David Hall How ‘smart’ are targets? CERI ‘Hot Topic’ Session One can say with some confidence that one of the outstanding achievements of targets in recent years has been the ability to attract very bad press. Only last week, the headlines were all about the Healthcare Commissions report into Mid-Staffordshire NHS. Last Wednesday, The Daily Telegraph ran with the headline ‘Targets blamed for 1,200 deaths at hospital’. There cannot be a more damming headline implicating targets. Headlines last October featured BT being fined £1.3m after staff had been found calling each other to meet call-answering targets as part of BT’s deal to service the Armed Forces telephone system. Stories last year about ambulances crews going into ‘holding patterns’ to help A&E departments meet the government’s 4-hour waiting time target were met with disbelief and shock, whereas, the payout of excessive bankers bonuses linked to targets continues to firm public perception. Based on these headlines, we know that objectives, particularly targets, can and do lead to ‘unintended consequences’ and serious problems for organisations, employees and other stakeholders. But do targets deserve the criticism they attract? A CIPD survey suggests that the majority of organisations, across all sectors, use some form of objective/target setting as a performance management technique and this practice is unlikely to change. After all, there will always be some targets that simply have to be met. (Performance Management Survey, CIPD, 2005). The same survey also suggests that managers get it right most of the time, as objective setting is regarded as being effective by the vast majority of organisations who use it. So, where does it all go wrong? One approach would be to analyse the cases behind the bad headlines, as the Healthcare Commission has done in the case of Mid-Staffordshire NHS. However, we cannot effectively analyse such cases unless we are familiar with the theory behind the use of objectives and targets, or at least have a grasp of the implications for organisations and managers based on this research. For the remainder of this talk, I would like to review some of the main theories behind objectives, starting with the individual perspective before considering the organisation. A good place to start is Goal Theory, developed by Edwin Locke (Locke, 1968) Locke said that goals, when translated into personal objectives, positively affect individual effort, persistence and direction of behaviour, and result in enhanced performance. The motivational effect of goals on work motivation is one of the key findings in organisational behaviour, and has played a major role in shaping performance management methods, from Drucker’s (1989) Management by Objectives (the ‘original’ performance management system) to Kaplan and Norton’s prolific Balanced Scorecard (Kaplan and Norton, 1996). Goal-theory states that for goals to be effective, managers should consider several factors when designing and implementing goals: Goal difficulty; Goal specificity; Goal commitment; Participation in setting goals and Feedback. We may come back to this later. Managers also need to take into account the perceived value of goals to individual employees as this will influence motivation and behaviour, and it will differ from one person to another. One of my personal favourites is Vroom’s Expectancy theory, which describes a process involving the individual’s perception of the amount of effort needed to achieve specified performance levels and the value of reward (Vroom, 1964). The important point being, as in the case of goal theory, the outcome manifests itself in behaviour and’, the variables provide a basis for influencing and predicting behaviour. This is perhaps the key theory behind performance and reward practice as we know it today. Before we leave the individual perspective, I really should say something about job enrichment, which is promoted as an important intervention for improving motivation, satisfaction and performance. Hackman and Oldham (1980) developed a comprehensive model of job enrichment featuring five core job dimensions: Skill variety; Task identity; Task significance; Autonomy and Feedback. These, in turn, lead to three psychological states: - Experienced meaningfulness of the work Experienced responsibility for the outcomes of the work, and Knowledge of the actual results of the work activities. Hackman and Oldham’s work on job enrichment was developed into a Job Diagnostic Survey and is the basis for many employee job satisfaction surveys that are around today. Ask yourself, how do your employee targets encourage and support job enrichment and satisfaction, and how does this influence their behaviour and performance? Let us now consider this from a strategic perspective. Johnny Sung and David Ashton wrote a research report High Performance Work Practices: linking strategy and skills to performance outcomes (DTI/CIDP, 2005) describing how High Performing Organisations (HPOs) apply High Performance