Managers (who in almost 95% of all cases do the assessment) are rarely direct customers and therefore have to rely on gut-feeling, goal/target/KPI compliance, hear-say, and third party information to arrive at an assessment. Now, last but not least, what constitutes performance in individuals – Achievement of goals/targets/KPIs does not constitute performance – it constitutes compliance! This is compliance with arbitrary and usually irrelevant and outdated goals whose achievement is usually outside the authority of the person being assessed against it. Therewith we are conducting an unfair assessment of something that is of no use to anybody and parading it as performance assessment and the basis for all sorts of major decisions. Ludicrous. Now performance of people is their ability to manage, improve and innovate on the processes in their assigned process map, and that one can measure and manage objectively, 24/7,it is customer centric and without involvement of the manager other than to ensure that the system is actually applied.

It’s fairly straightforward in that if you engage people, you engage them as subject matter experts. You want them to complete a set of processes either solely or as part of a team. Performance is managing, improving and innovating processes in the assigned process map. Managing means the processes are stable, improving processes is reducing variation of critical process parameters. Now, as subject-matter experts, they should be able to say ‘what we’re doing is not really what the customer needs, let me see if I can design a process that can deliver what he really needs’ – and that is innovation. In that sense, innovation becomes an integral part of performance at all levels of an organization.

Why do you believe that HR is not about setting goals or KPIs, or about assessing performance of employees. What in your opinion is HR really about then?

The contemporary role of HR has to be organisation strategic. HR has a major role to play in providing strategic direction and support in changing the organisation towards a) accepting ‘people’ (employees) as one of three performance stakeholder groups, b) managing understanding of the value map of that stakeholder group, c) assisting in the translation of that understanding into respective and relevant changes of the competency and resource architectures. HR furthermore has a role to play in compiling information of strategic people plans and coordinating career ladders, talent development and mentoring programs.

It’s about managing understanding of the value map of that stakeholder group. If you look at where performance comes from, it’s about “give the market what it wants” to be considered as having performed. But that’s not strictly true because the market in principle is based on the value map of the participants in that market. Taking it one step further – the market is an amalgamation of participants where the value maps overlap to a large degree and therefore, the critical values are the same.

In order to manage performance, you need to understand the value maps. If you understand the value map, then you can adapt your competency and resource architectures and create a concept that you then can successfully introduce into that value-map. Performance is the ability to understand your stakeholders’ value-maps and translate that into changes of your competency architecture and then being able to create a concept to successfully introduce into that respective value-map.

You believe that goals and targets are correlative measures and their use in performance management is based on spurious assumptions. However, many companies do use this as one of the primary methods of measurement. Are you aware of some of the reasons why this has developed over the years? Why do you think that these assumptions are not valid?

Well, the reasons for this development are multiple, originating even in childhood and school through emphasis on examination results etc. In organisations the development came from the direct translation of financial target orientation into broader goals (pre ‘70s) critical success factors (CSF’s n the ‘70s, ‘80s and ‘90s) and now KPIs. Traditional promotion also favour Myers Briggs’ ‘S’ dominant people, so most companies are run by ‘S’ types, which perpetuates concentration of goal-like measurements.

The real problem is that goals and targets or let’s say KPIs are relying on the assumption that there are factors that drive performance. And that’s simply not the case. There are no factors. They are a myth created by people who should know better. If you want to manage or improve performance you will have to understand causation. Performance is based on causal relationships leading back to your competency and resource architecture. So in order to manage and improve performance we will have to firstly, understand and map these relationships, and secondly, learn to manage the same. Goals, targets, KPIs and CSFs are inadequate tools and irrelevant in doing this.

As an example, we actually run an assignment in two schools. We designed the approach, moving away from the concentration on targets, goals and exams. We wanted the teachers and students to understand systematically what they were learning, by explaining where things fit and its impact on the system... the effect was dramatic. The teachers said they went through the original government-set curriculum in half the time. There was very big resistance from the teachers initially but after the principal said that they would be absolved from blame should they not manage to complete the said curriculum, they were then willing to try it out. Even students who were traditionally difficult were absolutely engaged. We couldn’t get away from exams but the results were 90% higher than what they were before. Failures? None.

They didn’t allow us into secondary schools for the pilot project; it was done at the primary level only. Exam and result concentration was viewed as being too critical for the secondary level. Yet, you wouldn’t expect those at the primary level to understand the a systematic approach purely from a mental capacity standpoint, but it happened. Teachers had difficulties to accept that result orientation actually will put the students at risk and the other thing is that it seriously impacts on their willingness to learn. A lot of teacher education was involved because they don’t really understand how to teach the systematic environment at the primary level.

