The question of how to measure performance fairly is starting to become a real concern for businesses, but if current approaches have reached their limits, finding alternatives is anything but obvious.
I was recently reading a Deloitte study entitled 2024 Human Capital Trends, which deals, as its name suggests, with the major trends in human capital. For once, I’m not going to do an exhaustive review: 144 pages is too long to be usefully summarized in a single article, and I prefer to take certain topics one by one in specific articles.
One of the chapters in this study is on performance measurement, a subject particularly close to my heart. You’ll see in the following lines that if businesses are struggling to address the subject, it’s sometimes for good reason, and that this topic, important as it is, is only a symptom of a deeper malaise.
Businesses no longer know how to measure their employees’ performance
If there’s one point on which everyone pretty much agrees, it’s that the way we currently measure people’s performance is far from relevant. However, for lack of anything better, we’re content with it.
So it was with a fairly high level of expectation that I tackled the part of the study that deals with the subject.
The figures speak for themselves: according to the study, 74% of businesses are aware of the need to find new ways of measuring performance, but only 40% are doing anything about it, and only 8% are excellent at it, or at least say they are. A real issue, but few answers.
So why do we need to change the way we measure performance? Because current approaches and indicators are inherited from a time when the economy, value-creation models and work were different.
In an economy where the bulk of the population works to produce tangible goods, by the unit, measuring performance is easy: we measure what is produced, and the key indicator is productivity, i.e. the ratio between what is produced and what this production has cost, i.e. wages.
The same applies to management, or rather, in this hypothesis, to supervisory staff: their performance is measured in terms of their ability to increase the performance of others. This can be done simply by increasing pressure, or more intelligently by improving production processes and, ultimately, by replacing individuals with machines, at which point we stop talking about productivity and start talking about return on investment.
But this approach has its limits in today’s world.
With virtually everything that can be automated having been automated (even if AI still opens up new prospects), the nature of work has changed from “replicating perfection ad infinitum” to “creatively solving unexpected and new problems”. In other words, instead of mechanically following rules and processes to ensure that everything is done right on a large scale, the added value of the human being is to intervene when things go wrong and find solutions. And even when everything’s going well, we’ll be asking them to constantly improve things.
And this also applies to the so-called “lower-end” professions. The people who do them are no longer just asked to do a basic job, but to “bring value” to the customer in order to improve their experience, create engagement and so on.
And from the moment you expect a person to do something other than repeatedly produce something tangible, countable, measurable, you need to be able to measure that something else – or, even more difficult, the value of that something else. Especially when it’s not expressed directly in money.
All this reminds me of the many debates we’ve had about remote work. At the time, I was repeatedly questioned on the subject of “but how can you be sure that people are actually working”. When I replied, “Well, by what’s produced and the results achieved”, I was amused by the doubtful pouts I received, proof that controlling the results, or even the means and the manner, instead of controlling the person, is a paradigm that many people find difficult to move towards.
However, you can be kind of a control freak and leave people in peace.
Generally speaking, as the study states, there is a move away from notions such as hours worked, quantity produced, revenue per employee, to others such as how the employee contributes more globally to the organization.
“Some organizations are moving beyond traditional measures such as revenue and profit to look at how they can create shared value – outcomes that benefit individual workers, teams and groups, the organization and society as a whole.”
This is what the study calls “human sustainability”.
Fair…but vague.
But before going any further, I’d like to point out that there’s absolutely nothing new here, even if some will find such an approach revolutionary. Deloitte has simply rediscovered the “dual economic and social project” introduced by Danone and its then Chairman Antoine Riboud. And if, 50 years after the famous Marseille speech, nothing seems to have changed, it’s perhaps because it’s not that simple, and that there are deep-rooted causes for this stagnation.
Is productivity outdated?
One of the study’s many themes is that productivity is an outdated concept. And at this point I can already imagine the smiles on the faces of many dreamers who have made anti-productivism their hobbyhorse.
Where I agree with them and the study is that the means used to date are showing their limits, at least for certain professions.
When the value or quantity produced is no longer a linear function of time spent, traditional metrics become obsolete. Well, partly.
This is the business world, and it’s normal to compare the results obtained with the resources engaged. This is called profitability and is ultimately expressed in the sacrosanct Ebitda, and anyone who tells me that we can do without this measure must like driving at night with the lights off and without a fuel gauge or speedometer.
