The seven myths of performance management

Dec 07, 2012

Investments in performance measurement and management systems have been steadily increasing over the past two decades, and there is no sign that this trend will change in the future. Leaders and managers in both private and public organizations regard such systems as a key means to implement and communicate strategy, support decision making, align behaviours, and, ultimately, improve performance.

While measurement and management systems can indeed help organizations achieve all these fundamental aims, current practices show that managers are consistently making mistakes that prevent them from reaping the benefits of their investments. While their intentions are usually positive, our research shows that, in fact, they often encourage exactly the behaviors their organizations neither need nor want.

These flawed assumptions are what I call the seven of performance management.

Myth 1: Numbers are Objective

A performance measurement system enables organizations to gather, analyze and communicate data on both organizational and individual performance. And we want such data to be objective, right? Not necessarily. The quest for perfect, objective data is likely to leave us frustrated and disappointed. My research shows that performance data is in fact ambiguous and open to interpretation, and that its use and impact on performance depends on commonality of interpretations. Therefore, while it is important to have data that is robust and relevant, managers' efforts should be devoted to fostering similar interpretations through leadership and communication, rather than trying to remove individual views (or, worse, assuming that numbers are 'objective' and therefore speak for themselves).

Myth 2: Accuracy and precision

Once a performance measurement system is introduced we want information to be as accurate and precise as possible. Or not. Research conducted in both private and public sectors shows that organizations invest billions of dollars in measuring and managing their performance. Therefore they should treat this as an investment in which benefits outweigh costs, rather than something that should be of the best possible quality. And this balance can only be ensured by connecting measures to objectives. So the question is not: is our data as accurate and precise as possible? But, rather: are we getting data that is good enough for our purposes?

Myth 3: Added value

Few would challenge the assumption that gathering and analysing data is a value added activity. But actually those few would be right. Value is generated when data is used, but unfortunately we know that performance data is very rarely used within organizations. In U.S. Federal Departments, for example, while managers recently reported having more performance indicators than they did 10 years ago, their use of performance information to make decisions has stayed virtually the same. Results in the private sector are no different. Too many indicators and reports, and loose connections between strategy and measures often make measurement systems very expensive pieces of furniture.

Myth 4: Alignment

Managers and employees should be aligned to achieve the main organizational goals. Sure. But the typical way in which managers try to create alignment ends up generating bureaucracy and negatively impacting on staff morale. Recent studies show that, while organizations are making considerable efforts to align behaviors and actions, their results are often dismal. Cascading measurement systems in a top-down fashion, and rigidly connecting objectives, targets and indicators end up generating an infinite sequence of unintended consequences. Instead, while designing and implementing performance measurement systems, sufficient discretion should be left at every level to make decisions over which indicators to use, and which targets to aim for.

Myth 5: Motivation

Performance targets, indicators and rewards are often utilised to focus attention, and engage and motivate staff. On paper. In practice, levels of engagement in many organizations are falling, also because of the incorrect uses of performance management systems. Despite all good intentions, organizations often generate what I call the vicious cycle of . The starting point is usually a difficult situation in which performance has decreased or is deemed unsatisfactory. The usual reaction is to quickly introduce a series of measures to gather 'objective' data, and to attach rewards to specific targets in order to incentivize employees to do their best. Unfortunately, as a result of this, people get 'measure fixated': they are very clear about what they have to do to hit the target, but they often miss the point, ie they forget about the underlying objective. Even worse, over time a culture of performance measurement starts to emerge: employees will blindly follow what they are measured and rewarded on, often at the expense of their organization's success. To avoid this vicious cycle, organizations should involve people as much as possible while introducing a new system, carefully monitor its use, and introduce rewards – if necessary - only once the system has been tested.

