PERFORMANCE MANAGEMENT CONCEPTS

Before we consider the performance management process it is useful to reflect on the following concepts:

• Self-efficacy;

• Self-regulating models;

• Creating purpose-driven practices;

• Segmentation;

• Declarative knowledge, procedural knowledge and motivation; and

• Re-defining performance management at the top.

Self-efficacy

Self-efficacy is the belief in one's capabilities to succeed at something. In short, our belief about our capabilities impacts on our success. When managers believe they cannot influence behaviour, (eg increased performance), they give up on any efforts to do so. By contrast, managers who believe it is possible to change the course of employee performance, tend to set increasingly challenging goals, and in turn the employees perform well. In short, when people are focused on the fact that effort itself generates results (not talent) they achieve better than expected results (Rock, Davis and Jones, 2013).

Belief in employee capabilities depends on the phrasing of the feedback. In other words, if the feedback is phrased in terms of effort and not ability, and if the feedback provides suggestions on what to focus, such effort will provide positive results (Rock et al, 2013).

© Regenesys Business School 31 Research has shown that praise for effort helps to drive improved performance as compared to praise for talent.

(Rock et al, 2013)

Self-regulating Models

Many of the related with performance management are associated with the notion that, "If I don't manage you, there will be no performance" (Bogsnes, 2013). Bogsnes (2013) argues for a new approach to performance management – one that is less about managing performance and more about creating conditions for great performance. His argument is: "We need self-regulating models, requiring less management, but more leadership from everyone."

Consider the following analogy:

A traffic robot can manage traffic, but those managing the process (programmers) are not in the situation; information used is not fresh (real-time) which is clear when the traffic is snarled up in front of a red light.

The roundabout is a very different alternative. Those managing the situation are the drivers themselves. The information being processed by the drivers themselves is real-time coming from their own immediate observations. The traffic continues to flow with cars seamlessly integrating into a flow.

While that information is also available in front of the traffic light, drivers do not have the authority to act on it – going through the red robot would be breaking the law (rules).

(Bogsnes, 2013) In the analogy above, the robot system is rules-based whereas the roundabout is values-based.

However, consider that the drivers adopt the following values on a roundabout – "Me first, I don't care about the rest"? This would create a serious problem in a roundabout. In the roundabout system, drivers must be considerate, open about own intentions while trying to understand the intentions of other drivers. Think of the traffic authorities as management. When management creates conditions for self-managed performance to occur, it requires values. Management has to allow for values (inculcate values) if performance systems are to foster intelligent behaviour (real-time and adaptive).

Traditional management practices may hinder practices that could make us the agile organisation we need to be. Do we want robots or roundabouts? Do we have the value system in place to support roundabouts?

© Regenesys Business School 32 Creating Purpose-driven Practices

Wright (2013) argues that one of the most important aspects of an organisation's performance management process is that it is integrated into the ways in which the organisation does business.

The process requires an anchor. Without this there will be no ownership and little sense of purpose. Wright (2013) describes: "It will feel like a stand-alone exercise that induces more frustration and cynicism than admiration and will be treated accordingly with all the suspicion and disdain that many are subject to today".

Managers must begin by interpreting strategy and establishing objectives for themselves and the employees for whom they are responsible. Wright (2013) maintains that in the absence of a strategy, two poor alternatives normally emerge: (1) High-level financial targets. Employees will argue that these have been manipulated when bonuses are not paid) and (2) Targets being set at local levels without due consideration for high-level objectives. This will create a disconnect with the big picture strategy since managers put down the things they are already working on as their pet objectives.

Wright (2013) also argues that individual training plans, training and development interventions, and the long-term approach to human resource management do not have to be pigeon-holed into the organisation's financial timeframes. The outcome of Wright's research is that "separating career and compensation discussions is an essential prerequisite for ensuring that important human resource decisions are not corrupted by a sense of individuals simply wanting to negotiate their bonus".

