Rediscovering performance management: systems, learning and integration

Brudan, A.(2010). Rediscovering performance management: systems, learning and integration, Measuring Business Excellence, Vol. 14, no. 1, pp. 109-123.

Sources of tension in the field:

  1. The fragmented body of knowledge of performance management as a discipline
  2. Tension between the command and control style of thinking and systems thinking in organisational managerial practice
  3. The dominance of the measurement and rewards ethos as opposed to learning and improvement

Rediscovering performance management

Definition of performance

A system that achieves its purpose is considered a system that ‘‘performs’’ as planned.

From Webster :

  • 1a: the execution of an action; b: something accomplished: deed, feat
  • 2: the fulfillment of a claim, promise, or request: implementation
  • 3a: the action of representing a character in a play; b: a public presentation or exhibition.
  • 4a: the ability to perform: efficiency; b: the manner in which a mechanism performs.
  • 5: the manner of reacting to stimuli: behaviour
  • 6: the linguistic behaviour of an individual: parole; also: the ability to speak a certain language—compare competence.

Performance in management research literature

As future oriented, customized to reflect particularities of each organisation/individual and based on a causal model linking inputs and outputs.
Thus, performance is about both capability and the future.
Lebas, 1995

Measurement is necessary as performance is not an objective reality, out there somewhere, waiting to be measured and evaluated, but a socially constructed reality that exists in people’s minds, if it exists anywhere at all.
Wholey, 1996

Three priorities or governance objectives of performance (Folan et al., 2007):

  1. needs to be analysed by each entity in the boundaries of the environment in which it decided to operate
  2. is always linked to one or more objectives established by the entity whose performance is analysed
  3. is reduced to characteristics that are relevant and recognisable

Performance management and measurement

Performance management is the overarching process that deals with performance.

Performance measurement is a sub process of performance management that focuses on the identification, tracking and communication of performance results by the use of performance indicators

Performance measurement deals with the evaluation of results, while performance management deals with taking action based on the results of the evaluation and ensuring the target results are achieved.

A comprehensive picture of performance management

Evolution of performance management

Traditionally, performance management in an organisational context has been divided into three levels: strategic, operational and individual performance management.

Individual performance management evolution

The precise origin of performance appraisals is not known but the practice dates back to the third century when the emperors of the Wei Dynasty (221-265 AD) rated the performance of the official family members (Banner and Cooke, 1984; Coens and Jenkins, 2000).

In early times, organisations were loosely defined and their performance management focus was based on individuals performing tasks as part of a group.

Performance appraisals in industry were most likely initiated by Robert Owen in the early 1800s (George, 1972).

Owen monitored performance at his cotton mills in Scotland through the use of ‘‘silent monitors’’. The monitors were cubes of wood with different colours painted on each visible side. They were displayed above the workstation of each employee (Banner and Cooke, 1984; Wiese and Buckley, 1998).

In time, more complex approaches emerged, mainly driven by the military, public administration and industrial companies.

The main drivers in the evolution of individual performance management were industrial psychologists, human resources managers, organisational development and organisational behaviour consultants.

Development of performance appraisals in US industry began with early work in salesman selection by industrial psychologists at Carnegie-Mellon University, who used trait psychology to develop a man-to-man rating system.

In the 1970s in the USA and the 1980s to 1990s in Britain it was government legislation concerning such things as equal opportunity, civil rights, etc. which compelled organisations to adopt some sort of system.

In the 1990s individual performance management was reshaped by two key trends:

  • The increase in popularity of self-assessment of performance, sometimes followed by feedback sessions with line managers.
  • the integration between strategic performance management and individual performance management facilitated by the introduction of tools such as the BSC

Operational performance management evolution

Although it is aligned with corporate strategy, its focus is more functional.

Scorecards and Dashboards are some of the key tools used.

The evolution of operational performance management is linked to the evolution of accounting and management. Operational performance is traditionally evaluated in terms of efficiency and effectiveness.

Forexample in the thirteenth century, the performance of a Venetian sailing expedition used to be defined as the difference between the amount of money invested by the ship owner(s) and the amount of money obtained from selling all the goods brought back by the ship’s captain.
Lebas, 1995

It was only in the early nineteenth century when the distinction between the function of owners and managers arose, setting the stage for management processes as an identifiable and separate activity (Dainty and Anderson, 2008; Johnson, 1972, 1975, 1978, 1981).

In the first decade of the twentieth century, Frederick Taylor developed the concept of scientific management.

The ‘‘tableau de bord’’ has been quite popular in France ever since its introduction in 1930s, as a ‘‘dashboard’’ used by managers to monitor the operational performance of their organisations (Bessire and Baker, 2005).

Over time, as internal and external operating environments became more complex, organisations started to look at non-financial indicators of performance.

The Japanese quality management philosophy emerged in early 1950s to form the roots of today’s performance management theories and rules (Busi and Bititci, 2006).

The advent of total quality management (TQM) increased operations management’s concern to improve effectiveness and responsiveness. This, in turn, lead to the introduction of customer-based measures.

