People need to be appreciated. It is the third of the human needs on Maslow’s scale of five. Moreover, the fact that their work be appreciated provides for job security, and security is is the second of the human needs on Maslow’s scale. Now then, management’s appreciation of the work done by people is based on their performances vs. plan. Plans may change, but the way the performances are measured is a set procedure that often goes unquestioned for times on end.
So, people program their performances based on how they will be evaluated, and also on who provides the rewards or the reprimands. (P. Scott Morgan “The Unwritten Rules”)
Traditional organizations stick to traditional tenets, and their management continue to measure performances by fixating the financial results in the short term as required for their quarterly and annual reports. However, such reports basically ignore the intangible resources, and they ignore the medium-long term, in spite of the fact that according to Kaplan & Norton: “Over 75% of the firm’s market value is now derived from intangible resources, which are not captured by financial metrics.”
As a result, people focus on the traditional financial indicators, and the intangible resources - such as talent capital and customer capital - get at the best benign neglect because they do not show up in the books, and because they take longer to develop. Unsurprisingly, 75% of the polled executives find it necessary to modify the way their company manages talents.
Traditional organizations have a long string of management levels, and each level has to protect itself from pressures that may come from the top. So, the bosses tend to be conservative. According to a survey by global consultants over 30% of senior executives are more likely to focus on the risks of innovation rather than an the opportunities. ("The Innovative Enterprise" Second edition) And so, the people look at their bosses and focus on what will please the boss, and innovative but counter-intuitive initiatives are muted.
That being said, it is important to realize that the established performance evaluation system conditions each of Deming’s 4 managerial functions, namely: plan-do-check-act ! The US military used John R. Boyd’s approach to the 4 managerial functions, namely: observe-orient-decide-act. It starts with the observation of the situation. Then, the orientation shapes the observation, and it leads to the decisions on the plan that will be deployed. Among the critical success/failure factors considered in the orient-step of OODA, are the intangible resources, and the medium term. I agree that if you do not focus on the short term there will be no longer term to worry about, but if we do not prepare for the medium term it will be pretty uncomfortable when we get there. (J.R. Boyd « A Discourse on Winning and Loosing »)
So, I am not suggesting that the performance evaluation system be changed like ladies fashions, but that it should include all the <corporate capitals> and all the essential business processes. Furthermore, it may be supplemented with provisional critical success factors. When companies innovate their business model, they must also innovate their performance evaluation system, which is an integral part of the systems of management.