Humane Performance Management

It´s that time of year again. Those dreaded KPIs have to be set and
the task of measuring employee performance begun. But are the
measurements we make an accurate reflection of actual performance? This
week´s newsletter examines all the reasons why they aren´t and offers
new, more “human” approaches to moving employee performance in the right
direction.

What you measure is what is actually being done?

An entire industry of books, gurus and consultants has emerged out of
the idea that, in performance, “what you measure is what is actually
being done”; i.e. that performance measurement is an exact science. This
is despite the demonstrated facts that in countless organisations around
the world, even with rigorous performance management in place,
operations often run far from smoothly.

Look at the strategic plan of any large organisation and you will be
impressed. Yet, for all the balanced scorecards, KRAs and KPIs that top
management can devise, you are likely to find that, the further down you
drill, the less clarity people have about what is really required of
them. Whenever business school conducts a skills audit, it
invariably emerges that there is a sizable gap between how important an
individual thinks a skill is to their job and how important his/her
manager thinks it is. This gap is often as large as 80%! Interesting
research also shows that most people do not like having set goals and
tend to deliver a lower financial performance when there is an
over-definition of goals. In fact, it has been shown that people fear
being measured more than they fear their actual goals. The result is
that organisations with overdeveloped cultures of performance
measurement often fail to meet their service delivery targets.

Furthermore, the existence of innovation and performance measurement
in the same space seems an untenable paradox. Innovation is
discontinuous, often unpredictable and disruptive; whereas performance
measurement depends on continuity to function.

To take it a step further, consider the fact that your customers
measure you every single time they engage with you. But does a customer
satisfaction rating really represent the entire scope of emotions a
customer goes through when they engage with you? Which one of those
emotions will decide their future loyalty? The typical single post-call
call centre rating is an insult to both your customer and your employee.
If you´re going to measure your staff in these interactions, you need to
be a lot clearer about what you are measuring and the actions required
for satisfactory performance.

Furthermore, according to Professor Kahneman, a Noble-prize-winning
Professor of Psychology and Public Affairs at Princeton University, a
large body of literature from behavioural economics and psychology finds
that people often make inconsistent choices, fail to learn from
experience, exhibit reluctance to change, base their own satisfaction on
how their situation compares with the satisfaction of others and depart
from the standard model of the rational economic agent in other ways. It
seems that, by our very natures, we are so irrational as to defy any
rational measurement!

For all this, unfortunately, it seems that the institutionalised
over-reliance on performance measurement systems is an old habit
insisting on dying hard.

So does this mean that performance measurement has been found
completely wanting and should be discarded altogether? The generic
response, of course, is that there would be utter chaos without it. But,
in light of what has already been discussed, it´s a question worth
asking. At the very least, we need to seriously rethink our approach to
measuring performance.

If not performance measurement, then what?

Naysayers may argue that performance measurement should be retained
simply because there are no alternatives. Once again, this is not what
the latest research is suggesting.

Most companies agree that measurements of two to three really key
performance areas are required to drive effective financial performance.
But performance ends with the bottom line; it doesn´t start with it.
Performance begins with the “performer” – the human being actually doing
the work. And human beings require certain conditions in order to
perform optimally.

Doesn´t this bring us back to measurement again; i.e. the measure of
an individual´s happiness? Yes it does, but this is not the rigid
unrealistic measurement to which business has grown so accustomed. For
the most part, it means being observant of and sensitive to your
employees. Whenever you are doing this, consider Professor Kahneman´s
review of various studies, which yielded the following indicators.

Indicators of high life satisfaction and happiness

• Smiling frequency

• Smiling with the eyes (“unfakeable smile”)

• Ratings of one´s happiness made by friends

• Frequent verbal expressions of positive emotions

• Sociability and extraversion

• Sleep quality

• Happiness of close relatives

• Self-reported health

• High income, and high income rank in a reference group

• Active involvement in religion

• Recent positive changes of circumstances (increased income,
  marriage)

(Sources: Diener & Suh, 1999; Layard, 2005; Frey & Stutzer,
2002)

What´s more, by starting from the beginning, this approach, rather
than merely measuring performance, goes so far as to actually predict
it. Count on it; employees who are maximally engaged in their work and
happy with their work environments will contribute positively to your
bottom line.

You may, however, still feel uneasy about all of this. You may think
that all of the items on Kahneman´s list go without saying and so are
unworthy of further consideration. You may also argue that “happiness”
is simply too abstract a quality to be measured and so is worthless as a
predictor of performance.

Perhaps what´s needed is a deeper understanding of what measurement
means. When we measure something or someone, what we are really doing is
assigning a (quantitive) value based on observation. The objective of
measurement is to reduce uncertainty by creating a tangible number with
which to work. The problem that generally accompanies measurement in
these strictest of terms is that the people doing it fail to understand
that reduction of uncertainty is almost never tantamount to its
elimination. In effect, science uses the term “measurement” to mean
“observations that reduce uncertainty about a quantity”. The next myth
that needs to be busted, therefore, is that measurement with any margin
at all for error is worthless. As Douglas Hubbard, author of “How to
measure anything”, suggests, what we need to do is reframe measurement
in our minds – not as certainty but as a process that helps to reduce
uncertainty and improve understanding. It is the direction that matters
– not the destination.

For example, in processes like setting service levels (e.g. responses
to support requests, delivery of goods and services within a certain
time frame etc.), it is first necessary to know the service levels of
which the organisation is capable in the first place – i.e. you need to
set the (minimum) bar. This will reduce the level of uncertainty and put
you on track to defining an appropriate unit of measurement. Many
organisations fail to conduct this preliminary exercise, defining
required service levels without any guarantee as to whether these levels
are truly feasible. The result, once again, is the collapse of those
beautifully crafted strategic goals. This parameter-based approach to
measurement is the basis of Six Sigma and other effective
measurement-based disciplines that have emerged over the past few
years.

So what can be concluded from all of this? Measures don´t have to be
100% correct to have value. The joy and indeed the usefulness of
statistics are to be found in treating them imaginatively; with as much
respect as irreverence. Imagination is what allows us to envision the
future suggested by statistics. This acts as a springboard for decision
making that accommodates both the numbers and your intuition (which, it
seems, you are going to use no matter what you learn to the contrary).
Measurements are useful where they show how a system functions and
disconnects. If these measurements are to be used to institute real
change, proper throughput analyses and experimentation to set new limits
for processes are required.

As for the big threatening spectres of the KPIs of old; you could go
on rationalising them forever or you could respond to what the facts are
saying and what your instincts are hearing by plotting a new, more
realistic course for the future management of your employees´
performance. Measure to reduce uncertainty, understand throughput, and
consider a parameter-based approach instead of absolute measures. Set
realistic yet challenging goals and then measure whether they are
pulling you in the right direction, and not how quickly and how
precisely you have reached the summit of some overblown, hypothetical
Mt. KPI.