Performance Management Systems The Paradox of Performance Management Systems

And Their Effect on Corporate Performance

Performance Management Systems including annual performance reviews are only as effective as the contextual relevance and insight of a manager or leader into how to create greater alignment of personal and professional goals of an employee. The continued evolution of performance management systems provide a useful index of how management and leadership theories have progressed beyond obvious measures of productivity to the more difficult, nuanced aspects of getting results. The techniques used during the industrial revolution era where output was one of the most prized metrics of performance have today been replaced by more elusive yet very valuable metrics of cognitive and intellectual contributions.

Unitarist approaches to Human Resource Management (HRM) strive to create a highly collaborative work environment that is predicated on a common purpose and shared goals and that there is often an optimal series of processes or best practices that can deliver the highest possible performance of a given activity (Geare, Edgar, McAndrew, 2006). HRM practices based on a unitarist approach to leadership and management see conflict as an aberration and indicator of dysfunctional or misaligned relationships and expectations between labor and management (Boselie, Brewster, Paauwe, 2009). Unitarist-based HRM performance evaluations concentrate on social context and the role of the individual as a member of a collaborative, highly integrated culture (Rice, 1977). Critics of unitarist HCM say that is neglects to address the wide chasms of authority and privilege in enterprises, and conflicts are not dealt with realistically (Boselie, Brewster, Paauwe, 2009).

The Pluralist frame of reference for industrial relations (IR) sees conflict as inevitable and that there will always be an inherent level of tension and different priorities between groups and subgroups throughout an organization (Horwitz, 1991). Pluralists strive to see and create organizations that are very egalitarian in their structure and distribution of power and information (Geare, Edgar, McAndrew, 2006). Given the diametrically opposed views of Unitarist and Pluralist approaches to HRM and IR, transformational leaders are often the most effective in guiding organizations where both mindsets are present. Transformational leaders are able to combine individualized consideration, intellectual stimulation, inspirational motivation and idealized influence into their approaches to managing situations, subordinates and uncertain situations (Purvanova, Bono, 2009). The effectiveness of any performance management system including performance appraisals (often given annually) and supporting frameworks is highly dependent on just how insightful, perspective and transformational a given leader can be (Arrowsmith, Parker, 2013). It is the intent of this analysis to assess the paradox of performance management systems from the standpoint of how it continues to change workplaces today. The challenges that these changes are creating for Employee Relations (ER) professionals is also explored.

Exploring the Paradox of Performance Management and Its Change on the Workplace

The traditional performance review, often completely annually in many organizations, is based on practices from the 19th century where foremen would evaluate the performance of production workers using color-coded boards and other means of communicating performance. The origins of performance review were based on production capacity, efficiency and speed while today the most valuable contributions of employees is their insight, intellect, and ability to solve complex problems (Arrowsmith, Parker, 2013). Regrettably many organizations are using performance management systems much like shop foremen did in the 19th century, ignoring the far greater intellectual and cognitive contributions of employees because they are simply not as easily measured as how much work a person produces (Horwitz, 1991). This is the paradox of performance management, as these systems and processes are designed for creating and cultivating a culture of conformity to production and output quotas and standards even in knowledge-based businesses. This is why transformational leadership is so essential today, as an organization leader will be able to pierce through the long-held assumptions that anchor performance management systems in place and re-center them on more accurate measures of contribution and performance in the 21st century.

One of the most profitable and well-run businesses today is Google. Their approach to performance management concentrates on a 360-degree performance review process, coupled with self-assessment and the opportunity for the subordinate to rank their manager at the same time (Iyer, Davenport, 2008). Theorists would consider this approach to managing performance as unitarist in that these review processes would lead to a more unified, collaborative organization as superiors, subordinates, contractors and senior management would all seek higher ratings based on reciprocity. Google's senior...

This creates an intense level of competition where everyone is trying to excel, serve each other, help each other and themselves grow professionally while attaining their work objectives. This cultural factor is often mentioned in the filings Google has made with the Securities and Exchange Commission (SEC) where senior management asserts this approach to performance management, combined with the Rule of 20%, has led to products that today deliver over 50% of their revenues (Google Investor Relations, 2014). The Rule of 20% states that any engineer or programmer is free to invest up to one day a week in a project or invention of their choosing that is relevant to Google's business (Iyer, Davenport, 2008). The proliferation of innovation that is occurring at Goggle today is a direct result of taking the best of what unitarist and pluralistic approaches to HRM and IR have to offer and engraining it into their performance management process. Google's success with this approach of performance management also shows just how antiquated traditional measures of performance including just measuring output are.
Google and the companies it competes with operate at a level of performance that must be supported by performance management systems that nurture and strengthen a culture of innovation. For knowledge-centric businesses that fuel new revenue growth with patentable ideas, performance management systems must also reward collaboration while ensuring the competitive edge necessary for creating entirely new products stays in an organization. Balancing the dualities of a unitarist and pluralist approaches to HRM and IR while attaining a consistently high level of employee engagement, effort and commitment is one of the most powerful catalysts of growth Google has today (Google Investor Relations, 2014). This triad of factors and the ability to infuse meaning, purpose and a compelling vision into every engineering and programming role in Google also shows how engrained transformational leadership practices are (Purvanova, Bono, 2009). It would be naive to believe every manager is transformational in the company, yet there is ample evidence to suggest Google's HRM strategies, systems and frameworks are designed to find, promote and strengthen the best leaders (Iyer, Davenport, 2008). Those managers who can't scale to these demanding roles are often moved to individual contributor roles and will over time leave the company to form their own start-ups, a trend Google senior management measures very closely as they have called it a "brain drain" in their filings with the SEC (Google Investor Relations, 2014). Google emerges from this analysis as a microcosm of how knowledge-based businesses make the performance management process a core part of their culture, an engine of innovation, and a means to arbitrate conflict successfully to drive greater innovative outcomes and achievements.

The Challenges Facing Organizations Facing the Paradox of Performance Management

The balance of value for performance management systems and techniques is shifting away from the organization to the employee, following the balance of power shifting more to knowledge and less to pure output. This shift in the balance of power further accentuates the severity of the paradox of performance management, making managers often revert back to pluralistic approaches to evaluating the work environment and performance (Arrowsmith, Parker, 2013). Anachronistic uses of performance reviews is more demotivating than motivating (Mathison, Vinja, 2010). The greater challenge facing organizations today is getting their managers to be less myopic and more cognizant of just how fast the nature of performance management is changing. This accentuates the need for transformational leaders to drive greater identification of an organizations' goals and individual contributor's career aspirations into a corporate culture (Purvanova, Bono, 2009). This is precisely why the Google model works so well; every developer and programmer wants to eventually run their own start-up and Google gives them the opportunity to do this while still working for the company (Iyer, Davenport, 2008). The lack of transformational leadership in many organizations is the greatest challenge to making performance management systems more effective and attuned to 21st century realities, not locked in 19th century metrics.

Challenging the status quo of the performance management process that is based on an ecosystem of counseling and support, induction and socialization, reviewing and appraising performance, and reinforcing performance standards is going to force greater pluralism and even balkanization of organizational structures. This will be the most challenging long-term problem for organizations to deal with over the long-term and one that will also require leaders with transformational skill sets supported by situational awareness and emotional intelligence (EI)

(Purvanova, Bono, 2009). The traditional ecosystem…