Management by objectives misalignment in IT services firm performance

IT Firm and Performance Evaluation

The lack of congruity between the strategic plans and direction of the IT services firm on the one hand and the structure of its Management by Objectives (MBO) program on the other is causing a major disconnect in overall company performance. The high scores for Division X are completely unwarranted and are a result of poor training, inaccurate ratings and a series of biases in the managers providing the reviews. The intent of this analysis is to use concepts and frameworks to evaluate and define the current situation and also provide guidance as to how best the IT services firm can overcome this very difficult situation they are in today. This firm must hold into their top performers while enabling the company to stay resilient in the face of a challenging economy.

MBO Programs and Congruity to Strategic Planning

At the most basic levels, the MBO program in place at the IT services firm is completely disconnected from the basic strategic plans and objectives of the firm. When a performance appraisal system lacks the foundation of solid strategic planning and continual feedback loops as to direction, the performance goals and results run the risk of becoming quickly obsolete and irrelevant (Castellano, Roehm, 2001). While the company has been successful in engaging departments to work in conjunction with one another during the timer period the MBOs were created and launched, the chaotic nature of the company today is a result of a series of factors analyzed in this section. MBOs have the potential to galvanize a business and ensure it continues to make steady progress to objectives, even within difficult economic conditions (Ingham, 1995). What the IT services team has not done is define a strategic performance management system that can scale across all functions of the company correctly, and ensure a high level of performance to objectives of relevance. What has happened is that the MBO program focused purely on activity and not on the unified direction towards shared strategic direction, and this has created the lack of trust throughout the company. A best practice of enterprise performance management is the development of strong levels of trust throughout an organization based on incentive and performance programs being aligned to the broader strategic goals and objectives (Farndale, Hope-Hailey, Kelliher, 2011). For Angus to turn the company around, he and his management team will need to create a highly effective framework for ensuring strategic plans and initiatives are reflected in the individualized MBO programs in place. Optimizing the role of performance appraisals within an organization needs to start at the strategic level and emanate down to each department, effectively creating a unified series of strategies and efforts to ensure high performance (Schweiger, Sumners, 1994).

A second major error that occurred is that despite the training on rater bias, it has proven largely to be ineffective. This is evidenced by 60% of Division X having five stars or above clearly showing a Leniency Error in how the managers rated their subordinates (Poister, Streib, 1995). Now with the expectations of the engineers and programmers in Division X so high, the senior management must either follow through and provide the bonuses and pay raises as promises or completely lose credibility and trust, and lose many of the more talented members of the team. This aspect of the case study dramatically illustrates how critical it is for biases to be completely absent from the reviewing process in order for a true measure of performance to be created. Trust is the currency and unifying bond that ensures a performance management system will work (Farndale, Hope-Hailey, Kelliher, 2011). For Angus and his management team, it's time for damage control first, and then the redesign of the company's performance management system.

In conjunction with the development and re-launch of a performance management system, Angus must have all the second- and third-tier managers again go through rater bias training. The effectiveness of the training must be evaluated as well, with each of the following biases specifically tested for. These biases include severity error, single criterion, leniency error (which is pervasive in the evaluation of Division X), Low Differentiation, and forcing information to match non-performance criterion all must be taken into account in the training (Castellano, Roehm, 2001). Several of these biases are evident in the case study's results. After this secondary wave of training is completed, Angus and his senior management team must again have every manager rate every employee. To be fair to the employees the scores will need to be balanced with the first iteration positioned as a baseline of performance (Coate, Hill, 2011). It is during this iteration of the second rating levels that the company must also choose to define how the first series of ratings will be used in the context of evaluating overall performance (Chan, 2006).

Another problem with the first approach of the MBO Program as introduced by the IT Services consultancy is the confusion of just what it is for. The IT Services firm has incorrectly designed the performance appraisal system in the hope of measuring both performance and areas necessary for improvement. As is often the case of performance incentive programs that are designed for dual purposes with no clear integration to strategic goals and direction, the program failed (Castellano, Roehm, 2001) .

Yet the greatest failure of the MBO program implemented by the IT consultancy was not necessarily the conflicting purpose, but its lack of congruity with the core strengths of the company to begin with. Instead of designing the performance management program to concentrate first on the innate strengths of the business and define strategic plans and objectives for growth based on those insights, the entire program is force-fitted into the organizational culture and fails as a result. Creating an effective change management framework which reduces resistance to change through transformational leadership is a key success factor in any program succeeding over the long-term (Farndale, Hope-Hailey, Kelliher, 2011). What needed to occur was that the MBO program needed to be first defined through a series change management programs and plans which gave employees an opportunity to understand the purpose of the incentive and programs while also increasing trust (Raineri, 2011). The glaring disconnect at the strategic planning level would have been averted if this had occurred, as each direction report to Angus would have had to have mapped their departments' objectives to the overarching ones. This would have created greater continuity of program execution as a result and greater insight into the value of the program overall. The many biases evident in the program's execution with the most difficult to recover from being the awarding of very high scores for Division X further underscore the need for drastic action. All of these symptoms of a lack of success in rolling out the program point to re-defining and re-implementing a new performance management system. It is recommended that Angus and the senior managers undertake the development of an entirely new performance management system, the specific of which are defined in the next section.

Conclusion

The lack of focus and the multiplicity of roles that the first performance management system Angus and his team introduced into their IT consultancy were doomed to fail. First, it was focused on two potentially conflicting objectives of personal development on the one hand, and company performance on the other (Schweiger, Sumners, 1994). Second, the lack of change management included in the planning made it extremely difficult for those involved with the program to succeed (Raineri, 2011). Third was the lack of integration between the performance management system and the strategic plans for the company (Chan, 2006). All of these factors in addition to rater bias led to the recommendation of completely redesigning the performance management system and creating one that could be more effectively and equitably run to measure only performance and quantifying that attribute over time.