In this essay, Alasdair White discusses the new realities affecting performance management and the the relationship between the organisation and its staff.
We are all concerned with enhancing the performance of our business – and I take that as a given – and many of us are searching for way to do this. But the real question is: what exactly is it that we are looking for? What exactly is this Holy Grail – Performance Management?
Behind the interest in this subject lies a very confused understanding of what drives performance within a company. Over the last few years much of modern management thinking has focused on the systems and processes used in a business – re-engineering has been all the craze and yet even Hammer and Champy, who invented the term, have come to admit that upwards of 80% of all re-engineering projects fail. And the reason is the same as to why most such programmes fail – lack of understanding of the fundamentals.
Let’s have one thing entirely clear – you can re-engineer processes and procedures but you cannot re-engineer people and it is people that form any business. There are very few companies that are so automated that they employ no one at all and yet the owners and managers of companies are forever forgetting that their people walk out of the premises at the end of the day and there is no certainty that they will walk in again the following morning. So why is this?
The New Working Relationship
One fundamental factor is the understanding of the reality of the working relationship. There can be few people who work because they want to. How many would actually work if they had enough income to meet all their needs without having to work? None.
The reason people work is to earn money which they can then exchange for the necessities and luxuries of life. If we look at any theory of motivation, perhaps taking Maslow’s approach as an example, we find that people have needs which have to be satisfied. Physical security needs come first – the ability to feed oneself and one’s family, to clothe them, to house them and to maintain a reasonable level of health. These are the primary needs and until these are satisfied nothing else matters. After that come others such as status needs – having a television, a car, a better house, sending the children to a better school, designer clothes. Or there is social and belonging needs – being a member of the right club, being a member of the PTA or the Church lay preaching team, having the right job in the right company.
The one thing all these have in common is that a good deal of these needs can be supplied in exchange for money and thus people need to earn it.
But here’s the crunch – they need money, not a job. Each one of us has skills and attributes and time at our disposal and our direct responsibility is to use them to our best advantage – not the advantage of a faceless company, but to our own advantage. We need to sell our skills, attributes and time for the highest amount of money – in exactly the same way as a business sells its skills, attributes and time to make a profit. Indeed, each member of our workforce is a ‘business’ and is looking to sell to the highest bidder.
The main market for these individual businesses is the commercial and governmental world. To run at all, government and business need people to operate their processes and to make things happen. They need people who can and will be willing to sell the organisation their skills, attributes and time. The organisation is a buyer and the work “force” are the sellers.
And let’s be clear about this – a buyer does not need to buy from a particular seller, nor does a seller have to sell to a particular buyer – there is choice. The one thing that binds them together is their mutual desire to achieve a “profit” or income from their activities. Although there is no real link between a particular buyer and a particular seller, there is a market force in play – there are limited buyers and limited sellers in any market and the profits (income) will go to those who buy wisely or sell wisely.
With this understanding, it becomes clear that the relationship between a worker and a business for which he or she works is governed by a different dynamic to the one that most companies seem to assume still exists. Workers and companies are completely and totally interdependent and that neither side is “in control”.
In this real world we must, therefore, have a much clearer understanding of the dynamics and expectations about performance. Gone are the days (if they ever really existed) when a company can demand a higher and higher level of performance without balancing the other side of the equation.
In a real world relationship the worker has agreed to “sell” his skills, attributes and time (which are the elements of performance) for a specified price. The other side of the bargain is that the organisation has agreed to “buy” that performance and, provided the agreed performance is delivered, the organisation has to pay the agreed price.
But how many companies or governmental organisations have agreed a performance and a price with their workers. Sure, they do it all the time with their suppliers and customers while carefully forgetting that their workers are “suppliers” as well.
If performance is to be maintained, then it is imperative that both sides understand this relationship and operate it fairly. Each and every job description – from the managing director and his board colleagues down to the lowest manual worker – should have realistic performance criteria set at the beginning of each accountancy period with clear and precise methods of measuring that performance. If that performance is delivered – and only if it is delivered – then the person is entitled to be paid the agreed price. Failure to deliver the performance means a breach of contract and the person can be asked to go. But the other side of this is that if the performance is delivered then the price must be paid. At this level most managers have little problem with the concept – except they feel that, somehow, they should not be governed by it personally.
But it is the other side of the performance equation that fools them. They think that they can ask for a higher and higher performance without doing anything to compensate the worker with an increased payment. This is simply an aberration in thinking. If you change one side of a contract then the other side has to be changed to maintain equilibrium. So, if an organisation wants a higher-than-agreed performance then they must pay a higher-than-agreed price. The equation has to balance and it has to be a win-win relationship to be in balance.
Performance management is about getting the elements of the equation in line with the goals and objectives of the organisation.
The starting point is to identify the corporate and organisational goals and then determine the desired performance from each and every person in the organisation if these goals are to be achieved. Each person then needs a contract to cover the period concerned – the contract must specify the performance levels (called MPS or Minimum Performance Standards) to be delivered and the agreed payment for that performance. This is obviously something that can only be determined by the company or organisation, as they are the only ones who can determine the performance criteria and how much they are worth to the organisation.
This contract must then be agreed with the person concerned – if they feel they can deliver the performance, then they must decide if they feel the payment is fair. If they think it is, then a contract can be signed, if they don’t then one side or the other of the equation has to be renegotiated. The contract cannot be imposed in a free market environment.
Now, if the organisation wants a higher performance at some point during the contract then they need to negotiate a new contract or an additional contract. A changed performance requirement (or EPS, Enhanced Performance Standard) means a changed price.
But let’s not get too hooked on the word “price”. Price can be a combination of salary or wages (the regular sum payable for the MPS) + vacation + training + almost anything imaginable provided the person feels this is of value to them and fair compensation for the increased performance.
A word of warning: don’t increase a person’s salary or wages unless there is a permanent increase in the MPS. If you are dealing with an EPS – an above MPS performance – then the payment has to be directly linked to the EPS alone.
The organisations that are going to succeed over the foreseeable future are going to be the ones that understand this new work relationship and how to establish and implement real performance management. The organisations that fail to recognise this and fail to develop the skills of their managers to implement it will, quite simply, struggle to survive and will eventually go under. The new global economy is completely unsympathetic to the methods of the old-economy and frankly, there is nowhere to hide.
© Alasdair White 2000