  optimising human capital allocation
• A foundation for comprehensive succession
  planning

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THE MOST EFFECTIVE APPROACH ASSESSMENT
METHODOLOGIES AND THEIR EFFECTIVENESS

• Frequency of Use
• Interviews 100
• References 96
• Weighted appl. 93
• Ability tests 70
• Personality tests 64
• Assessment Center 59
• Biodata 19
• Graphology 3
• Astrology 0

• Effectiveness
• Structured interviews 62
• Refs not employee-named 57
• Case studies 55
• Ability tests 54
• Assessment Center 41
• Biodata 40
• Personality tests 38
• Unstructured interviews 31
• Employee-named refs 13
• Graphology 0
• Astrology 0

Reference Successful Selection Interviewing, by
Neil Anderson and Vivian Shackleton (1993)