Myth 6: Enabling change

The introduction of new performance targets and indicators can kick-start the implementation of new strategic objectives and promote different ways of working. While this has certainly been the case for various organizations, from Continental Airlines in the mid-1990s to Nokia in recent years, when it comes to organizational change, measurement systems have often acted as obstacles rather than enablers. Particularly when a system is pervasive and consists of a large number of indicators, organizational inertia may arise. This may not be a major problem for organizations operating in relatively stable markets, but it could become a serious issue for firms competing in very dynamic environments. These organizations should adopt an empowering and flexible approach to the design and use of measurement systems. While alignment processes are needed to ensure that performance indicators and behaviors are in line with the organization's strategic priorities, empowerment at the individual managers' level is needed to build sufficient dynamism into the system. In other words, empowerment and HR management can promote dynamism and responsiveness, by building flexibility into the system in order to allow for local adaptation of the indicators.

Myth 7: Improvement

The ultimate goal of introducing a performance measurement system is to improve organizational performance. Absolutely. But does this really happen? Our research demonstrates that impacts on performance strongly depend on the roles measurement systems play within organizations. The main role is usually to monitor and report to satisfy requirements, internal or external. While this is important and, to some extent, unavoidable, impact on performance is often non-existent. Take the case of sustainability measures introduced by an ever increasing number of companies. While measuring social and environmental aspects is certainly important, most companies are simply reporting information externally – making no difference to either how the organization operates or on its results. Performance measurement systems can, and do, make a difference when they are used to promote learning, for example by establishing a dialogue between headquarters and subsidiaries; between different functions within an organisation; and between managers and employees.

Conclusions

Organizations spend considerable amounts of time and money developing and using performance measurement and management systems. They do so to gather good quality data to make better decisions, provide alignment, foster change, and improve performance. While these aims are all laudable, in practice most efforts fall short of expectations, because they rely on a set of flawed assumptions. Rather than spending months designing the perfect system that can produce objective, accurate and precise data, efforts should be put in communicating to all employees the reasons and benefits of such systems, and connecting strategy, measurement and decision-making. Rather than assuming that a tight set of measures, targets and rewards will lead to alignment, motivation and improvement, managers should empower people at different hierarchical levels, build flexibility in these systems and use them for learning, rather than control purposes.

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wee e
1 / 5 (1) Dec 07, 2012
"people get 'measure fixated': they are very clear about what they have to do to hit the target, but they often miss the point, ie they forget about the underlying objective. ... a culture of performance measurement starts to emerge: employees will blindly follow what they are measured and rewarded on, often at the expense of their organization's success."

Makes sense, after 30 years of working in large organisations -- except for this idea that employees "blindly" follow what they are measured and rewarded on.

Far from being blind, it is very clear-eyed.

Individuals see clearly what will benefit their career/security/standing; meeting the target. Doing something more worthwhile won't. It could even hurt them, because it isn't measured. If it isn't measured it may as well not exist.

The career of low-level "managers" (administrators/ herdsmen)depends on target-meeting. They don't tolerate workers who try doing something more constructive instead.
Gavin Lawrie
4 / 5 (1) Dec 07, 2012
Would be interesting to know if this is just an opinion piece or based on evidence, and also what the author is imagining "Performance Management" to be. Performance Management is oft talked about, but useful supporting data for punditry is hard to come by - mostly due to problems of definition (there are no commonly accepted definitions for what Performance Management is) and data collection (due to the problems establishing "controls"). For example, while most people seem to view the activity as necessary, to date no clear academic evidence has been reported showing that performance management as an activity provides consistent general benefits to an organisation.

If this article is a summary of actual evidential work, it would be bigger news to report the underlying research than this which appears to be simply a statement of opinion.
xX_GT_Xx
not rated yet Dec 07, 2012
The conclusion of this study is probably true. But the author fails because he completely misunderstands the motivation for creating performance management systems. It is not to manage performance.

The reality is - and everyone who works for a large organization knows this on one level or another - is that it is not possible to communicate to all employees the "reasons and benefits" for everything. Large organizations mean lots of people, and lots of people means lots of communication styles and lots of viewpoints. There will be many different interpretations and understandings of the same source material. You can give the exact same 1-on-1 pep talk to every one of your 100 employees, and if you ask them later what you said you will hear 100 different things. And that's even assuming all people are basically fair and honest, which of course not everyone is.

That's the motivation. Managing that.
rwinners
not rated yet Dec 07, 2012
A joke.
Along comes "Stan" who sums an organization and suggests one change that completely realigns the process of his new company.
How do you rate his performance?