Welcome to the Human Side of Performance!
Hi there! Welcome to this chapter on the behavioural aspects of performance measurement. So far in your APM journey, you might have spent a lot of time looking at numbers, ratios, and spreadsheets. But here is a secret: Numbers don’t run businesses; people do!
In this chapter, we explore how the way we measure performance actually changes the way people behave. Sometimes they behave exactly how we want, but sometimes they do things that are quite unexpected (and even damaging). Don't worry if this seems a bit "psychological" at first—we will break it down into simple, relatable concepts that will help you ace your exam.
1. Motivation and Reward Systems
Why do employees work hard? Usually, it's because there is something in it for them. This is the core of motivation.
The Goal Congruence Bridge
In APM, we talk a lot about Goal Congruence. This is just a fancy way of saying that the goals of the individual employee should align with the goals of the company. Analogy: Imagine a rowing boat. If everyone rows in different directions, the boat goes nowhere. Goal congruence ensures everyone is rowing toward the same finish line.
Expectancy Theory (Vroom)
To understand if a reward will actually motivate someone, we look at three things. If any of these are zero, the motivation is zero!
1. Expectancy: "If I try hard, can I actually achieve the target?"
2. Instrumentality: "If I achieve the target, will I actually get the reward?"
3. Valence: "Do I actually want the reward?" (e.g., giving a steakhouse voucher to a vegetarian won't motivate them!)
Quick Review: For a reward system to work, it must be fair, achievable, and desirable.
2. Management Styles: The Hopwood Studies
How a manager uses accounting information can drastically change how their staff behaves. Anthony Hopwood identified three distinct styles. This is a very common topic in APM exams!
A. Budget Constrained Style
The manager focuses purely on whether you met the budget. If you are over budget, you are in trouble, regardless of the reason.
Behavioural result: High stress, "massaging" the numbers, and poor relations with the boss. People might cut costs that hurt the company in the long run (like skipping machine maintenance) just to meet the budget today.
B. Profit Conscious Style
The manager looks at the budget but also cares about the long-term effectiveness of the unit. They might accept a budget overspend if it leads to higher profits later.
Behavioural result: Lower stress and better goal congruence. This is generally seen as the most "balanced" approach.
C. Non-accounting Style
Accounting data is ignored or seen as unimportant. Performance is judged on other things like quality or customer service.
Behavioural result: While quality might be high, the financial health of the company might be neglected.
Key Takeaway: The Profit Conscious style is usually the "goldilocks" zone for APM—not too strict, not too loose.
3. The Dark Side: Dysfunctional Behaviour
Sometimes, the way we measure performance causes people to "play the system." This is called dysfunctional behaviour. It's like finding a "cheat code" in a video game that helps you win but ruins the fun for everyone else.
Common types of "Gaming" the system:
1. Tunnel Vision: Employees focus only on what is being measured and ignore everything else.
Example: A call center agent hangs up on customers quickly to meet a "short call duration" target, even if the customer's problem isn't solved.
2. Sub-optimisation: A department does what's best for themselves, even if it hurts the whole company.
Example: The production department buys cheap, low-quality materials to stay under budget, but the sales department can't sell the finished product because it's rubbish.
3. Short-termism: Managers take actions that look good now but hurt the future.
Example: Cutting the training budget to boost this month's profit.
4. Slack: Managers "pad" their budgets (asking for more money than they need) so they are almost guaranteed to meet their targets.
Memory Aid: Think of "G-S-M-T"
G - Gaming (manipulating results)
S - Smoothing (shifting results from a good year to a bad year)
M - Misrepresentation (lying about results)
T - Tunnel Vision (ignoring the big picture)
4. Performance Appraisals and Feedback
Feedback is the "breakfast of champions," but if served poorly, it can be hard to swallow. For an appraisal to be effective, it should be:
- Frequent: Don't wait a whole year to tell someone they are doing a bad job.
- Two-way: The employee should be allowed to speak, not just listen.
- Constructive: Focus on how to improve, not just what went wrong.
Did you know? Many modern companies are moving away from annual appraisals toward "continuous feedback" because it prevents the "recency effect" (where a manager only remembers what you did in the last two weeks).
5. The Impact of Culture
A performance measurement system that works in a high-pressure environment in New York might fail miserably in a collaborative, consensus-based culture in Scandinavia or Japan.
Important Points to Remember:
- Individualistic cultures might prefer individual bonuses.
- Collectivist cultures might prefer team-based rewards.
- Power Distance: In some cultures, employees will never challenge a budget set by a boss, even if it's impossible to achieve.
Summary and Quick Review
- Behaviour follows Measurement: People do what you inspect, not what you expect!
- Goal Congruence: The ultimate aim is to align individual goals with corporate goals.
- Avoid Tunnel Vision: Ensure your Performance Indicators (KPIs) cover both financial and non-financial aspects to prevent people from "gaming" a single metric.
- Hopwood's Styles: Aim for a "Profit Conscious" approach to balance the numbers with long-term success.
Don't worry if this seems tricky! Just keep asking yourself: "If I were an employee and my bonus depended on this one number, how would I try to cheat or take a shortcut?" That thought process will help you identify behavioural risks in any APM exam scenario.