Even if your organization doesn't have performance appraisal meetings, you have a performance management system. And most likely, your approach to managing performance is flawed, hurt by seven prominent myths.
That's the argument of Pietro Micheli, a professor at Warwick Business School in Coventry, England, who has a background in manufacturing engineering and worked as a consultant and director of a government department before turning to academe.
He notes that investments in performance measurement and management systems have been steadily increasing over the past 20 years. In both private companies and the public sector, leaders depend on such systems to implement and communicate strategy, align employee behaviour, and improve performance.
The system might include performance appraisals (which he notes can get employees' backs up), but even a more informal approach of setting organizational targets and mobilizing to reach those goals is performance management.
"Performance management systems can work, but sometimes they create disasters," Prof. Micheli noted in an interview. "We think the systems will be positive, but not necessarily."
In a recent article in Industry Week, he listed seven myths about performance management that promote the wrong behaviours and prevent success:
Myth 1. Numbers are objective
Numbers are powerful, and the best numbers are objective. But numbers are open to interpretation and to manipulation, so don't expect everyone to accept your numbers and interpretation as valid. You must communicate the numbers, what they mean, and why they should be trusted. "Some organizations spend a lot of time getting very accurate, precise numbers and should spend more on communicating," he said in the interview.
Myth 2. Data is accurate
Continuing that theme, he notes that once a performance management system is developed, leaders want the numbers to be as accurate and precise as possible. But compiling data is expensive and in business and government lots of data is unusable. "We need an equilibrium between what we spend on getting accurate data and what we do with it," Prof. Micheli said.
He added that he knows of no organization that has studied what its performance management system costs, even roughly, so return on investment in these systems can't be calculated. As with anything organizations do, costs and return are vital to understand.
Myth 3. More measures add more value
If a company has five performance measures, it might think it would be better off – or would gain added value – if it had 10 indicators. "But if you exceed a certain number of indicators the new ones introduced won't give you value as there is no time to use them," he said. "It's like throwing money into a trash bin." Instead, find the measures that are important – and that tell you something you can act upon – and then use just them.
Myth 4. Everyone should be aligned
A key mantra these days is that everyone in an organization should be aligned behind – understand and work toward – the main strategic goals. "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 behaviours and actions, their results are often dismal," Prof. Michieli noted in the article.
Instead, managers and employees need some discretion to adjust targets and behaviours to fit their situation. For example, in a provincial health department it would be unwise to expect ambulances in urban and rural areas to hit the same targets. Similarly, call-centre managers need some leeway rather than be glued to global scripts and methods. "Not anarchy, but some discretion," he stressed.
Myth 5. Incentives do the trick
Managers believe that by setting targets and rewards, they will motivate employees to achieve organizational goals. Prof. Micheli said that might work for a car salesman, where a bonus for selling a car spurs action. "But that's fairly unique. In most places, people work in teams, and the impact of incentives is not as clear," he said. He points as an example to schools, where performance management is increasingly being used to evaluate teachers, but the impact of families and peers on student performance is being ignored. As well, companies get into what he calls "the vicious cycle of performance management," providing incentives that lead employees to become so fixated on the measures they forget the broader picture.
Myth 6. Performance measures foster change
Organizations often bring in performance indicators to point employees in new directions during periods of change. That can work, he said, but only if you remember to get rid of outdated measures. For example, many airlines kept focusing on customer satisfaction levels while Southwest Airlines and Ryanair made price a vital factor. You need a dynamic system, in which performance measures are revised regularly.
Myth 7. Control leads to improvements
Organizations bring in performance management to make improvements. Sometimes they succeed; often they don't. "If you want to make improvements, the system must be dynamic, cost effective, and encourage learning rather than control," he noted in the interview. "If people feel the effort is really about control, they will be suspicious and disengage." Result: They won't take your organization where you want it to go.
Special to The Globe and Mail
Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter