Hate the bell curve? Try this framework for a new performance model

Management always talk about creating a performance culture.

To achieve the above, we see the implementation of performance management tools which (1) incorporates target setting exercises, (2) performance evaluations against these targets, and then (3) distribution of annual performance bonus (often) according to where staff rank in the annual performance bell curve.

Whether these tools promote the much desired performance culture is debatable. The intent is noble, but the implementation and outcomes are often not. More often than not, staff and supervisors alike find these tools demotivating. 

Yet year after year, company after company – we see these performance management tools continue to be pushed, tweaked, automated, enhance, and what have you.

I have personally been involved in this aspect of management for a large part of my career. And yet, I still find this aspect of management as elusive as ever. This is almost like the holy grail of management.

That being said, I have put quite some thought on the alternative – and here, I aim to cover an implementation framework how this can be done. I must caution that this is much tougher than it seems due to many deep set management practices and mindsets that often work against this proposed alternative performance management model. To make it work we must be willing to unlearn and relearn a lot of what we have learnt about management from books as well as our past practices.

In this post, I will cover the following –

  • Truths about people and how they operate in firms
  • Assumptions in relation to behaviours based on studies
  • Organisational pre-requisites and enablers
  • The model itself

Truths

There a few truths that are consistent across all organisations.

The first truth in organisations comprising more than one person, people work together in order to achieve the organisational results. No single person can deliver results in an organisation. This has to do with work distribution, functional focus and inter-dependency. In other words, people in all organisations operate as teams. Whether these teams are good or bad, is a separate discussion.

The second truth about organisations is that they exist to serve a particular purpose or need of a stakeholder or customer. Related to this truth, is that organisational performance matters. And improvements to that performance matters equally. If an organisation ceases to perform in the eyes of that customer or stakeholder, then the organisation will cease to earn its reason to exist. In short, organisations are measured by its stakeholders or customers – an outside-in, not an inside-out measure.

The third truth about organisations – its employees are not machines that can be programmed and predicted. Organisations are organic entities that act and re-act to many variables in many different ways. People behaviours are not always objective, and are often subjective – often deciding and doing things based on circumstances including emotions and feelings at that point in time and place.  

So, (a) people in organisations work as teams, not individuals; (b) organisational performance is measured by the customers or stakeholders it serves, not an internal yardstick; and (c) people are not machines – so practices to “manage” human performance cannot be treated like machine code.

Assumptions

In order to put together a performance management model, we need to understand the nature of human motivation. This is a lot more difficult. From Maslow’s Hierarchy Of Needs to McGregor’s Theory X vs Theory Y, one can say is that people are unpredictable creatures. But to narrow this down, I am focusing my attention to organisations that require knowledge from its people rather than physical force. I’m also making the assumption that knowledge and new ideas cannot be forced upon, but must be encouraged. 

I would also make the assumption that intrinsic motivation, rather than extrinsic motivation, yields better long term value, rather than short term results. This is because we need to allow the mind to find solutions on its own, by connecting the dots from various points, rather than forcing the mind to find short cuts.

To this end, we assume that people are intrinsically motivated by autonomy, mastery and purpose – as proposed by Daniel Pink in his book “Drive”. Of course, money, titles, promotion etc – are still fairly effective extrinsic motivators. But the problem with extrinsic motivation – its absence would cause demotivation and a loss of drive. Extrinsic motivators are difficult to sustain under all business conditions. 

If we are more concerned about motivating people in an industrial context, then we would focus more on extrinsic motivators, basic hierarchy of needs and restrict the people focus through a tight leash. But our discussion will be concentrating more on motivating knowledge workers, thus we emphasise on intrinsic motivators.

