Organizations should do a cultural performance management analysis before embarking on a performance management initiative. In a cultural performance management analysis, we classify the organization on a number of cultural dimensions. There are several frameworks by which to describe and categorize cultures. Often these frameworks use dimensions between two extremes to classify a culture on that specific characteristic. Most of the frameworks focus on describing national cultures, and deal with many social issues. However, some of the dimensions used also apply to corporate cultures, and they affect the way performance management should be implemented. See Figure 1 for an example.
It is important to realize that there is no right or wrong culture in the cultural performance management analysis. Every score is good; the key is that you are aware of the characteristics of your own corporate culture.
In the example, company 1, a manufacturer, is a classic public company with a strong U.S.-based business culture. The company has a very individualized orientation, and everyone has the chance to work himself or herself up (meritocracy). It is very rules-oriented; there is a process for everything. Given its public nature, it has a relatively short-term focus; new business strategies need to pay off within a fiscal year. The company tends toward McGregor’s Theory Y, where managers assume their people are motivated to do a good job if recognized for it. The company is relatively internally focused, and plans its business using a traditional budget. This company benefits from the typical best practices of performance management: top-down strategy implementations, openly shared feedback with a ranking of the best-scoring people in sales. The bonus program, based on overperforming on the goals, can be found on the company’s intranet, next to all other procedural descriptions.
Applying this style of performance management in company 2, a manufacturer about the same size as company 1, would not be successful. Company 2 has been a family-owned business for multiple generations. Senior management knows most of the employees; many of them have worked for the company their entire professional lives. The next generation of ownership is growing up and the company needs to secure their future too. The culture of the company is externally focused, and it can only survive in the market due to an extreme customer focus. This company has a very different decision-making process. Senior management will ask for input from a few trusted employees, and then the family will make a decision. There are performance indicators, but these are mostly aimed at how the company is performing in the eyes of the customers. Information is shared with the staff, but usually verbally in informal meetings. Rewards are not directly tied to performance in a specific period; the family rewards loyalty and provides bonuses when deemed necessary.
Cultural alignment doesn’t always guarantee success. For instance, if company 2 is making a loss, perhaps some elements of the performance management practices of company 1 need to be adopted. Conversely, if company 1 is going through an extreme growth phase, key people need to be retained to manage that growth, and these staff members must feel part of the inner circle.
The cultural performance management analysis shows that the corporate culture drives how performance management should be implemented. But it also works the other way around, as measurement drives behavior. If there are cultural aspects that are undesirable, a measurement process might change that. If there is too much of a group focus, individual performance indicators may help. If there is too much of a long-term focus, short-term targets may help. If relationship focus turns into nepotism, more uniform reward processes may be needed. Performance management becomes change management, and dealing with undesirable behaviors is part of that.