Hitting the target and missing the point

12 February 2013

Pietro Micheli

The recent scandals involving Mid-Staffordshire NHS Foundation Trust and the banks Royal Bank of Scotland and Barclays are examples of bad performance management practices says Dr Pietro Micheli.

And the Warwick Business School Associate Professor of Organizational Performance believes such practices should be dramatically improved if we want to prevent these events from occurring again.

From healthcare to banking, the use of performance management tools (objectives, indicators, targets and rewards) has been identified as a primary cause for the catastrophes. But Dr Micheli believes using targets can still help Mid-Staffordshire, Barclays and RBS drive a new culture at their organisations, as long as this time they are used properly.

Dr Micheli said: “We should not be surprised if performance management tools not aligned with an organisation’s priorities and values create dysfunctional behaviours.

“These tools should always be related to a wider managerial and cultural context; if disconnected or, worse, inconsistent with purposes and values, they are likely to generate exactly those behaviours organisations are trying avoid. As Robert Francis, who led the inquiry into Stafford hospital, remarked ‘failings were in part due to a focus of reaching targets… at the cost of delivering acceptable standards of care’.

“In principle, objectives, targets and indicators are introduced to communicate what an organisation is trying to accomplish. Essentially, they express and relate to something that we aim for. Also, they should provide a sense of aspiration that simply saying ‘do your best’ could not achieve.”

In trying to change the culture of an organisation Dr Micheli still believes performance management tools should be used, but they have to be used properly.

“Our research has found that not only objectives, targets and indicators are pretty standard management tools, but they also appear to be quite beneficial, though financial rewards much less so,” said Dr Micheli.

“Performance measurement and management is incredibly effective when it comes to focusing employees’ attention and driving their actions.

“When failures are uncovered, as in banking or healthcare, cultural change is often invoked as the only way forward. But change of this scale is incredibly difficult to achieve, and takes a long time. Also, several commentators argue that a good starting point would be to scrap all those perverse performance management tools. But this would not necessarily help.

“Sure, misaligned objectives, targets and indicators can have dysfunctional consequences. But if we want to be a patient or client-centred organisations, do we really want to measure and reward our people on output (number of patients treated or mortgages sold)?

“If we want to foster compassion, do our employees’ careers have to depend mainly on their capacity to reduce cost? If we want to achieve long-term sustainability of the business, why do we reward our staff on quarterly results?

“Performance management can be a force for good only if it expresses and specifies an organisation’s vision and values. Importantly, it neither should nor could ever replace them.

“Good leadership is not about giving objectives and ‘motivating’ employees using carrots and sticks. It is about creating a shared picture and a sense of purpose - which could be related to an individual’s role and tasks through objectives, targets and indicators. And good performance management is first and foremost seeing what happens in our offices, branches and operating theatres; what our people do; which services our customers receive; and, ultimately, understanding whether we are achieving our aims.

“Objectives, targets and indicators should always be regarded as powerful means to achieve those ends, but never as ends in themselves.”

Dr Micheli, who has been a consultant for BP, KLM, Orange and the UK’s  Department of Health, put together five tips to make sure performance indicators work:

1) Be clear about your values and communicate them (rather than enforce them) to all employees

2) Objectives, targets and indicators should reflect and detail such value.

3) Involve employees to develop and agree objectives and targets

4) Introduce rewards only in very specific cases, e.g., when the person being rewarded can strongly influence what he's being measured on; when he works   mostly as an individual rather than part of a team and when the manager has very good information about what the employee does. Also, only do it when the performance management system is sufficiently robust (i.e., tried and tested especially to mitigate dysfunctional consequences).

5) Keep the system connected to your values and strategic aims all the time through regular reviews, especially during periods of change.

Dr Pietro Micheli is Associate Professor of Organisational Performance and teaches on the Executive MBA and Msc Management courses.


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