Literature Review on Nordic Attitude towards KPIs

Why is performance appraisal not a motivation factor in the Nordic?

Introduction

J3L is a Norwegian financial company based in Bergen, Norway. The company was acquired in 2010 by international owners. Following acquisition, J3L undergone significant changes with purpose of aligning local policies and processes with the rest of the international group.  For the first time the concepts of key performance indicators (KPIs), annual performance appraisal and performance-related pay were introduced and adversely perceived by both; the local management and the J3L employees.

J3L was already profitable prior to acquisition and local management was reluctant to implement new group productivity and efficiencies policies. The general perception was that the KPI benchmark was irrelevant as group had different activities and that performance appraisal was too controlling. J3L was against performance-related pay, judging it against company’s values. This is not surprising, as the country still mirrors egalitarian values and modest behaviour based on cultural construct known in Nordic culture as “Jante Law” (Smith et al. 2003). Ten propositions of Jante Law emphasise that one should not believe one is better than anyone else. This view is a contrast to performance-focused view. According to OECD data, Norway uses performance appraisal less than the average OECD country, and only at the top management level (OECD 2012).

However, J3L had to implement company performance KPIs, and when benchmarked against other entities of the group, often outperformed the rest them. J3L management was challenged by the shareholders that based on strong KPIs the implementation of performance-related pay would benefit J3L employees. J3L management strongly rejected formal performance appraisal and performance-related pay.

I reviewed motivation theories literature to explain the decision taken by the J3L management and investigated why is performance appraisal not a motivation factor in the Nordics.

Critical Analysis

Motivation literature is complex, but most motivation theories agree that a positive correlation between motivation and performance exists (Cerasoli, Nicklin & Ford 2014). Motivated workforce performs better and benefits organisation in terms of profitability and competitiveness, whereas demotivated workforce can erode profitability due to frequent sick leave, turnover and absenteeism. Furthermore, Porter and Lower model (1968) distinguishes between intrinsic motivation, where people derive satisfaction from the activity itself (Gagne & Deci 2005) in contrast to extrinsic motivation where motivation is achieved by a taJ3Lble reward. In terms of quality of motivation, intrinsic motivation is viewed of higher quality compared to  extrinsic since it is self-induced reflecting a positive potential of human nature (Ryan & Deci 2000).

Maslow’s theory of motivation defines hierarchy of five needs separated in higher and lower orders. Lower-order needs are satisfied externally (such as hunger, security and affection) whereas higher-order needs are satisfied internally. Maslow hypothesised that as one need from the hierarchy is satisfied, one needs to move the level up, as the lower need is no longer a motivator. One needs to identify that and move the level up the hierarchy. Needs such as self-respect and self-fulfilment are higher order needs (Maslow 1954). In the case of J3L, employees were operating at the higher-order needs level already prior to acquisition. Their self-actualisation and esteem were seen from the work attitude and job performance. By introducing performance appraisal, one targets lower-order needs that were in J3L’s case already satisfied. According to this early theory of motivation, J3L management correctly understood and identified employees needs hierarchy and avoided employee satisfaction regression.

While Maslow theory focuses primarily on the energizers of motivated actions, self-determination theory (SDT) builds up a level by analysing both how behaviour is energized and how it is directed (Gagne & Deci 2005). The self-determination theory builds on Porter and Lower model (Dillman 1968) of intrinsic and extrinsic motivation factors, acknowledging importance of intrinsic motivators (“self-motivators”) and further identifies three main needs for fulfilment of intrinsic motivation: need for autonomy, need for competence and need for relatedness (Ryan & Deci 2000).

Cognitive evaluation theory, a sub-theory within self-determination theory, suggests that external factors diminish feeling of autonomy resulting in undermined intrinsic motivation (Gagne & Deci 2005). Diminishing autonomy feeling results in motivation moving from intrinsic to controlled extrinsic. This is graphically represented by self-determination continuum, that represents continuum and degree of relative autonomy. Organisations spend significant resources to develop the performance appraisal system with aim that extrinsic motivators eventually become autonomous motivator, resulting in the intrinsic motivation in the long run. However, for the employees with strong autonomy orientation perception of performance appraisal is negative (Kuvaas 2007). The performance appraisal undermines the need for autonomy and in line with SDT negatively impacts performance. A more oppressive and controlling environment results in a loss of intrinsic motivation and subsequently results in lower engagement and poorer performance.

