Frank Buytendijk Blog

Performance management is usually associated with management control, accountability and compliance regulations. But despite all these controls and regulations, and despite the corporate scandals that led to heavy regulations, we have not been able to avoid the financial crisis.

We tend to forget that economy is a social science, based on human behavior. Many have commented that the reason for so many healthy banks needing cash infusions as well, is because of a lack of trust between banks, so that they are not willing to provide short term loans. A lack of consumer confidence doesn’t help as well. People are not spending anymore.

Trust is a vital principle of performance management. Within every organization there should be trust. Employees should trust the management and vice versa. Without a basic level of trust, there would be no productivity at all. The same kind of trust, and probably even more, is needed between organizations. All relationships, even the most transactional ones, require trust.

Trust, more than control, fuels the performance of relationships. In more strategic relationships, too much accountability hurts. An atmosphere of strong accountability does not fit well with the creation of trust, whereas an atmosphere of open commitment does. Without an open commitment between parties, the relationship can be terminated at any moment because at all points the accounts can be settled. This leads to lower switching costs and, in general, to more transactional behavior. It doesn’t mean there should be no control and no measurement. The aim of performance indicators and management processes should be to build that trust.

In bad times, people – and organizations – have the urge to hide, and limit the focus to protecting oneself. Of course you shouldn’t expose yourself, but when times are bad, you need your stakeholders the most. NOW is the time to use performance management to create more transparency towards your stakeholders. You need investors to keep their head cool, you need your regulators to be on your side, you need your customers to keep spending with you, you need your partners and suppliers to stand next to you.

To weather the crisis, performance management between organizations may turn out to be more successful than performance management within the organization.

Source: Buytendijk, F.A., Performance Leadership, McGraw-Hill, 2008