Equally important to the process is simplicity. Trying to fit all the requirements listed below into the process (12-month cycle) is a major feat of logistics:

• Goal setting;

• Competency management review;

• Data collection methods (eg 360 degree feedback);

• Basis of deciding all annual payments and long-term incentive decisions;

• Forced distribution curves to ensure fairness;

• IT systems capable of allowing for matrix organisations to capture manager inputs;

• Individual development plans (the most important and often the most time consuming);

• Fostering the necessary conversations (communication) between employees and managers;

• Providing feedback to employees (including coaching programmes);

• Appeals processes;

• Creation of a paper trail that will serve as a defence against any legal action to be taken;

• The closing off of one year and the next one started.

The younger generation is particularly interested in seeing the organisation's commitment to invest in their future. When selecting an organisation to work for, that organisation's level of commitment is crucial for them. The process in itself is time consuming.

© Regenesys Business School 33 The combined effect of the above should create a purpose-driven set of practices to create a meaningful engagement with performance improvement. Wright (2013) states, "no two systems will be the same, and doing it badly is worse than not doing it at all." The key message appears to be – keep it focused (purposeful) and simple.

Segmentation

Jesuthasan (2013) proposes that to achieve strategic priorities, an organisation must understand how its different employee groups drive value (strategically or operationally). Best practice organisations use workforce segmentation to accomplish this. Consider the following example:

In a global airline, having 100% of pilots operate at the expected level of performance is essential to the integrity of the business model, while having flight attendants strive to exceed customer expectations is critical to differentiating the airline on the basis of its primary strategy: customer service. It is useful to distinguish between the pivotal role (such as that of the flight attendant which is essential to implementing a given strategy) and a proficiency role (such as that of the pilot, which may be essential to operating the business at a particular level of quality but not pivotal to strategic differentiation).

(Jesuthasan, 2013) Workforce segmentation helps organisations to understand where variation in performance among employee groups really matters. In the example of the airline, pilots must perform at a certain level, but to be a high-performing airline, the differentiation lies in the performance of the airhostesses.

• Think about your own organisation – what is operationally important (eg an industry standard) and what is strategically important (will set the organisation apart from all others)?

• How does knowing what is operationally important and strategically important change the way you think about performance management?

© Regenesys Business School 34 Business Model Risk Tolerance

Jesuthasan (2013) also points out the importance of linking risk tolerance to performance management. In industries with low business model risk tolerance (eg healthcare, financial services, construction) a mistake can be detrimental to the organisation's reputation and may even lead to insolvency. Conversely, for industries with a high business model risk tolerance (eg retail industry), the negative effects of a mistake can be overcome more easily, and the consequences will be more limited.

Therefore, organisations with high business model risk will focus on meeting specific objectives within a narrow range of performance standards (little performance calibration and little or no reward differentiation) – consistency and compliance are the basis for measurement. On the other hand, organisations with low business model risk will focus on leverage and differentiation (reward discretionary effort and differentiation) (Jesuthasan, 2013).

• What type of industry is your organisation in – high business model risk or low business model risk?

• How does your current performance calibration and reward system fit with your organisation's risk profile?

• Select one job role in your organisation and determine role tolerance (narrow performance tolerance is associated with high safety or regulatory requirements). What are the implications of performance management for this role?

Declarative Knowledge, Procedural Knowledge, and Motivation

Aguinis (2013:89) poses two important questions: "What factors cause an employee to perform at a certain level?" And, "Why do certain individuals perform better than others?" To answer these questions, Aguinis points to three important elements as shown in the table below.

TABLE 4: DETERMINANTS OF PERFORMANCE

Declarative knowledge per task

• Facts

• Principles

• Goals

Procedural knowledge per task

• Cognitive skill

• Psychomotor skill

• Physical skill

• Interpersonal skill

Motivation per task

• Choice to perform

• Level of effort

• Persistence of effort

PERFORMANCE = Declarative Knowledge x Procedural Knowledge x Motivation

(Aguinis, 2013:89)

© Regenesys Business School 35

THE THREE DETERMINANTS HAVE A MULTIPLICATIVE RELATIONSHIP – IF ANYONE OF THEM IS ZERO THEN PERFORMANCE ALSO HAS A VALUE OF ZERO.

Samuel is a mechanic at a large Mercedes garage. He has extensive knowledge of the different models and how to use sophisticated equipment to test and repair faults in below average time – his declarative knowledge is high. Samuel is also highly intelligent – he can respond quickly to new product specifications and adapt to complex work schedules that require mechanics to work on several cars simultaneously. He is also physically strong. His manager also considers his procedural knowledge to be high. However, currently, Samuel does not show any motivation to perform; instead he sits in the mechanics' coffee corner at every opportunity and takes long lunches (10 x 10 x 0 = 0).

