Friday, November 27, 2009

Performance Management for a Complex World

A thought provoking presentation was recently hosted by the Manchester branch of the IET on Performance Management in a Fast Moving World presented by Dr Therese Lawlor-Wright (University of Manchester), Elizabeth Jovanovic (EEF) and Andrew Wright from Dynamic Technologies Ltd.

After a brief introduction in to what performance measurement was (determining the quality of execution, competence and effectiveness of a actor or operation compared against a standard) and how it could be applied to both people (typically in the form of appraisals) and processes and systems (typically in the form of project reviews), the presentation made a few key observations about how performance measurements are currently performed.
  • Organisations define performance measurements at the strategic level to see how it can achieve goals, often stated in terms of cost, quality, time and reported against a number of key performance indicators (KPIs). These can then be used to communicate and confirm (or adjust) progress.
  • Any KPIs used must be balanced, fair and transparent
  • The performance measurements must include indicators of the effectiveness of the organisation (the extent at which the strategic objectives are being met) and the efficiency of the organisation (how economically the resources of the organisation are being used to provide the level of performance).
Whilst the measurements can be useful, there was a word of caution in the unwanted effects of performance management systems (cited by De Bruijn (2002))
  • The measurements will take too long to accumulate and will soon be out of date (data lag)
  • Competition between teams or business units can result in a tendency to not share valuable data
  • The measurements can stifle innovation at the expense of efficiency
  • There will be 'game' playing to maximise the 'score'
These effects will dominate in the long term. To counter this, the measurements must be refreshed regularly. This should ideally be every 2 to 3 years, as this gives sufficient time for the data to be used for benchmarking/comparison purposes but short enough to counter the complacency that can arise.

Managing Performance

Having established the measurements to be made, the presentation moved on to the application of the measures in the form of performance management. Performance management needs to be both process-oriented and people-oriented and must be a continuous process (and not just an annual activity which is often the case). By being continuous it helps to clarify expectations, standards and targets and allows for any corrective actions to be addressed as soon as they arise. The most common approach for people-oriented performance management, the appraisal, should link individual targets to organisation targets but must be an opportunity to praise and develop. As expected, the audience was reminded that all objectives must be SMART. However, an alternative method of specifying a target was proposed - 'Positive - Personal - Present' which can be used to change behaviour. It can improve staff morale if done correctly, as it apparently tricks your subconscious mind into acting positively (the targets should be written starting 'I ...'). There was a strong suggestion that contrary to many organisations, performance management must not be linked to remuneration since it results in a warped approach in order to fit in with the inevitable budgetary constraints.

The Complex World

The complex world was defined as fast moving (continual change, increasing hierarchies of complexity) together with increasing challenges (timescales, budgets, mergers, multiple dependencies). These require that performance management is aligned with the business strategy. However, the classical approach to strategic management with a top-down controlling hierarchy was considered unsuitable. For complex systems,a more holistic approach is required with a thoughts being contributed from the bottom upwards.

With a fast changing environment, long-term plans quickly lose touch with reality with inflexible KPIs driving behaviours that fail to respond to the real-world challenges. Inconsistency between the strategy, real-world reality, the KPIs and the objectives inevitably quickly leads to poor performance. Clearly there needs to be an alternative approach to performance measurement which is both flexible and efficient.

Taking some of the ideas from the Agile Manifesto, a more lively and dynamic approach developed by consensus which adapts to the changing environment was proposed. This approach addressed many of the unwanted effects with the traditional performance measurement schemes by being much more efficient and flexible with an empowered organisation with a shared vision. Use of such techniques such as the Balanced Scorecard and the EFQM Excellence Model can clearly help in communicating a comprehensive view of an organisation.

Key Conclusions
  • Strategy must become change oriented with a dynamic response in a controlled manner. The route to the strategic vision may change.
  • Long-term plans leave companies without direction
  • KPIs and objectives must respond to the changing needs
  • The measurement process must be flexible and efficient
  • Good performance must be encouraged by reducing uncertainty
  • Organisations need to move from optimising the 'simple' status quo to optimising 'complex' continuous change