Business success is finally measured by the bottom-line it produces. Quality processes use inputs to deliver the best output. Managing for results — pay for performance schemes and the like — are increasingly practised by modern organisations for business reasons but this principle can fundamentally be flawed if it is the only criterion for evaluating managers. But the counter argument would be - any decision has no tangible value but the positive outcome does.
People, including managers and business leaders, typically equate the quality of a decision with the quality of the result. When there is a good result, people conclude that they made a good decision.
Likewise, when there is a bad result, people conclude that a bad decision was made. This is not true. Decisions and results are two different things.
Time lapses 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. Things 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
Blame culture
A blame culture triggered by bad results stifles experimentation, innovation or trial and error. If leaders do not tolerate failure and error in 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 our any one business.
Taken to national proportions, a blaming culture inhibits societal growth, development and evolution. Managing for results leads to crises at the least, it can lead to bankruptcy at the worst.
Balance
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 yet 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. Through 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 don’t measure one’s true contributions to the organisation.
It is possible that bad managers using the wrong process 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 action. Organisations should, therefore, reward on the longer-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.
Keeping in mind though that good decisions are for good results, so the onus is on you to ensure that good decisions delivers good results leaving the luck aside.