A job is a transaction. You offer value to the organisation and take a percentage of that as your remuneration. For an organisation to make profits, the aggregate of value created by every single employee should be greater than what the employees would get paid.
Business success is finally measured by the bottom-line it produces and everything else is inputs. Quality of inputs and processes to best use the inputs to deliver the best output.
Managing for results — pay for performance schemes and the like — are increasingly practised by the modern organisations for business reasons but this principle can fundamentally be flawed if that is the only criterion for evaluating managers. But the counter argument would be that a decision has no tangible value but a positive outcome.
People, including managers and business leaders, typically equate the quality of a decision with the quality of the result. When people observe a good result, they conclude that they made a good decision. Likewise, when a bad result is observed, people conclude that a bad decision was made. This is not true. Decisions and results are two different things.
Time elapses between a decision and the realisation of its result. Decisions are made at a specific moment in time; afterwards, people implement these decisions, and the result is observed in the future. The future is uncertain: there are no facts about the future, and nobody has a crystal ball. In the future, events can happen that managers and organisations cannot control. Also, events can happen that managers could not foresee.
Such events can cause good decisions to have a bad result — and vice versa. Therefore, the quality of the result is not an indicator of decision quality, and the result is irrelevant as a measure of decision quality.
Blaming culture
A blame culture triggered by bad results stifles experimentation, innovation or trial and error. If leaders do not tolerate failure and error in our business innovations, they will kill the prospect of anyone taking any initiative.
Since business activity is the primary engine for personal income growth, value creation and societal economic development, an organisational culture built on blame and punishment has implications beyond the boundaries of any one business.
Taken to national proportions, a blaming culture inhibits societal growth, development and evolution. Managing for results leads to crisis, at the least; it can lead to bankruptcy, at the worst.
Be accountable
Being accountable only for results may not be the right standard for performance. Of course, people must be held accountable for what they do in a business context; but they need to be held accountable for the right things.
They need to be held accountable for things under their control, that is, operating with a good process of high quality. They should not be held accountable for uncontrollable events.
Conversely, if business leaders only want good results, it is easy to understand that, ultimately, any process to achieve good results will become acceptable — even an illegal process. This is another way in which managing for results can become the origin of crisis and bankruptcy.
A manager who achieves an excellent result but, in the process of achieving it, has de-motivated his team is clearly not a good leader. Companies typically do two things to achieve, on average, better results.
First, they implement a good process. Managers can learn to become better business executives. They can learn the process of decision making, learn how to be better at execution and build their business via the knowledge, experience and informed intuition that is inherent in decision making and execution.
Out of this, managers will find that they are becoming better, more thoughtful business leaders — more aware and better informed about what they are doing.
Being compensated only for results doesn’t measure one’s true contributions to the organisation. It is possible that bad managers using wrong processes will sometimes enjoy good results. But their luck will run out eventually.
Therefore, in the long run, it is necessary for organisations to evaluate the quality of a manager’s decision-making process over the span of his or her career. Over time, managers will make many decisions and take many actions.
Organisations should, therefore, reward the long-term performance achievements of managers. It may seem controversial, but we firmly believe that even managers with bad results should be rewarded — if they have used a good decision-making process. Keep in mind though that good decisions are for good results, so the onus is on you to ensure that good decisions deliver good results leaving luck aside.