Pre-requisite Enablers

To me there are four critical enablers for my proposed performance management model:

  1. Clarity of vision and purpose – this is important to ensure that employees in the organisation are clear around the organisational purpose and vision, and the clarity on who the organisation serves. It is also important that employees are able to organise themselves around this vision and purpose so they know how they contribute towards the team in achieving the vision and purpose. Often organisations come up with generic, uninspired, and unclear vision and purpose as part of a management exercise. Once done, the vision and purpose are never looked at again. We must avoid making vision and purpose a wall poster exercise.
  2. Govern through a set of values, not detailed rules – aside from having clarity of the vision and purpose, the organisation needs to be unambiguous with regards its shared values. The value system is the critical factor in guiding employees make choices and decisions in their day to day activities. No amount of detailed rules will be exhaustive enough to cover all circumstances employees face in their daily affairs. This is especially so in a VUCA (volatile, uncertain, complex and ambiguous) world we live in today. Besides, no employee will be able to remember a whole rule book, but they will be in a better position to understand a set of values.
  3. Transparency and access to information – for employees to be able to make decisions and choices, they will need transparent access to information. Information needs to be made available based on need, not authority. Key performance initiatives for the organisation and their impact will equally need to be made transparent too.
  4. Resources and coordination needs to be dynamic and flexible – it also needs to be understood that resources will need to be made available where there is the need. Coordination amongst teams will also need to flexible to address these immediate needs. There are too many factors in a VUCA world which prevents resource availability and coordination to be static, one-time exercise and inflexible. Employees will need to feel they can take initiative without being put in straightjackets. 

The Alternative Performance Management Model

The typical performance management model as practiced by many firms goes as follows: 

  • staff & supervisor negotiate to set targets at the start of every year
  • difficulty of the target depends on who “wins” the target setting negotiations
  • targets are set to be hit, but not necessarily to stretch
  • targets often based on what is known at the start of the year and changes during the year will have little impact on the targets set
  • at the end of the year, the performance of staff is measured against the targets – further negotiations may be necessary
  • staff are then grouped into performance categories from high to low – the problem arises when targets setting and evaluation of performance against targets are not comparable, not equally robust
  • bonuses are distributed to the staff in accordance with the high-low performance categories

Often this model fails because (a) the target setting process is an exercise of minimisation, so it doesn’t lead to stretching towards full potential; (b) inconsistency of target setting and evaluation across the organisation; (c) bonus and pay is tied to the performance appraisal leading to claims of unfairness, lack of transparency etc.

Much as we would like to fix these problems – but it is impossible to do so mainly because people are not machines. People are imprecise, unpredictable and prone to errors. The traditional model of performance management works in a precise or machine driven environment. But introduce the human variability, some VUCA and performance demands into the mix, then the model starts to break down because the level of ambition across staff and supervisors are different. Furthermore, when pay is linked to performance – more efforts will  be directed towards gaming the system.

It is no wonder that both staff and supervisor find the whole affair de-motivating.

Here is a possible solution:

