A study has found that companies which set and align goals, vary performance feedback and use tools effectively to increase business execution see higher stock returns and grow more quickly than those who don’t.
The research, which was undertaken with data on goal setting, alignment, and system usage characteristics in 153 of SuccessFactors publicly traded customers, discovered a statistically significant positive relationship between each of the Business Execution dimensions studied and industry-adjusted stock returns.
The statistical analyses revealed four distinct business execution characteristics that influence the employee performance evaluation process:
1. Goal Number Dimension: The average number of goal plans per employee during the year,
2. Alignment: The degree to which goals are aligned throughout the organisation.
3. System Usage Dimension: The company’s system usage style, on a continuum from companies that use the system primarily as an information system to those using the system to a greater extent for performance evaluation (with a larger percentage of users having rated goals).
4. Ratings Scale: The extent to which the company uses the full spectrum of the ratings scale (for example, more employees with minimum and maximum ratings, and more variation in ratings).
It may seem obvious and although SuccessFactors, which commissioned the study from Stanford and Wharton business schools, already knew from previous research that their customers generally grew more quickly than their competitors it wanted greater proof and further details about how their most successful customers were using the products to achieve.
Erik Berggren, vice president of global research and customer results at SuccessFactors, said: “We wanted to partner with leading academics in the world and hence turned to Stanford and Wharton Business Schools for academic collaboration on this research. Our research shows that companies that invest in their ability to execute, aligning goals to strategy while creating a performance-based culture experience higher shareholder returns. Connecting the true heart of people’s work activity with the company’s strategy ultimately drives superior execution results.”
A 10% increase in the Goal Number Dimension score was associated with a 6% increase in industry-adjusted stock returns. Similar results were found for 10% increases in the Alignment Dimension, System Usage Dimension, and Rating Scale Usage Dimension scores.
“From an academic and practical standpoint, the link between differences in business execution practices and firm performance has been an important but unresolved issue. Our research on business execution practices in SuccessFactors clients shows that differences in many of these practices can have significant effects on subsequent industry-adjusted stock returns, and that these effects can be quite substantial,” said Christopher Ittner, Ernst & Young professor of accounting at Wharton Business School, University of Pennsylvania.