Work Practices (HPWPs) (DTI/CIPD, 2005) to drive performance. The report presents several case studies of organisations using targets to improve performance, including the W L Gore company where team members determine their own objectives. You may be familiar with The Sunday Times Best 100 Companies to Work For annual survey which provided the data for research. HPOs are described as organisations that design work and people management practices that systematically link the achievement of organisational objectives and performance. HR managers like to call this ‘HR strategy’; academics called it ‘Strategic HRM’ but I like to call it ‘strategic people management’. This research and other research which has investigated the link between managing people and performance describe the application of integrated people management policy and practices, termed ‘bundling’. Sung and Ashton categorise call these policies and practices ‘High Performance Work Practices’ (HPWPs), and categorise them under three broad headings: High Involvement, Human Resource Practices and, Reward and Commitment. In another report, Professor David Guest, drawing on data from the UK, Australia and New Zealand, categorises the 18 HPWPs he identifies into four dimensions (Guest, 2005): - Employee autonomy and involvement in decision making - Training, development and support for employee performance - Rewards for performance - Sharing information and knowledge So far, we have heard about content but what about the processes involved? To understand how management practices influence employee performance, Professor John Purcell and his group at Bath University produced a research report Understanding the People and Performance Link: Unlocking the Black Box (Purcell et al, 2003) and in it describes performance as a function of ability, motivation and opportunity (‘AMO’). See slide of the People-Performance model. Based on his findings, Purcell proposes in his model that the application of integrated HR policies or practices positively influences commitment, motivation and job satisfaction, which in turn, encourages positive employee behaviour based on free will, i.e. ‘discretionary behaviour’, which produces improved performance. This principle of applying integrated people management policies and practices is key, because the use of targets alone, particularly narrowly-defined targets tends not to be enough to produce the desired outcomes of employee involvement, satisfaction, commitment and behaviour that most organisations seek from valued employees. Badly designed targets, applied in isolation of other behavioural influences, can actually encourage ‘bad’ behaviour in the form of ‘gaming’, i.e. beating the system, leading to ‘unintended consequences’ caused by dysfunctional behaviour, which is usually behind the headlines and horror stories associated with targets. Managers also need to be conscious of the damage that can be done when targets are linked to powerful motivators such as fear and reward, as in the case of BT. The message for organisations is be aware of the problems that targets can cause and be vigilant about managing behaviour wherever targets are used. It sounds simple but it never is when it comes to people behaviour! Here are some final thoughts on this topic. By ‘micro managing’ to a plethora of targets, we may be able to make everyone accountable but at what cost? Most organisations employ people to create value, by attracting and retaining talent to contribute towards providing the best products and services possible. How often do we consider the contribution of managing performance to creating value? Are we witnessing the abdication of leadership to ‘management-by-numbers’ and just how sustainable is this? These are important questions that will shape the management debate as we shake ourselves down from the current meltdown to meet the next set of challenges on this truly unpredictable journey. David Hall 25 March 2009 David Hall can be contacted at firstname.lastname@example.org References: Ashton, D and Sun, J (2005) High Performance Work Practices: linking strategy and skills to performance outcomes, DTi/CIPD. Drucker, P. (1989) The Practice of Management, Heinemann Professional. Guest, D. ((2005) Conference Session 5 Human resource Management and Corporate Performance: Recent Empirical Evidence in DTI Economics Paper No.13, Corporate Governance, Human Resource Management and Firm Performance, DTI, London. Hackman, J. R. And Oldham, G. R. (1980) Work Redesign, Addison-Wesley. Kaplan, R. S. And Norton, D. P. (1996) The Balanced Scorecard: Translating Strategy into Action, Havard Business School Press. Locke, E. A. (1968) Towards a Theory of Task Motivation and Incentives, Organisational Behaviour and Human Performance Performance Management Survey (2005) CIPD, London Pucell J., Kinnie, N. Hucthinson, S., Rayton, B. and Swart, J. (2003) Understanding the People and Performance Link: Unlocking the Black Box, CIPD, London. Vroom, V. H. (1964) Work and Motivation, Wiley.