To Vary Performance KPIs and Targets or Not to Vary Them, That Is the Question

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As the prince of Denmark knew, some questions are difficult. This is one of those. Is it better to acknowledge reality and agree that performance KPIs and targets set when times were good may not be relevant and have no prospect of being achieved? Or does this open the floodgates to changes and exceptions so that any change in circumstance will start to become a reason for changing KPIs?

For example, we are currently working with a retail chain where store manager KPIs and targets established 6 months ago are now unrealistic across the board, causing considerable dispute and potential demotivation.

This is the problem that most companies, and many of our clients, face right now, as the recession worsens. For expatriate managers there are two additional complications: the culture of the international or Russian company of which they are a part; and their uncertainty of what works best in Russian culture. Newcomers, or non-historians, may not realize that systems of targets were introduced in the Soviet Union way before they became common in western businesses, and that Russian managers have more experience in dealing with or getting round meaningless targets than any!

Resolving this issue for anyone will involve the following criteria:

•What are the consequences, for the individual and for the company, of changing or not changing KPIs and targets? If the company urgently needs to refocus, KPIs must be changed; if it just means no bonuses, well maybe that is not a bad thing.

•What is fair, to the company and to the staff? This is of course a matter of perception, but transparency and discussion will give you the best chance of narrowing the perception gap.

•What explicit and implicit promises have been made? Unlike in the USA (witness the question of contractual bankers' bonuses this year) in Russia there is widespread acceptance, in my experience, of a force majeure requiring changes in terms previously agreed.

•How old, well established and credible is the performance management system? Will making a change improve or weaken the credibility of the system? Often this is a matter of leadership and presentation. In one recent case the general director of a manufacturer made a change for an individual outside the system undermining its credibility, but if the same had been done within the system it would have strengthened it. This is a critical and least well understood aspect of performance management, especially by those who have put the systems in quickly and recently.

Clearly over-readiness to change is wrong, just as is excessive rigidity. The key is motivation. Sometimes not changing the KPI or the target brings out the best in people, especially in Russia (remember who really won the Second World War!). But, as with one luxury goods company, if you want to refocus the sales-force onto different product lines quickly then the target/bonus system was the best tool available.

Since the introduction and operation of performance management systems in Russia is my particular area of interest, I would be interested to hear from any reader about their experiences good or bad on this theme. The most interesting answer will be published in a month and the writer invited to lunch at Pushkin Cafe! Send it to modiano@strategy.ru.