  1. Ensure that staff remuneration reflects their worth or contributions to the firm. The remuneration is to cover the work that is expected of the staff according to their role and deliverables / contribution in their day to day function. The only target is to deliver on what they were hired to do. At this point, I believe it is pointless to spend time differentiating how the person delivers on their role. Either this day to day expectations are delivered or not. As long as the role is delivered in the right way and aligned to the vision, purpose and values – that is sufficient.
  2. Inspire the organisation to have goals of being the best. These types of goals are simple, easy to communicate, easy to accept (who does not want to be the best?), and evergreen. Because of this, these goals need not be set every year, nor negotiated – thus, saving a lot of painful resource hours.
  3. Set organisational-level goals on what success looks like. These targets need not be cascaded all the way downwards – sufficient to be cascaded / adopted at division levels. If the organisation collectively over-achieves its goals, reward all employees equally, only for those who at the minimum deliver on their own individual roles
  4. Create process to identify non-performing individuals, based on criteria of persons who did not do their part to contribute towards the organisation’s performance. Refer to simple targets set in point 1 above. These people, aside from their pay, should not be rewarded with any bonus whatsoever.
  5. Encourage people to deliver well beyond their existing deliverables. Inspire them to “move the needle”, i.e. drive perceptible improvements to the organisation. We don’t need to negotiate a target with them. Just be clear that the perceptible improvement should be something that is measured outside-in by the stakeholder / customers. These improvements should be perceptible to the stakeholder / customers. An imperceptible change would not have moved the needle.
  6. Since creating perceptible improvements are often not possible individually, encourage people to form teams (especially cross functional teams) to deliver on these perceptible improvements. These teams should not default to functional teams dictated by the organisation. There is no need to create any specific targets at the start of the year. Allow these teams to identify these potential improvements during the year, set their own targets and form their own teams organically. The more the team stretches itself and its targets, the better chances it has in realising the perceptible improvement. Often the more diverse / cross-functional the teams, the more likely the improvements will be perceptible as it cuts across the organisation rather than remain only within a single function.
  7. Create an exercise involving top leadership, peers, and external parties to evaluate all the teams and their improvement initiatives based on an outside-in impact criteria, and grouped by different improvement categories – e.g. avoid grouping and comparing revenue-related improvement initiatives with process related improvement initiatives. A running database of all such initiatives will need to be maintained – this is should be comparatively easier to maintain and monitor as compared to a database monitoring the individual performance of all the staff within the organisation.
  8. Reward teams based on the impact they’ve made to the organisation and its stakeholder / customers. Distribute rewards equally within the teams. If certain individuals are members of more than one team and each teams were rewarded, then that individual will have his / her share of rewards for more than one team that was rewarded. This multiple rewards will motivate people to participate in more improvement initiatives.

This model may not be perfect. In time, this model should be continuously improved and from time to time dismantled and start again. It is important to remember at all times the truths about organisations, revisit the assumptions around people behaviours, and build robust enablers. Making constant references to literature on management models for the knowledge / information age is necessary. I would also suggest reading more on Beyond Budgeting, which is currently my model of choice for management reinvented.

Any other model is worth considering if we currently have a performance management model that is not delivering on the high performance culture, and at the same time causing a lot of de-motivation amongst staff and supervisors alike. What is there to lose?

Don’t limit empowerment. But create accountability by having transparency

Help! I need accountability [image]

I often have discussions around the issue of accountability at work. 

My work deals with establishment of limits of authorities, internal controls, processes and all other stuff meant to ensure that organisational resources are expended wisely towards improving performance but without resulting in leakages or worse.

Frequently, the worry is when people have access to resources like money, they will squander them irresponsibly. When you have audit committees and other oversight and legal consequences, you naturally take safe and conservative positions in aiming to control amounts of authority and empowerment given to the rest of the organisation.

Unfortunately, this is a folly. It gives us a false sense of security that just because authority is restricted to but the very few at the top, then we have better controls and organisational performance.

The problem with concentration of authority at the top means that only the few people at the top of the organisation are authorised in making decisions for the organisation. The reality in today’s world is far from this. Because we live in a VUCA (volatile, uncertain, complex, ambiguous) world, knowledge and capability to make correct decisions are far more distributed. No single person has all of the information… and most certainly the few people at the top don’t have all of the information, nor the capability, nor the experience on all issues that the organisation is faced with. This is true especially with large and complex organisations. And hence, when these few elites make those decisions – there is therefore higher possibility of those decisions being wrong. The risk to the firm is far higher when power and authority is concentrated at the top.

The best way to address this issue of authority and decision-making powers in a VUCA world, is to empower decision making throughout the organisation to the relevant levels that have the necessary information, knowledge, experience and the performance that needs to be delivered. This seems quite obvious and natural, but in real life – not always applied. The reason for this lack of empowerment and autonomy is because the powers at the top are not confident enough that the rest of the organisation will be accountable for the decisions and resources to which they were given. 

