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The Performance Management Myth

12/04/2013 17:07 BST | Updated 12/06/2013 10:12 BST

Don't waste your time on performance management systems. It wastes time, squanders money and is a distraction from the day job.

A nagging doubt

I think I've been wasting my time. What's more worrying is I've wasted a lot of other people's time too. Over the years, I've designed and delivered a great many programmes aimed at helping managers implement performance management systems. But if truth be told I've always had a nagging doubt that what is nice in theory doesn't match the reality of life in business.

Performance management systems within organisations require managers to hold a review conversation at least once a year, during which the performance against the target set is reviewed and scored. This score in part determines what the managers get paid and the size of their bonus. I've yet to meet a manager who looks forward to conducting the annual reviews.

I say ditch performance management systems. It's the most effective tool for driving mediocrity into a business that I know and if ever there were an example of 'Emperor's New Clothes' in business, this is it. In case you are thinking this is polemic, look at the evidence. In one of the most comprehensive and accessible reviews of performance management, Michael Armstrong draws upon the evidence of many academics and practitioners and concludes that whether or not it's a good idea, performance management doesn't improve performance.

Here are just a few examples:

Business is complex

It attempts to simplify the pluralistic nature of business and pretty much ignores the power of context on performance. A multitude of variables can impact on performance and many of these are outside the control of those involved. In addition, sometimes an individual's goals have to be sacrificed to achieve something else. Business is complex and attributing performance to one factor or another is an example of the arrogance of ignorance.

Qualified?

A performance review is an intimate exploration of why someone has done the things they have done. I don't see certificates on the wall telling me managers are qualified to conduct such discussions. Rather than reveal the capability of the subordinate they are more a showcase of the competence of the manager (or otherwise) in conducting such intimate discussions, and an illustration of how often the decision is based on gut feel, post rationalised, into the justification given.

Management is complex

Because it is not uncommon for roles to change, managers and or subordinates to swap roles during the course of a year, complex proceedings are put in place to capture who is meant to feedback on what issue and what the balance of the rating should be given to these changes. All of which creates an illusion of fairness but in reality is nonsense.

Looking in the rear view mirror

By definition a review of performance looks backwards on what someone has done - as if you can do anything about that. It's too late, it's history. Surely time would be better spent helping someone improve their performance rather than appraising them on what they did or did not do.

Is it all bad?

No. What seems to be really important is setting goals. The good news is you don't need a performance management system to set a goal. Research over 14 years by two academics Latham and Locke found that people set hard goals typically perform better than people set moderately difficult or easy goals. All goal setting was better than simply saying 'do your best'. In one study, drivers in a logging company were set challenging but possible goals about the amount of wood they should load. Now here's the thing they were set no reward for achieving the target nor was there any consequence of not hitting the target. Within three months, performance had shifted from achieving 58 - 63% of capacity to exceeding 90% of capacity. The study was replicated with typists and later with engineers and the same effect was achieved - a significant increase in performance.

This makes sense to me. Every year, thousands of individuals set themselves challenging personal goals, be it running a marathon or completing a triathlon or writing a book. They achieve success without being 'performance managed'. The right goal is motivational in and of itself. There were no consequences if they succeeded or failed, and yet they chose to take on the challenge and strived to achieve their goal.

Contrast this to the "SMART" goals set in performance management reviews (SMART stands for, 'specific, measurable, achievable, realistic / relevant, and time bound'). I don't want an 'achievable' (A) and 'realistic' (R) goal. That's boring and uninspiring. Quite frankly I want an 'awesome' and 'ridiculous' goals (as introduced by Steve Dermott in his talk to the London Business School). These are the sorts of goals that put fire in the belly, that create a nervous tension. The idea of achieving the goal is exciting but it's going to be a challenge to get there. Doing something awesome and ridiculous encourages us to challenge what we think we can do and push the boundaries a bit further.

However, if you start putting links from goals to pay and salary reviews, the instinct reaction is for people to drive that goal as low as they can - the consequences of failure are not worth the price. The result? People set mediocre goals and so the business is dragged down to a level of performance people believe they can do without risking too much.

The cost

Let's assume each review takes an hour to do. Add in the preparation for the review from the subordinate as well as the administration required of the manager, the total is about three hours per employee. Then we need to add in the HR time to design, develop and manage the system and we need to train people on the system. Let's not forget the IT costs with developing online tools and software licences. To cap it all I've not yet met a company that doesn't tinker with the system from one year to the next and this adds more time. It's a gut feel, but I reckon for every 100 people an organisation, the company wastes, sorry spends, the equivalent of the cost of a manager per year. All that money could be spent actually doing business.

Does performance management happen?

Of course it does. It's the quick chat at the end of another discussion, it's the meeting to update on progress, it's the lunch taken together to catch up. Notes are taken if they are needed in a way that suits the note taker. The experience of the manager and subordinate determines how often and for how long these meetings need to be. The complexities are debated and discussed and decisions taken. Such discussions don't need the 'Emperor's Clothes' of a performance management system wrapped around them.

I agree with William Deming, a leading thinker on total quality management, in his analysis of performance management in 1989. He concluded amongst other things that we should "Remove the barriers that rob hourly workers and people in management of their right to pride in workmanship. This implies inter alia, abolition of the annual merit rating (appraisal of performance)".

To misquote Robert Heiniein: "performance management is like teaching a pig to sing. It wastes your time and annoys the pig."