So it would make sense to transpose this approach to the level of each individual? Well, that’s what we’ve always tried to do, and it’s a huge mistake, because it amounts to using a financial indicator to measure something that isn’t just financial. Yes, an individual creates value, only part of which is sometimes directly monetized, but he doesn’t create it alone.
Over the last few years, I’ve lived with this famous Ebitda not as an obsession, but as the main, if not the only, indicator. And what was interesting was what I found when Ebitda was not at the expected level.
Logically, this would have meant that people weren’t productive enough in the old sense of the word, because they weren’t creating enough value (or at least income) in relation to their salary. So be it.
But what are we to think when we find competent, highly-motivated people who give their all to their work?
There’s not much to look for, once you realize that almost no-one creates value on their own. In fact, everyone knows this, but nobody is willing to draw the consequences.
I’ve always considered individuals as part of a system made up of other individuals, processes, tools, managers and even more subtle things like a managerial culture and a corporate culture.
And every time I’ve had proof of what dear Mr. Deming once said: 94% of problems are the fault of the system. And so, every time, I’ve solved the problem by tackling the system, without aiming to tackle the individuals. Tools, processes, decision workflows, organization, unsuitable or contradictory performance indicators… there are a ton of causes external to individuals which mean that individual performance is not good, and that this is then reflected at organizational level. For those interested in this subject, I suggest reading Yves Morieux’s book.
Of course, and I’ll come back to this in another, more specific post, I was looking at what each individual was doing, and everyone always needs to improve. But for the most part, seeing that someone wasn’t performing well enough gave me the opportunity to change things in the system, which, strangely enough, increased the performance of the individuals.
But that’s getting away from our original subject.
To return to my original idea, productivity is a vital financial notion at enterprise level (profitability) or within a system that can be considered stable: for example, machines along a production line. In complex systems with a strong human component, it is merely an indicator that something is going wrong somewhere, and rarely at human level. Or at least they’re not the first to blame, and I’d almost say the first to suffer, because it’s easier to punish the people than the system. And especially to change it.
But it’s more generally the question of individual measurement that needs to be asked, since an individual is not 100% responsible for his own performance or productivity. In my experience, over 90% of what I learn from individual indicators are points for improvement in the organization, and less than 10% concern the employee. And if the proportion starts to reverse, it’s because the design of the organization and the system is performing very well… something I’ve rarely had the opportunity to observe.
We know the world is complex, but businesses have responded to this complexity with complication instead of simplicity, which ultimately harms performance and the individual experience (I’ve always found that the two go hand in hand as long as you don’t have a simplistic vision of the employee experience).
And, frankly, skill or behavioral problems can be seen without any indicators, and even then there’s nothing the person can do about it: it’s your recruitment process that’s flawed, or your appraisals that don’t assess the right thing to trigger the right training.
So the question of productivity is vital on a global level, and loses relevance as its scope narrows.
But what to replace it with? I’ll come back another day to the question of individual and systemic measurements, but since we’re stubbornly trying to individually measure people who aren’t responsible for 100% of their performance, let’s take a look at what the study proposes.
Where I agree is that we need to change the paradigm and adopt the broader term of human performance, as stated in the report. Where I’m uncomfortable is that this leads us to introduce qualitative and therefore subjective indicators that will never stand up to the apparently rational nature of a numerical and ultimately financial approach.
The study gives us the example of Hitachi, which has adopted employee happiness. I’m sure you’re aware of my views on the subject, and of where I place happiness at work when it comes to linking it to performance: very low. Not only do I prefer the term satisfaction, but I also think that the notion of happiness at work is false, even misleading.
All the more so since the example we’re given starts from an increase in happiness at work and links it to an increase in sales and, above all, in the number of sales per hour. In this case, the difference between correlation and causation is forgotten, as is the existence of any external factors that might have had an impact on sales. And if anything, we’re measuring a cause, whereas productivity measures a result, which is radically different. Finally, measuring the increase in sales per hour to show the importance of happiness at work is…confirming the importance of productivity.
And in the end, we come back to human sustainability and the need to have a positive impact on both the individual and the business….we’re not told how to measure all this either.
Finally, while it’s easy to see that the measurement of individual productivity is, if not outdated, at least imperfect, we don’t see any concrete proposals really emerging. Whether there or elsewhere.
