26 May The myth of the performance-based management
A popular concept in business today is “performance-based management.” Like other vacuous terms prevalent in the management vernacular such as “customer-centric,” “value added,” and “mission critical,” it has all sorts of implied and sometimes contradictory meanings.
In practice, performance-based management techniques fall in the category of what I call management by 2×4 – variations of the age old practice of whacking people upside the head to get them to do what they are supposed to be doing. Sure some people need a kick in the pants every now and then, but notions like performance-based management formalize the process, for everybody. In the performance-based organization, tough-minded managers push everyone to their limits (and beyond) in pursuit of extraordinary levels of performance. Performance management systems are used to track and evaluate everyone in the organization to make sure they are performing to the standards set for them. Those who don’t produce are punished or terminated.
But who sets performance goals in the first place? Usually they are designated at the top of the organization and cascade down through the ranks. Proponents of performance-based management assume that these objectives are derived from objective data and judgments. Cynics suspect they are based on the performance goals the CEO needs to make his or her bonus. But are performance management systems enough to ensure that there will be satisfactory performance? Perhaps, but the fact that so many of these management approaches fail to produce the results expected suggests there may be other, more productive and less stressful ways to keep an organization on the right performance track.
One alternative approach is used by Ricardo Semler and the company he leads, Brazil-based Semco SA. Yes, that Brazil – the country in South America. Admittedly it’s a place known more for samba, string bikinis and hyper inflation, than new management thinking. But Semler’s ideas are worth considering. His new book, entitled – “The Seven-Day Weekend – Changing the Way Work Works” (the version published in the UK has a better subtitle – “Fleeing From the Corporate Gulag”), challenges just about every conventional belief underlying the performance-based management mindset that so dominates corporations here. What’s really intriguing is that Semler places as much importance on business performance as any Type-A honcho. And his company consistently delivers it. But the methods they use couldn’t be more different from those employed by the Jack Welch wannabes prowling around most executive suites today.
Semco has 3,100 employees and growth in its business of 900% over the past ten years despite operating in volatile economic conditions throughout this time. The company rotates all leadership positions including the CEO and has no organizational chart and no HR department. Managers are hired not only by higher ups but by their subordinates. Semco’s employees work in small, autonomous units. They make the decisions, choose their leaders, set objectives and decide who they need and what they should be paid. Salaries are openly disclosed and set using a process that weighs pay scales against the financial resources of the company and what other companies pay for the same task. Workers are given total flexibility to decide when, where, and how much they work.
In case you think Semco offers some sort of slacker’s paradise, think again. Says Semler, “The system is pretty unforgiving, because if you put your salary too high, and people don’t put you on the list as someone they need for the next six months, you’re in more trouble than you would be at General Motors.” There is little bureaucratic control beyond financial accountability – almost everything depends on peer pressure. “We have a higher trust in human nature, but we’re also convinced that peer control is fabulous as long as there is a common interest.”
Contrast Semco’s open process that trusts workers to act like adults and to police themselves with the closed and contentious pay-for-performance schemes and elaborate score keeping and enforcement mechanisms in place at many companies. In the former, rank-and-file workers have the authority to decide the game and how it’s played but take responsibility for winning it. In the latter, control of the game is often exclusively in the hands of top managers – they set the terms and determine who wins and who loses. Both types of organizations are performance-based. In which one would you rather work? See you in Rio.
Tony DiRomualdo is a business researcher, writer, and advisor with Next Generation Consulting. He works at the intersection of people, business strategy, and information technology to help companies create a committed and high performance workforce. Tony can be reached at email@example.com.
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