Effort and courage are not enough without purpose and direction, John F Kennedy once said. For companies, new year resolutions can be a powerful way to kickstart or re-energise performance management and target-setting. Studies have shown a dramatic increase in business performance when an organisation effectively sets and closely ties individual employee goals to the company's overall strategy.
However, setting targets that maximise work performance without causing harmful side-effects has proven to be challenging.
Employees may seek to achieve the performance target in a way that is not “organisationally desirable”. Negative attitudes can result in a decline in morale and a lack of motivation.
Data manipulation is another key concern. If you’re going to set performance targets, it’s important to get it right.
One of the key steps in target-setting is establishing the vision and mission of an organisation and then bringing managers and employees on board.
Take this example. Instead of measuring performance by income or profit generated, one multinational medical device company quantifies growth by the number of lives their products has impacted.
To the employees, it creates the impression that they are working toward something bigger than mere profit or margin. Although cynics might question this altruistic goal-setting strategy, it establishes an emotional connection with individuals both inside and outside the company.
However, for mid-level managers having to negotiate the politics of reporting more immediate results to senior managers, strategies associated with motivating staff are more complicated. At this micro level, it is important to appreciate what motivates their staff at an individual level.
Purpose and direction
How can managers establish performance measures and targets which provide purpose and direction to individual employees in different parts and levels of an organisation? I set out to explore this question within the complex setting of the Irish hospital sector. Overall, the findings show that managers should consider four key areas.
The first relates to handling the tension between the desired and the feasible when setting performance targets. The study demonstrates that the process of target-setting (imposition vs participation) is as important as the outcome (eg the perceived target difficulty). The implication here for managers is that each employee needs to participate and agree with performance targets in order to commit to delivering them. Failure to do so will affect motivation.
Managers should ask themselves what level of performance do they require in specific areas, how do they go about agreeing appropriate targets, and how challenging are those performance targets?
The second area relates to reward systems and the implications of achieving or failing to achieve performance targets. Rewards can range from recognition or financial rewards (eg bonuses and salary increases) to long-term progression and promotion.
Non-financial rewards are worthy of particular attention. Informal praise or criticism about an employee’s progress can significantly influence behaviour and performance.
Culture of ownership
Vocational rewards have the potential to create a culture of ownership. For example, one hospital consultant suggested that where a division achieves a target, a reward could be purchasing a chair for the waiting-room or a patient hoist, which improves nurses’ work conditions.
Whichever approach is chosen, managers should consider what financial and non-financial rewards employees might achieve by hitting performance targets. Conversely, what penalties will they suffer if they fail to do so?
The third area concerns the types of information flow required to provide adequate monitoring of performance and support learning. It is important to differentiate between feedback, which enables the undertaking of corrective courses of action, and feedforward – that is, information used to enable the organisation to learn, generate ideas and create strategies and plans.
Managers should ask themselves whether feedback and feedforward networks are in place to support the communication of performance and target information.
The final key area is the use of performance information in employee evaluations. Case studies indicate that the single most important factor influencing employee behaviour is how performance information gets used.
Managers should consider whether they adopt a rigid or a flexible style of performance evaluation and the associated behavioural implications. A rigid style sees evaluation based primarily on the employee’s ability to meet targets, and where an unfavourable evaluation will be given if targets are not achieved, irrespective of any other factors.
Flexible style
A flexible style is where target information is an important indicator of performance, but it is used in a more conscious manner and seen as just one indicator of longer-term concern with performance.
Managers need to ask themselves when it is worthwhile to alter the style of evaluation in order to achieve positive outcomes at different organisational levels and in different organisational settings.
Given the increasingly competitive business climate, the need to ensure that employee decisions are aligned with organisational objectives and goals is of principal importance.
As a result, performance measures and target-setting will continue to play a fundamental role in the world of work. However, difficult choices have to made. Managers need to reflect continually on and adapt their approaches to performance management to maximise individual and organisational performance.
Dr Michelle Carr is senior lecturer and discipline head of accounting at Cork University Business School, UCC.