Towards a Balanced Scorecard approach to performance measurement
Let’s go back to how the study defines “human sustainability”. The way it blends different perspectives reminds me of something rather old but still effective: the Balanced Scorecard (BSC).
For those unfamiliar with the concept, let’s just say it’s a strategic dashboard whose aim is to take into account all the dimensions that contribute to performance, beyond simple financial measures.
Its advantage is that it starts with a vision and translates it into measurable priorities, actions and objectives, which fits in quite well with our needs. What’s more, it’s not just a dashboard, but a methodology that starts with the strategy and works down to the final indicator, which would also help to set relevant individual objectives.
It’s a strategic organization and monitoring tool used on a macro level, but can it be transformed into an HR tool adapted to a team and individuals by dusting it off a little?
Here are the main axes of a balanced scorecard:
The financial dimension could be the current measure of productivity, or at least the financial objectives.
The customer dimension would be more qualitative, but objectively measurable, in terms of customer impact.
The internal process dimension would concern both compliance with rules and the ability to propose and innovate.
Then the learning and growth part would concern the measurement of progress and learning made by the employee, either through greater effort or rigor, or through training or self-training schemes.
This is just a fast track that needs to be taken much further, but it opens up a number of possibilities.
If we dig a little deeper, here’s an example of a BSC which, of course, doesn’t concern the evaluation of human performance, but which clearly shows that it could easily be adapted to a new use.
Replace vision by title, objective by key elements of the job description, priorities by… a prioritization of missions and strategic results by what we want to see at the end of the evaluation period.
The rest of the table is easy to understand, although it does need to be transformed from an HR perspective.
We would thus have a methodology which starts with the business strategy and works down to individual measurement, covering different fields while ensuring alignment between the mission, the business priorities and the individual measurement criteria.
Of course, at this stage, it might be tempting to delve deeper into the question of adapting the Balanced Scorecard to HR issues. But I think this would be a waste of time and energy, as it already exists, or nearly so.
Are OKRs the future of performance measurement?
OKR (Objective and Key Results) is a methodology which also starts with the business objectives, and works downwards through the organization to define clear, measurable expected results at the individual level.
Initially, both are tools for setting and translating strategic objectives down to the field level, with one detail: the BSC enables the alignment of different perspectives (which is our starting point), which is not the case with OKRs.
That said, I don’t see what’s stopping us from including these perspectives in OKRs, as long as they’re defined at goal level. If an OKR expert is reading this article, I’d be interested to hear his or her opinion on the feasibility of this.
The BSC would give more space to qualitative measures, but here again I don’t see what’s stopping them from being taken into account in OKRs.
Whereas the BSC is a half-yearly or annual process, OKRs are measured and adapted on a monthly basis, which is more in line with current performance measurement issues.
OKRs work better in agile environments, and BSC in structured, stable environments. But I have my doubts about the notion of stability in 2024, and from my point of view, an organization that isn’t agile today is an organization that hasn’t understood the point of being agile, or isn’t succeeding in becoming agile.
On the other hand, both share common features, such as alignment with strategy, cascading of objectives, transparency, suitability for management by objectives and as drivers of continuous improvement.
Choose one or the other, or try to interweave them, but in the end we’re not starting from scratch, and the future of performance measurement seems to me to already be here, provided we deign to acknowledge its existence and make the necessary adaptation efforts.
Why make things complicated when you can make them simple?
But why complicate your life when you’ve got a tried-and-tested method that’s been working since the dawn of time? As we’ve already said, at business level we have two vital indicators based on two quantities: expenses and income. If you subtract them, you know if you’re making money; if you divide them, you get profitability, which is simply the productivity of expenses.
It’s as simple as it is essential, and if you can measure other things in different ways in addition, it’s the vital minimum. A business that loses money dies, and that’s all there is to it. It’s a bit like the human body: there are lots of relevant and complementary ways of measuring whether you’re in good health, but if the oxygen supply is no longer sufficient to feed your muscles, starting with your heart, your cholesterol level or your body mass index is the least of your worries, even though it’s important for maintaining good health.
So we have an indicator that’s as simple, if not simplistic, as it is vital, and we cascade it throughout the organization. But we could also try to measure other things, as common sense would suggest, to give an exhaustive account of the notion of performance, couldn’t we? Well, not only do we do it, but it doesn’t actually serve any purpose.