You talked about the fact that very few things in the workplace are the result of independent thought and action; most things, projects and performance are not independent nor linear, effects are never running one way, impacts are rarely instantaneous. Can you elaborate on this and its resulting effect?

Organisations are social systems, and within systems structure influences behavior, effects are caused, and feedback loops exist which influence effects and impact. So, in order to influence – manage and/or improve performance – one will have to understand causation and the system in which all this happens. If I now try to manage this performance with a body of goals and targets, i.e. correlative measurement tools, I am assuming independence linearity and mono-directional properties of these measurement – otherwise they wouldn’t work or make sense. And that is as we demonstrated above a spurious representation of how an organisation functions.

Why do you believe that correlative measures, by their nature, create a static measurement environment?

Well, correlative measurement tools take past measurements and extrapolate these to some future point in time. Now, if done to the fullest, these top line measurements are then cascaded downwards throughout the organisation. But these measurements are a snapshot of a specific point in time, therefore static, and ironically the better and more complete I apply this methodology the more static my measurement framework becomes. And, alright, in principle there is nothing wrong with it, if I would try to manage a static target environment. But unfortunately business, economies, commercial environments are dynamic, and becoming increasingly so. So, correlative measures are an inadequate tool for managing a dynamic environment.

There has been much written about the effects of targets and goals that lead to fulfillment of just that target or goal. That rewards do motivate you... they motivate you to get the reward. What are your thoughts on this?

This is basically a conditioning response brought about by an environment that is not yet geared up for the satisfaction and motivation generated by systematic understanding of your environment. Your superiors, parents, teachers, ‘authority persons’ are at their current position and have been taught accordingly that target achievement is the purpose in life and they spread that message. Strangely enough, people pursuing systematic understanding have far superior performance in whatever they do, but it requires substantial rethinking of our underlying assumptions on performance. And people in general loath to do that.

Do you believe that if people have a systematic or holistic understanding of what they do, of the impact of their work on other functions and the organisation as a whole, that they would understand better, perhaps understand more and therefore, feel like or be induced to give more of themselves?

Yes, and there are numerous instances that validate that answer. We worked with a particular bank in England, well reputed but small. We put the responsibility and authority of managing the client relationship to the branch level. The head office was resource support. Performance management was based on understanding causal relationships, the whole goal/target/KPI infrastructure was dismantled. After implementation they had an annual increase of asset base of 1500%, later maintained at 700%. NPL (Non Performing Loan) ratio was half of industry average and best in class. They were in the shortlist for “Best Places to Work At’ for many years. Why do people have difficulties to accept this shift away from KPIs even if it’s proven? Loss of face perhaps. Also, it goes against so many aspects of their learning. If it only would go against one aspect, then it can be accepted. If there are too many aspects, inertia sets in.

In the paper you presented at the HR Summit you mentioned that encouraging employees to achieve more or less arbitrary KPI’s or goals, even when these are derived sensibly does active harm to the organisation, especially in the context of ‘stretch’ goals. Can you elaborate on this point?

People, being humans, like goals and targets – they have been conditioned for that since childhood – so, if you give them KPIs, even stretch KPIs, they will do their upmost to achieve these, and they, more often than not, will do so – BUT they will kill to achieve this. They will practice what we call ‘Scorched Earth’ to achieve the target, no matter what the cost to the organisation. There is no incentive whatsoever to systematically understand their work environment, no incentive whatsoever to assess the impact of their action on the greater system, etc. Therewith the more stretch the target the more damage to the system and the environment.

What do you see as the distinction between conformance and performance?

Conformance here means the achievement of a certain goal or target without consideration of its relevance, applicability, or benefit – other than having achieved it. Performance here means a desirable output of the system, an output the system was designed to achieve. And that is causal.

How do you suggest we approach this?

Abandon goals and target for managing performance in any form or fashion. It is not a useful methodology and creates a dangerous mantel of conviction that we are planning, managing, and improving performance with that, while in reality we are doing no such thing.

John summarised his argument by advocating a dynamic measurement system as the solution. As performance is based on causal relationships, performance outbounds relate to the value-maps of your performance stake-holders (customers, people, society) and these value-maps are dynamic, therewith markets, for example are dynamic. Therefore, performance aspects change over time which we can visualize in a graph; the underlying causal relationships therewith also change over time and these are the things we should measure and manage. When we do that, our measurement and management system becomes dynamic and mirrors the target environment.

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John Heptonstall is Managing Director and Group CEO of TWC Consulting Group.