In the context of J3L, I investigate the SDT and intrinsic motivation with paying particular attention to need of autonomy. J3L employees were intrinsically motivated already prior to acquisition and were operating under high autonomous motivation side of the continuum. Introducing the performance appraisal and performance-related pay the J3L management feared that the employees would shift from autonomous intrinsic to controlled extrinsic motivation. In the case of J3L, management performed autonomous motivation as opposed to controlled motivation. The practice of “wanting to do something” was encouraged as opposed to “having to do something”. J3L management avoided imposing external rewards factors and with this philosophy catalysed greater intrinsic motivations among the employees. At the same time the management correctly anticipated that too much time and energy would be spent on unnecessarily feedback and judged against it. J3L is an example of competent management that withstood shareholders’ pressure by correctly identifying employees’ motivation factors and remaining true to company values.

Not everyone agrees with the relevance of continuum. Opposing view is that the evidence of continuum of autonomy as measurement of quality of motivation is weak as it focuses only on a single dimension; “degree of motivational regulation” instead of “kind of motivation” (Chemolli & Gagné 2014). Limitations of continuum is that by focusing on motivational factor, the individual can only occupy one position on the continuum at the given point of time, whereas the motivational factors for doing the job are several. Opposing view argues that continuum dilutes the richness of SDT and that different multidimensional scale including other life domains would be more appropriate. However, the alternative methodology is not presented by the authors.

As suggested by Kuvaas (2007) the use of continuum is sufficient to determine negative relationship between performance appraisal and autonomy consequently results in decreased motivation and performance. The research is relevant for J3L case as the same cultural dimensions were considered; Kuvaas’ survey respondents were Norwegian employees. However, Kuvaas jumps too quickly into conclusion that the results of his research may be applicable to other western countries. Kuvaas does acknowledge some limitations and concerns to his findings but the general sentiment is that the analogy is driven between Norway and other western countries by cultural dimensions such as better social welfare programs, smaller power distance, similar degree of individualisation. This analogy is not valud as no empirical data supports it.

The degree of power distance and individualism can affect the performance appraisal  perception or even the process itself and influence whether countries even have performance appraisal  in the first place (Anderson 2001). “Project GLOBE” identifies social cultural values in its research of 62 main world cultures categorising them into the clusters based on values similarities (House et al. 2004). The project observes nine cultural dimensions and shows that the values such as identity, shared beliefs, motives and experiences are cluster specific. Project GLOBE identifies “Nordic cluster” composed of Finland, Denmark and Sweden, which is applicable for our analysis. Out of mime cultural dimensions observed by Project GLOBE I will focus on the three most relevant for my case: performance orientation, power distance and institutional collectivism.

Institutional collectivism is measured by the degree to which institutions encourage collective action and distribution of resources (House & al. 2004). Institution collectivism in the Nordics is seen from strong support for labour unions, high tax levels and consequently high social welfare system (Warner-Søderholm 2012). On the seven-point scale Nordic cluster’s mean score is much higher at 4.9, compared to western countries judged relevant: France (3.9), West Germany (3.8), Switzerland (4.1) and US (4.2). Performance orientation is measured by the degree society rewards individuals for performance (House & al. 2004). As mentioned earlier, Nordic countries are constructed on a strong foundation values of equality and modesty, this is opposed to performance-focused values. For example, it is common for primary education to be marks-free and that everyone gets rewarded in the sports competitions. Although companies in the Nordics start introducing the performance appraisal  and performance-related pay, what counts in the region is the performance of duties and competence rather than self-promotion (Warner-Søderholm 2012). It is therefore not surprising that the mean for Nordic cluster on performance orientation is rather low (3.9) compared to selected western countries: France (4.1), West Germany (4.3), Switzerland (4.9) and US (4.5). Power distance is the degree to which members expect power to be distributed unequally (House & al. 2004). Nordic countries are known for low power manifested in business by little use of formal titles, avoidance of strict dress codes and flat hierarchy within organisations (Warner-Søderholm 2012). Everyone is expected to queue, and pictures of living politicians are absent from the public places. The mean score on power distance for Nordic cluster is the lowest among whole GLOBE 62 countries at 4.5. GLOBE study median was at 5.2 with same selected western countries as above at France (5.3), West Germany (5.3), Switzerland (4.9) and US (4.9).

