Introduction
Statoil is a Norwegian energy company with 21000 employees in 36 countries. On Fortune, the company ranked in 2011 #1 in Social Responsibility and #7 in Innovation, and has over the last ten years consistently performed above peer average on return on capital and value creation.
We have continuously developed our management model “Ambition to Action” with “agile” and “human” as key guiding principles. For instance, in 2005 we abolished traditional budgeting, and we decided in 2010 to leave the calendar year in our management processes where-ever possible Read more about Statoil and our management model in this MIX story: “Taking reality seriously”.
“Self-regulation” has become an increasingly important word for us on this journey, not as a goal in itself, but as a great way of achieving great performance. We found inspiration in something which one initially might think of as very different from organizations and business, but where we all also want the best possible performance. I have yet to meet anyone enjoying being stuck in traffic or exposed to inefficient and dumb traffic controls. We would all like a safe and efficient traffic flow.
Here is a great story from the Netherlands. As in most cities, the consequences of increasing traffic were a major problem in the city of Drachten. Traffic jams and accidents in the town centre were steadily increasing, as did the doses of the standard medicine for this modern disease; more traffic lights and more signs to regulate and control drivers, cyclists and pedestrians. The same medicine as any other growing city would chose to combat its traffic problems. However, traffic authorities in Drachten found that increasing doses did not help. In 2003 the city decided to challenge accepted truth. A bold decision was made to remove all traffic lights and signs in the town centre, based on a belief that people pay more attention to their surroundings when they cannot rely on strict traffic rules.
Results were impressive. On the busiest intersections crossing times fell significantly, and accidents were reduced to almost zero.
I find this a fascinating example of self-regulation as an alternative to more traditional ways of managing performance in increasingly complex environments. We will return to Drachten a bit later.
About “performance management”
Readers of my book “Implementing Beyond Budgeting” may remember that I am not too fond of the phrase “performance management” (even if I have it in my title!). I definitely like the word “performance”, but not in combination with “management”. Chew on those two words put together. ”If I don’t manage you, there will be no performance”, is what I hear. I have had many managers throughout my career, many great ones but also a few of more mixed quality. But none of them ever told me that they wanted to “manage my performance”. If one would have uttered those words, I am afraid the effect would have been the very opposite of the intention. My defence system would have gone on red alert. No one is going to mess around in my head, or treat me like a dancing marionette. I actually get offended if someone believes I will only do my best if I am managed; instructed to deliver on a very specific and detailed target, told exactly how to get there and with which resources available, put under a tight and suspicious follow-up regime, and given a dangling carrot as a motivational incentive for getting there, with “getting there” meaning “hitting that number“.
I don’t want to be “managed”. I want something else. I want a definition of performance that makes me tick. I want to understand and be ignited about direction. I want to contribute. I want support and learning, and I want to have fun. I want to perform at my very best, but I don’t want to be “managed”.
Peter Drucker put it like this “Most of what we call management consists of making it difficult for people to get their work done.”
Maybe I am a bit harsh with “performance management” here, but isn’t much of what I just described familiar ingredients in a traditional performance management process?
I am not saying it never works. For organizations operating in predictable and stable surroundings, with simple tasks and with little motivation in the work itself, where results are easily measured, and with most employees prone to do what detailed control mechanisms are there to prevent (maybe they actually behave like this because the controls say they will?), then “performance management” might be the right medicine and also the right phrase. But is this really a good description of your own organization?
In knowledge organizations operating in dynamic and unpredictable environments, people can’t be treated like robots and organizations can’t be viewed as machines.. Traditional performance management easily becomes a medicine with side effects so serious that they completely outweigh the benefits. We might feel we get “control”, although a closer examination will probably reveal that much of it is only an illusion of control.
Do detailed job descriptions really ensure that talent, competence and resources are fully utilised? Do thick procedure manuals cover every possible situation that can occur? Do detailed variance analyses of actual vs. budget secure that we now are safely back on track? Does actual cost coming in spot on for every single budget item prove that we spent our resources in the most optimal way? Does “hitting the number” represent great performance if our path is covered by casualties, if there was strong and unexpected tailwind, if we were completely outperformed by peers?
Traditional management certainly gives us “control”, but does it really give us best possible performance? Our goal can’t be to “manage performance”, our goal must be the best possible sustainable performance, given the circumstances. Performance Management people sometimes seem to get this order wrong. Control can actually get out of control.
But what can and should we do if we can’t “manage” performance? Don’t worry, there is still a big and important job to be done, but it is a very different one that requires a very different mindset. It is about creating the conditions needed for great performance to take place and for business to flourish. You can’t make a flower grow by pulling on it.
We need to create a new and different framework for teams and people to perform within, with different and wider boundaries but also with new rules of the game. This requires something new, but also just as much dismantling of the old, all the stuff that work more as barriers than support for great performance. There are significant implications for how we define performance and set targets, how we forecast, how we allocate resources and how we evaluate and reward performance. The traditional fixed, detailed and annual budget and the whole mindset it builds on have to be first to go.
Our new framework must take reality seriously, both inside and outside the company gates. It must understand what it really means to be a people-oriented knowledge organisation. It must tackle a dynamic business environment of uncertainty, turbulence and constant changes in assumptions. It must reduce number-crunching, stupid gaming and the need for constant management interventions. Our new framework should actually require as little management as possible; it should be as self-regulating as possible. Not because self-regulation is a goal in itself, but because it is a much better way of getting that best possible performance.
Let us return to traffic and to self-regulation as a way of achieving this.
(By the way, I have yet to find a good alternative for the phrase “performance management”. If you find one, please let me know, because we desperately need it!)
A self-regulating control system
In traffic, we defined good performance as a safe and smooth traffic flow. Traffic authorities have different ways of “managing” us to achieve this.
One alternative is the traffic light. Let us ask ourselves a few questions about this option. Who is actually “managing”; who is actually in “control”? There is no-one sitting inside the traffic pole as far as I know (and let us not stretch the metaphor to include sensor systems etc.!) Someone programmed those lights, because they are just dumb machines. And which information did these guys base their programming on? Those red-green intervals were decided at some point in time, based on historical and expected future traffic volumes and patterns. For obvious reasons, we can hardly expect that information to be fresh and fully updated as we sit there waiting for the green light.
To conclude, performance is managed by someone who is not present in the situation, based on assumptions which are rarely updated (and if they are, often with considerable delay). It is a simple, rules-based system. Green means drive, red means stop; while yellow seems to have a few different interpretations! It is a centrally regulated system, with decisions made too high up and too early.
