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 Regenesys 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.