The Intentional Organisation - Issue #37 - Who owns Performance?

Apr 15, 2022

A recent article by McKinsey, based on an interview of about 80 CHROs of US and European companies, affirms the need for a new "HR Operating Model".

It’s never been more important for HR to be a true strategic partner and a bridge between the workforce and the organization.

Relative Priority of different Transformation Actions by HR. Source: McKinsey

The article states several differences between the US and EU respondents. And focuses on a few capabilities areas that HR intends to build. However, despite the limited sample, the last priority area is problematic for me: "Putting the business in the driver's seat", defined as Shifting decision-making responsibility to line managers for processes such as recruiting and performance appraisal.

We have already seen how relevant the idea of Organisational Performance is and how much we should focus our attention on Productivity and Performance in the design of our organisations. The appraisal system should, therefore, be central in this design.

Yet, the idea that performance appraisal is owned by HR is the single most crucial point of failure for any performance appraisal system. Often joined with a general lack of understanding of business results by too many in the HR professional family, no wonder we keep interrogating ourselves on why these systems don't work.

So, When exactly did HR take the Diver Seat on these processes?

Ownership and Organisation Design

This is an example of one of the most significant misunderstandings underlying organisational design. The Design Process facilitator becomes the "owner" of the process itself. HR has often supported this conclusion, in some cases voluntarily. After all, in the great quest of having a "seat at the table", becoming a process owner is an excellent path to getting heard?

But let's step back and ask ourselves, who owns organisation design? Naomi Stanford tries to answer this question in her book Organisation Design: Engaging with Change published in 2013. She identified a trend:

That the overall 'design' of it is 'owned' by the business people, as a part of a business strategy, and the 'development' of it is 'owned' by the HR team. But these are not independent but integrated pathways. There is a business strategy that can only be delivered with the support of a corresponding HR strategy.

Yet the topic is still open for discussion.

I agree with the above and genuinely think that Design needs to be owned collectively by the entire business leadership. HR needs to provide competencies and tools, playing the architect role in the construction flow.

What often gets wrong is the governance piece of design. RACI matrixes and the related field of work create cluttered spaces where a fog of HR jargon hides absolute "ownership" of systems and processes. So, owning the technology tool that supports the performance appraisal process makes HR automatically the owner of the process itself.

I don't want to think that HR is the only culprit. Other supporting families have acquired "power" in the organisation by "owning" entire systems, depriving the business of critical areas to exercise judgement and make business decisions. An example is Budgeting, which often constraints so much the strategic business decision process that it becomes a burden instead of a facilitator to business decisions. Think about the impact of cost centre structures on the organisation, and you get an idea of why this can be dangerous.

Why this happens

So, why is the above wrong?

Think about it. Stating that Performance Appraisal is owned by HR or that Finance owns resource Allocation means taking away from the business two critical activities for achieving business objectives.

This happens for three main reasons that intertwine each other:

First of all, it is the simple Principle of Bureaucracy, whereby a process gets "owned" based on a competency principle. Who knows the process owns it. In the original idea of Max Weber, this was not necessarily wrong because it allowed operations to be managed by the "best available resources". But we know that bureaucracy tends to go adrift into silo thinking and power exercise. Knowledge becomes a principle of exclusion from others.
Second, a low level of Organisation Design competencies in the organisation means we overlook critical components such as the Operating Model and the Value Flows. Instead, we focus on Organisation Charts and Process Flows, which offer a minimal understanding of what's at stake.
Third, Technology Application has vastly contributed to this problem by creating disruptive implementations of rigid systems, whereby the (technical) system decision-maker becomes de-facto the system owner.

Is there a solution?

Yes, but it's not easy. Because, especially in the case of HR, it means critically endangering the narrative that many CHROs have entailed for themselves in recent years. It is taking a seat at the table of decision-makers, being HR Business Partners by holding power on a few critical organisational processes. This, however, damages the organisation more than creating added value for the function.

The solution is to go back to the drawing table, showing that the added value of HR in Design is not by taking ownership of specific business decisions but by demonstrating competence in designing the best organisation for the Purpose and Strategy to be achieved. Continuously supporting innovation through Intentional Design of what's to come.

Else, we are creating a major source of organisational debt without having the tools to then manage it in the future.

Sergio

Cover Photo by Maxim Zhgulev on Unsplash