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Who Evaluates Performance?

How can a manager impact performance without being involved in subordinates' work? Thirty years ago Elliott Carlisle reported on MacGregor1, the head of an oil refinery, who did just this. MacGregor (a pseudonym) routinely ran the most profitable plant in the company without spending time in the plant, without solving subordinates' problems, and without telling them how to meet their targets. And he didn't spend time doing formal employee performance evaluations.

In the previous two articles we explored the distinction between performance and results, and how feedback on results, not performance, is an important job of the manager. Yet, managers rely on the performance of those assigned to do the work. This article explores the questions of "Whose job is it to evaluate performance?" and "How can managers support performance improvement?"

Because performance takes place as people are doing work, usually only one party is privy to that performance and can effectively evaluate it: the individual performing. MacGregor, for example, never evaluated the actual performance of his subordinates. In fact, when they tried to get MacGregor to intervene in their work, he resisted. As Carlisle reports, "In all cases MacGregor left specifics on how agreed-upon results were to be achieved to the subordinates themselves." MacGregor's "performance evaluation" system consisted of providing weekly feedback on pertinent results so that his refinery managers could reflect on their performance and modify it to improve results.

Consider the phenomenon of the New United Motor Manufacturing, Inc. (NUMMI). A flailing General Motors plant in Fremont, CA was closed in 1982 because of the dismal performance of its unionized workforce. Shortly after the closing, NUMMI was formed as a joint venture with Toyota; hiring back 85% of the same "failed" workforce, NUMMI went from 20% absenteeism to 3% and significantly improved quality. The plant became not only the most productive plant at GM, but in 1998 won the Award for Excellence from the National Association of Manufacturers2.

The NUMMI success, like MacGregor's, can be attributed to an informal "performance evaluation" system that allowed those doing the work to assess their own performance. By routinely receiving data on measures like attendance records and defect records (feedback on results), assembly teams not only improved their methods, but individual workers were also able to reflect on (evaluate) and modify their own performance and see firsthand the impact on results.

The key is to distinguish between formal employee evaluations and informal performance evaluations. A critical difference in the NUMMI production system (and similar lean production systems) is that any worker on the assembly line has the authority to stop the line to correct problems. Such a policy seems counterintuitive given that every minute of downtime costs $15,000. But that downtime can signal learning by the teams doing the work, allowing for both innovations in methods and performance improvement. As one manager says, "When there's no downtime, I know that my people are sending junk through or they're trying to be superstars." While formal employee evaluations are often counterproductive, informal performance evaluation systems promote learning.

MacGregor admitted that he would allow relatively small mistakes by his subordinates because of what could be learned from them. Carlisle sums up his assessment of MacGregor's performance system in terms of learning:

"MacGregor's overriding concern was with results: the results his subordinates achieved through methods they developed either by themselves or by working with their peers. He simply refused to do their work for them, even at the risk of incurring short-run costs. By refusing, he enabled them to grow in terms of their ability to make decisions even under conditions of uncertainty."

Managers like MacGregor recognize one of the best ways for workers to improve performance is to use their peers. MacGregor held a weekly meeting of his subordinates that served as a platform for peers to both seek help from each other and to give it. Subordinates reported that if they went to MacGregor for help, he would refer them to their peers in the plant, who were "in touch with what goes on out there."

Performance evaluation systems that promote learning are worth investing in. Ideally, as with MacGregor and NUMMI, the individuals evaluate and improve performance, with the help of peers. Managers make it happen by creating and main-taining a system that pushes responsibility for performance evaluation and improvement to the individual, encourages peer support, and provides constant feedback on results.

1Arthur Elliott Carlisle, Organizational Dynamics, v. 5, pg 50-62, Summer, 1976.
2From O'Reilly and Pfeffer, Hidden Value, Harvard Business School Press, 2000.

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