Nature’s way out, nature’s way in
Apart from very simple and basic activities, which are becoming increasingly rare, we already use a number of quantitative and qualitative indicators to measure people’s performance. We can argue that some assessments are biased, that not all of them are really useful or used for decision-making purposes, but they do exist.
But this is not taken into account at the most crucial moments in the life of a business or an employee’s career.
Speaking of ROI, I’m used to saying that “the lower we keep the I, the less we have to bother you with the R” and “the higher the R, the less you have to fight for the I”. We’re in much the same situation.
In a business that’s doing well, we can look at and use a host of performance indicators, and use them to help individuals and the organization progress. We’ll use and even overuse indicators that I’d describe as hard (quantitative and measurable) and soft (qualitative and partly subjective).
On the other hand, when things aren’t going so well, people will revert to primary reasoning and forget the soft indicators, looking only at the hard ones. Logical, since these are the essential vital signals, but this amounts to a de facto denial of the postulate we readily subscribe to in good times, according to which a person contributes in many different ways to the business’s performance, not only through his or her own productivity, but sometimes in a way that is essential to the business’s recovery, its cohesion and its ability to reinvent itself.
Add to this the fact that the sum of individual performance does not make up collective performance. How many businesses are doing badly when everyone else is doing so well? Sometimes the problem lies elsewhere.
A matter of priorities and corporate culture
First and foremost, it’s a matter of priorities, which means it’s a financial matter!As I said, once you’re out of air to breathe, the rest doesn’t really matter.As for whether it’s the rest that determines your ability to breathe…
And that’s where it becomes a question of culture. First and foremost, it’s a question of “shared” culture: when a business is doing badly, the market and investors expect a financial response to a financial problem. This even though we know that sometimes the business is in trouble because it has under-invested elsewhere, sometimes financially, sometimes simply in terms of attention and priorities, and that finances are the symptom, not the problem, and that it’s easy to cut costs temporarily without ever solving any problems. And, strangely enough, the consequences of the problems eventually return.
We’ve seen businesses cut research budgets at the expense of marketing when the problem was the product, or let go of employees without replacing them when they needed new blood and fresh thinking. Ironically, those who are the cause of the problem decide to let go of those who could have solved it…
And then there are questions of corporate culture. A long time ago, I remember learning from people at Danone how they were working with SAP to ensure that the environmental concern that was supposed to weigh on decisions did not weigh on reporting and KPIs. In other words, the idea was to counterbalance the negative impact on indicators of certain choices made in the “right” direction, and not to penalize “good” decisions which would not have an optimal financial impact in terms of conventional indicators. The result was the creation of a Green Capex. I don’t know if they persevered in this direction, but it was an excellent idea for avoiding conflicting objectives, and totally in line with the business culture… at least in the Riboud era.
We could also mention Boeing, whose recent setbacks did not suddenly fall from the sky, but are the consequence of a host of small decisions taken since the merger with McDonnell Douglas. But the shift is a cultural one: when you go from a business of engineers whose credo is “work together” to a business of financiers whose credo is “more with less”, you change priorities, then people and finally behavior. With the results we all know.
Bottom line: performance measurement is not the real issue
When it comes to individual performance assessment, the Deloitte report says it all, right from the outset: “everyone knows we need to change, but hardly anyone is trying”.
The reasons are not “technical”: we now know how to set up multi-dimensional dashboards, as long as we don’t abuse indicators and create paradoxical injunctions.
The problem is, if not cultural, at least in people’s minds. What message do we send if we act this way or that way? As a business or as a manager. At a time when (once again at the behest of the markets) all businesses are trying to be “comparable”, they end up acting and thinking the same way, and doing what investors expect them to do in the short term, when they should be combining the short and long term.
As a result, performance measurement favors the immediate, to the detriment of investment in future performance. And the indicators that follow.
“When measurement becomes an objective, it ceases to be a measurement”. It’s true, and this report tells us that the need to measure performance differently stems from the emergence of new priorities. What it seems is that businesses are aware of these priorities and the new characteristics of the world around us, but don’t necessarily measure their scale or urgency, or dare to depart from a doxa that brings them closer to their competitors and reassures their investors.
Instead of injunctions to measure differently, we should perhaps give priority to convincing people of the current and future context and its requirements. The rest will follow.
In the end, the notion of performance is like the indicators that measure it: they are merely symptoms of other problems that we are often less inclined to look at.