A simple solution to this is to increase transparency within the organisation several fold. Let me explain and contrast two different models of governance: the first is of the traditional concentration of control at the top; the second is an empowerment and technology enabled transparency model.

Let’s say that the board of the company is concerned about the level of travelling and entertainment that the organisation is incurring.

So in the first model of governance, in order to control these expenses (and also the undesirable side effects of these), the board decides to limit authorities to decide and spend. This will work in reducing such decisions and spend, but also at the same time clip the opportunities for the organisation, and at the same time create false sense of security when the board is influenced into a decision without knowing all information and it turns out to be wrong. This happens when the board has to make too many operational and administrative decisions that it has little time to go into each decision in great depth. Of course, to address this the board could decide to take more time and detail to go into great details of everything the firm aims to do – all while applying a mindset of skepticism of the management. This in the long run creates an unhealthy culture within the firm.

In my preferred second model of governance, let’s say the board institutes a governance model of transparency around travel and entertainment decisions and spend. This model of transparency requires all spend on travel and entertainment be published on the firm’s internal website which is accessible to all employees in the firm. This can be achieved with information technology solutions without having human intervention. With such spend being transparent to all parties – decision makers and individuals empowered with these decisions will be more cautious themselves in deciding and incurring such spend. Thus, in this model of governance, we create a culture of self regulation which results in greater level of organisational efficiency by dispensing with surplus internal controls, committees, and supervisory steps and units. In this model of governance, people who are empowered with authority will quickly develop attributes of accountability, simply because the things they do and the results that they achieve are transparent throughout the firm.

Thus, transparency drives accountability. Radical transparency drives radical accountability. The relationship is linear.

12 principles of highly adaptable, ethical and performing organisations

innovation and management

As a member of the Beyond Budgeting Roundtable (BBRT) I have been studying management activities that encouraged or impeded performance and adaptability in organisations.

Initially, it started out with the dysfunctional effects of budgeting. We all hated the budget, yet many companies go through the annual budget process religiously with nobody even questioning why we do it.

I started to question the value of budgeting when many of our units within the organisation start to claim that they could not carry out certain (seemingly important) tasks because of the lack of a budget. Whilst this is a shocking thing to hear, it is not uncommon. Listen carefully, and you will discover that this is one of the most common “excuses” for not being able to do things.

But as I investigated further, it was not just about the budget. It had to do with the whole interconnected nature of management activities, including the way the organisation is governed, the way people are made accountable, the way we motivate people and as well as the way we plan and control the organisation. There are twelve principles that fall into these categories of management practices. It can be found on the BBRT website as follows: http://bbrt.org/about/the-beyond-budgeting-principles/

If you want innovation, you have to encourage independent thought

We live in an age where technology, customer expectations, and markets shift rapidly. Sticking with dogma and age old ideas, methods, products and services will no longer cut it.

Assuming that we believe in the above – and I would not be too far off the mark, I’d guess – then we need to be able to adapt, respond, anticipate these shifts before and as they happen. We need to be agile, and most of all we need to be innovative. We need to find even more effective solutions to old and new problems. What worked in the past will not guarantee to work in the future.

Innovation is the key to winning in the fast changing world.

But innovation is not just an activity. It is more than that. It is a mindset, a culture, a function that everyone plays – and not just some people in labs and research centres.

Like creativity, you cannot force innovation. Like creativity, innovation must be allowed to flow, naturally. The biggest enabler for innovation is allowing individuals the freedom to have independent thought.

The seed of a new idea would only come from a ground that is fertile with many different thinking. In groups of people, society and organisations – allowing people to think different allows them to explore new ideas, test new perspectives, find new solutions in ways never been thought of before. A social group that emphasises conformity over individuality will psychologically limit the collective minds. This is often the subtle tyranny of the majority.