What the example shows us is that in determining performance all three factors must be assessed together – they are interdependent. Depending on the context, declarative knowledge may be the simplest to rectify, followed by procedural knowledge. What might be more difficult to rectify through a development plan is motivation. This may require a different strategy (eg job rotation, new job description, or more challenging tasks). It is useful to keep the above in mind for two reasons:

• To performance-manage employees; managers must borrow from organisational behaviour concepts; and

• Performance management is not limited to isolated measurements but it is rather a systemic view of several combined concepts.

Redefining Performance Management at the Top

Most performance management systems adopt a one-size-fits-all approach to performance management. According to Lee, Rose, and O'Neill (2013), this is around 77%. Very few organisations have been seen to tailor the process for the top tier (Lee et al, 2013).

The myth suggests that executives are competent and that the same accountability standards do not apply. When considering the complexity of the responsibilities surrounding executive roles, an organisation would produce better results "by building a distinct performance process that recognizes the unique challenges and feedback needs of executives" (Lee et al, 2013).

If the purpose of our performance management system were to, for example, drive results and build organisational capabilities, why then would we overlook top tiers?

Lee, et al (2013) raise the following issues that often disqualify senior executives from the performance management system:

• Myth 1: Senior executives do not need feedback;

• Myth 2: You cannot teach successful dogs new tricks;

• Myth 3: The money is all that counts; and

• Myth 4: At this level goals are self-evident.

© Regenesys Business School 36 Task Questions

The following excerpts are from the research of Lee, et al (2013). Using your own organisation as the basis for reflection, critically evaluate the following statement:

1. "Even when the organisation uses a balanced scorecard that includes non-financial goals (eg financial operational, people, and client), the scorecard can leave executives at a loss regarding their personal accountability for the non-financial factors."

2. "Goals are commonly established in silos and are often based on inadequately confirmed assumptions about resources or other dependencies managed by other business leaders. This creates goal ambiguity – a lack of understanding about how senior executive goals relate to the goals of their peers."

3. "Executives suffer from an appraisal paradox: the higher one's position in the organisation, the less likely one is to receive rigorous, constructive feedback."

4. "The performance management system for executives needs to reflect the 'Facts of Executive Life': the executive's public persona (representation of the company to all stakeholders); how comfortably top executives engage with all levels in the organisation; and the caretaking responsibilities including fostering community and a positive culture."

Lee, et al (2013) recommend three performance management process design factors for senior executives, shown in the table below.

TABLE 5: FOCUS AREAS FOR SENIOR EXECUTIVE PERFORMANCE MANAGEMENT

CLARITY CAPABILITY CULTURE

• Individual accountability for balanced scorecard goals

• Process to identify cross-departmental goal dependencies

• Senior executive success profile or competency model

• Internal supervisor as primary feedback source

• Supplemental feedback such as financial results, 360 degree feedback, employee surveys, and customer surveys

• Radical transparency

• Belief in potential for executive behaviour change typically facilitated in the form of cross-business unit/department meetings. Assumptions need to be vetted and goal interdependencies clarified. Based on this, a senior executive success profile (competency model) can be drawn up against which performance factors can then be measured.

Important to the concept of clarity, capability, and culture is qualitative feedback directly from executives, senior management or supervisors – received regularly and with candour (qualities of openness and honesty). External coaches have become a popular choice but should not replace the first-hand feedback from own employees (ie other managers/supervisors).

In support of the discussion above on self-efficacy, executives are responsible for creating an environment where people believe in the power of effort supported by feedback.

© Regenesys Business School 37 Task Questions

1. Evaluate the following statement in terms of your own and other organisations: The lack of appropriate tools, compounded by fear of confrontation, time pressures, misguided beliefs about the potential for behaviour change by seasoned executives and abdication of supervisory responsibilities by executives have created a situation where expectations for complying with performance management are low.

2. Carry out your own research on the term radical transparency and critically evaluate the implications for performance management.

In document MASTER OF BUSINESS ADMINISTRATION Performance Management (Page 34-41)