Friday, October 10, 2008

Performance equation

What's result, what's performance, how can you manage it and does HR really help?

Difference between Result and Performance
Let's first distinguish between Result and Performance, simply stated:

Performance = Result / Potential

However, after setting the goals (i.e. the expected Results) the Potential (maximal Result that can be achieved) will almost certainly change due to all kind of changing external, non controllable or non influenceable, circumstances.

Performance related rewards and agreements should therefore always be made for different Potential-scenario's (bandwidth).

Board members, directors, employees, colleagues, friends, our kids, in short 'the contractor', should always be judged and rewarded on their actual performance and not on the results.
One of the main questions in this process is: Can the contractor control or influence the Potential?

You committed to sell 100 books this year, being 0,1% of the national book market (Potential = 0,1% x 100.000 = 100)


From this it's clear that if national book sales (potential) would slink to 50%, selling 75 books results in a 150% performance. You would have done a great job, given the Circumstances!
The reverse, of course, is also true.

Performance: rule of thumb
On a personal level, Performance could - as rule of thumb - be defined as:

What you get done
[What you have]
[What you do with it]
[When, Where and How you do it]

Research done by John Purcell, Boxall and others, based on original marketing research of Jaworski(1989), show that successful firms have better people and better processes.

It seems that High Performing Organizations create success based on three pillars:
  • Human Capital Advantage (HCA)
  • Organization Process Advantage (OPA)
  • Organization Citizenship behaviour (OCB)

The AMO model
Professional people management is vital in creating these advantages.

Research and practise led to the development of the so called AMO Model.

P = f (A, M, O)

With P = Performance, A = Ability, M = Motivation and O = Opportunity.

Simply said,people perform well when:
  • they are able to do so
  • they have the motivation to do so
  • their (work) environment supports and stimulates them

Although the relationship (e.g. covariance, etc.) between the AMO elements (A, M,O) can be complex, it's clear that if one of them is zero, the Performance itself will also be zero. That's why the AMO equation is sometimes simplified as:

P = A x M x O

The performance equation
Another similar development by Douglas Peters led to "The Performance Equation":

P = At * ([ K + S ]/ ER)

Where P=performance, At=Attitude, K=Knowledge, S=Skills and ER= Environmental Roadblocks.
Peters sets Attitude in place of Motivation, combines Skills and Knowledge in Ability and defines ER as negative (opposite) aspect of Opportunity

Motivation revealed
Motivation is one of the most important drivers behind High performance.

Let's dig in to the several aspects of Motivation. Motivation has been analyzed by Victor Vroom. Vroom's Expectancy Theory (1964) is based upon the following three beliefs:
  • Valence
    The employee's defined (outcome) value of extrinsic rewards [money, promotion, time-off, benefits] or intrinsic rewards [satisfaction].
  • Expectancy
    The employee's confidence end expectation of what they are capable of doing.
  • Instrumentality
    The perception of employees whether they will actually get what they desire even if it has been promised by a manager.

Vroom states that these three aspects interact psychologically to create a motivational force such that the employee acts in ways that bring pleasure and avoid pain.

So according Vroom Motivation could be defined as:

M = E x I x V

Or in words, Motivation =
  • Expectancy: Perceived Probability of Success x
  • Instrumentality: Connection of Success and Reward x
  • Valence: Value of Obtaining Goal

Opportunity can be seen as everything in the environment that is necessary, supports, helps or sometimes blocks (negative opportunity) the performance of the contractor.
Charlie Cook defines Opportunities as Resources.

In fact Opportunities could be defined as:

O = R x H x C

With O = Opportunity, R = Resources, H = Help or support, C = Circumstances

Just to demonstrate: If you planned a BBQ and got enough meat (R) and matches (H), but it's raining cats and dogs (C), it's not what you would call a big opportunity.

Wrapping up
Wrapping up all Insights, Performance could be defined as:

P = A x M x O = S . K . E . I . V . R . H . C

With: S=Skills, K=Knowledge, E=Expectancy,I=Instrumentality, V=Valence, R=Resources, H=Help or support and C=Circumstances

Remember Performance is everywhere, not only in business.
Success in performing!

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