A society or organisation that is conscious of these subtle effects will need to take steps to allow individuality and take these steps even further by bringing in people who would be expected to see things differently – given they come from different backgrounds and thus would naturally see things differently. Artists will see different solutions to problems than would engineers or accountants. People from different industries will see different ways to solve problems. This is vital in order to encourage innovation. Societies and organisations will need to infuse their own culture and groups of people with people from other backgrounds in order to create a much richer diversity of thought.

We need fewer detailed rules, and more common sense

 

Over the past few weeks, I’ve been in debates with my colleagues on the subject and merits of detailed rules and procedures.

Many established firms such as public listed companies often document every single policy, process and procedure in manuals that rival the Encyclopeadia Brittanica in terms of comprehensiveness. This is often the standard practice in order to achieve ISO certification, and to for the firm to ensure that every single employee conduct their day to day activities in a predictable and standardised manner.

New employees need only to pick up the relevant manual and ensure that they fully understand and memorise what steps, templates, forms and people they need to work with in order to complete a certain task.

This orderly and predictable state of work activity seemed to work well with many firms for decades. And in fact, many firms institute controls and initiatives to ensure that activities adhere to the procedures manual and that variations in the processes are reduced.

This is a typical assembly-line type of work environment. Predictable work processes result in predictable outcomes (products and services) with minimum variance.

So far, so good.

Then, the technology boom happened in the mid to late 90s. Technology firms seemed to burst out from nowhere and suddenly started to take the market by storm. Companies such as Microsoft, Netscape, Amazon and Yahoo! started to win customers over with products and services that never even existed a decade earlier. Some of these start-ups reveled in the organised chaos of youthful employees and start-up culture. Anything and everything was possible. There were no limits to what could be explored and rules were broken everywhere.

As the world fast approached the year 2000 (“Y2K”), demand for updated technology solutions escalated. In the end, Y2K was a non-event.

Soon after at the turn of the millenium, the dot com phenomena imploded.

Only a few firms emerged unscathed. But a change in the business world had already begun. All of this enabled by technology and the fast proliferation of the internet and web based applications.

Companies such as Google and Amazon continued to grow from strength to strength. Microsoft, still the top dog then, struggled to make sense of how to deal with the new competition; whilst firms like Netscape, Yahoo! and a whole host of other technology companies fade away as quickly as they burst into the limelight.

Google led the technology rush and the internet continued to premeate into every home, office, school and places for human interaction. With a simple business model and easy to use technology Google became synonymous with the web and with searching for information and knowledge. But even mighty Google was unprepared for the next wave of internet revolution in social networking.

Early web 2.0 champions such as Myspace started to capitalise on the innate human need to connect with other people. Realising that humans loved socialising and sharing their interests, the likes of Myspace and YouTube raced ahead to be the early winners of the social media space. But even they had not expected a Hardvard student would start building what today is the world’s largest social network from his dorm room. Today Facebook has close to 800 million users (circa Oct 2011), and the likes of twitter garnering around 200 million users by late 2011. Together, Facebook and Twitter have been credited – rightly or wrongly – with a significant revolution in how people connect with each other and the speed of how fast news and information is distributed to a wider population. Both Facebook and Twitter have been linked to social and political revolutions in many countries.

Then the Global Financial Crisis (“GFC”) happened in 2008. This plunged the world to the edge of depression. The world has yet to recover from this crisis, teetering from one economic malaise to another. All throughout this, changes have been happening: Apple suddenly introduced the iPhone. Back from the brink, Apple became the darling of the industry and the stock market. It has disrupted the phone business, and to some extent the PC business with its iPads.

Today we are on another verge of a major change in the world as we know it. Crude oil prices plummeted, technology continues its breakneck pace of development, economic power is visibly shifting towards the east, social dislocation is happening, terrorists organisations creating fear, political power shifting towards the right… many of these changes pose unpredictable outcomes. We have no way of anticipating how to set rules for things we do not know. We will be in a state of flux, and in such situations more rules just doesn’t help. We need more common sense. We need to get back to our core, and universal values and work with this. Time to bring about positive change, rather than reacting to negativity.