In the late 1980s and early 1990s, this dissatisfaction led to the development of “balanced” or “multi-dimensional” performance measurement frameworks (Bourne et al., 2000).

The rise of business intelligence software products over the last ten years had a profound impact on how companies manage their operational performance.

Availability of performance reports widened to employees across the organisation and not just to a limited number of employees, as it was before.

Strategic performance management evolution

At strategic level, performance management deals with the achievement of organisational objectives.

Corporate performance management as a term was born to differentiate between the individual and organisational levels of performance management (Bourne et al., 2003).

The key processes related to strategic performance management systems are strategy formulation and execution, both subsets of strategic management.

At strategic level, performance management as a discipline has a short history becoming established only in the twentieth century.

A turning point in the evolution of strategic management and strategic performance management was Drucker’s publication of Concept of the Corporation (Drucker, 1946).

As strategic management developed as an area of academic study, interest in companies’ strategic planning practices waned. By the 1980s empirical research in strategic planning systems focused upon just two areas: the impact of strategic planning on firm performance and the role of strategic planning in strategic decision making (Grant, 2003).

The mid-1990s witnessed a ‘‘performance management revolution’’ (Eccles, 1991; Neely, 1998, 1999), lead by the introduction and metamorphosis of the BSC.

An emerging systems-based approach to strategic performance management is represented by strategy dynamics. Strategic management dynamics is concerned with understanding and managing performance through time, focusing on the factors that explain why performance is as it is today, and how it might be managed into the future (Warren, 2008).

Such changes in the way in which performance management systems are perceived and used require a shift in the mindset of performance management practitioners from command and control thinking to Systems Thinking, from measuring for rewards to measuring for learning and from dispersed organisational performance management to an integrated approach.

Key directions for the future of performance management

Command and control and systems thinking

This type of thinking emerged as simple solutions to respond to the needs of the social, technological and economical environment of those times.

A mostly uneducated workforce and ever-increasing demand from customers focused priorities on volume, standards and control through product standardisation, work process specialisation and the use of targets.

Environmental conditions today are very much different:

  • Customer needs are more diverse and work is more complex.
  • The workforce is more educated, more mobile and has different aspirations.
  • The concept of organisation/corporation has matured beyond the initial. presentation of the concept in mid-1950s by Peter Drucker.
  • The nature of work has changedfrom mechanical work in most of the production facilities to knowledge work in the services industry.

Performance management frameworks have been slow to adapt, most of them still emphasizing financial measures and a command and control approach, based on monitoring the achievement of targets.

An alternative to command and control/mechanistic thinking is systems thinking which became popularised by The Fifth Discipline (Senge, 1990). Systems Thinking promotes a holistic approach to managing organisations. Organisations managed as systems and not as functional hierarchies put people at the heart of the enterprise, in control, enabling them to contribute, rather than being controlled (Seddon, 2008). If staff members control the work, they need managers to be working on the things beyond the control of the workers which affect the system conditions – ‘‘the way the work works’’.

A direct shift from command and control to systems thinking will be difficult for organisations.

From performance management for control to performance management for learning

Measurement has its benefits, as it provides valuable information and measuring in itself stimulates higher performance. The Hawthorn effect and the Westinghouse effect or ‘‘Observer’s paradox’’ (Cukor-Avila, 2000) demonstrate the delicate nature of the measuring process and the impact that measurement itself has on the results.

Measurement for rewards leaves room for interpretation in the process of setting targets and measuring results and quite often leads to abuse.

Proponents of the knowledge management/intellectual capital school of thought argue that:

The main problem with all measurement systems is that it is not possible to measure socialphenomena with anything close to scientific accuracy.
Sveiby and Armstong, 2004

They invoke Heisenberg’s uncertainty principle, which states that uncertainties, or imprecision, always turn up if one tries to measure the position and the momentum of a particle at the same time (Cassidy, 1993, 1998).

Empirical evidence shows that the focus on measurement for control in the context of performance management has started to diminish in the 1990s, driven by the increase in popularity of the BSC, knowledge management and systems thinking (Neely, 1999).

Effective performance management requires more than measuring and reporting in isolation.

Integrated performance management

Practice shows that communication and integration between the three levels of organisational performance is limited.

Measurement for control compared to measurement for learning

Characteristic Measurement for control Measurement for learning
Measurement drivers Management Employees
Measures development Top-down commands Process-oriented bottom-up approach
Measurement role Measuring and managing work in functional activities Measuring and managing the flow of work through the system
Measurement focus Productivity output, targets, standards: related to budget Capability, variation: related to purpose
Results communication Restricted Open
Target driven by Budget/political aspirations Understanding achievement versus purpose
Follow-up to results Rewards, punishment and action to improve results Dialogue and improvement
Learning cycle Single loop Double loop learning
Link to rewards Link to individual rewards and recognition system Group rewards, based on improvement

Alignment between individual goals and group goals is important for maximising performance.

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