I agree with Kuvaas (2007) that performance appraisal negatively impacts intrinsic motivation by diminishing autonomy in Norway, but at the same time the way in which individuals express their autonomy depends on different cultural values (Ryan & Deci 2000). From Project GLOBE findings it follows that western countries differ on above observed social cultural dimensions and that the cultural differences within the SDT cannot be neglected. A better examination of intrinsic motivation conditions would indeed be a better alternative for conceptualisation of STD as suggested in the motivation literature by Chemolli & Gagne (2014). Additional theory-driven measures and scorings are essential for better representation and beneficial for the application of the SDT to real-life examples to correctly examine the causes that sustain and enhance intrinsic motivation in the individuals.

Solutions and Implementations

Understanding of cultural dimensions and their impact on intrinsic motivation are crucial for companies in the time of cross-cultural acquisitions. In the case of J3L, international shareholders failed to identify Nordic values and understand cultural differences for adverse perception of the performance measurements. Values are also the reason for individuals engaging in behaviour and the absence of values can result in profit and employee loss. The J3L management opposed the implementation of effort-based measurement system and preserved employee motivation.

UNTIL HERE !The dimensions of power distance and collectivism also influences the performance appraisal process in terms of who provides the feedback, the style of the process, the content and the purpose (Anderson 2001). In the case of J3L, the shareholders wanted to implement standardised performance appraisal system and questionnaire, not considering different social cultural dimensions.

Based on the findings from Project GLOBE, an informal feedback would be more applicable in the case of Nordic cluster, hence J3L, as the autonomy level is not compromised. Informal feedback does not trigger the same feeling of control as the formal performance appraisal. At the acquisition, international shareholders should consider what impact would each external factor they want to introduce have on employee motivation, considering autonomy level of the employees that is high in the Nordic case. Although the causes of intrinsic motivation are beyond the scope of SDT (Ryan & Deci 2000), the values and cultural traits are conditions that sustain and elicit innate propensity and therefore fall within the scope of SDT. The international shareholders ignored them.

According to Hezberg’s two-factor motivation model, there are hygiene factors that need to be satisfied, in J3L’s case such as work-life balance, flat organisation, autonomy. Have the international shareholders though about those unwritten codes of conduct that are indispensable for keeping the employees motivated

Conclusion

J3L is a perfect example of an effective management that correctly identified intrinsic motivators and demotivators and by firm stand against performance appraisal and performance related-pay implementation, avoided employee satisfaction regression.

Motivational literature confirms that the performance appraisal has a negative impact on the autonomy and ……. In the Nordics (Kuvaas). Social cultural dimensions such as x,y,z are important determinatior for performance appraisal perception and should not be neglected (Fletcher). The social cultural values are Nordic cluster specific and determine behaviours (House) – companies need to recognise and study them in order to encourage wanted nbehaviours and encourage intrinsic motivations. The analogy between the not applicable to other countries in the absence of further studies and surveys in those countries.

A more applicable approach takig into consideration different dimansions of life to determine intrinsic motivation opposed to one-dimensional would be beneficial.

References

Anderson, N 2001, Handbook of Industrial, Work & Organizational Psychology Volume 1: Personnel Psychology, SAGE Publications, London.

Cerasoli, CP, Nicklin, JM & Ford, MT 2014, ‘Intrinsic Motivation and Extrinsic Incentives Jointly Predict Performance: A 40-Year Meta-Analysis’, Psychological Bulletin, vol. 140, no. 4, pp. 980-1008.

Chemolli, E & Gagné, M 2014, ‘Evidence Against the Continuum Structure Underlying Motivation Measures Derived From Self-Determination Theory’, Psychological Assessment, vol. 26, no. 2, pp. 575-585.

Dillman, E 1968, Porter and Lawler, “Managerial Attitudes and Performance” (Book Review), vol. 49, University of Texas Press, in cooperation with the Southwestern Social Science Association., Austin, Tex., p. 752.

Gagne, M & Deci, E 2005, Self-determination theory and work motivation in J. Organ. Behav., vol. 26, JOHN WILEY & SONS LTD, pp. 331-362.

House, RJ & al., e 2004, Culture, leadership, and organizations : the GLOBE study of 62 societies, SAGE, Thousand Oaks, Calif. ;.

Kuvaas, B 2007, ‘Different relationships between perceptions of developmental performance appraisal and work performance’, Personnel Review, vol. 36, no. 3, pp. 378-397.

Maslow, AH 1954, Motivation and personality, Harper & Row, New York.

OECD 2012, Human Resources Management Country Profiles Available from: www.oecd.org/gov/pem/OECD%20HRM%20Profile%20-%20Norway.pdf.

Ryan, RM & Deci, EL 2000, ‘Self-Determination Theory and the Facilitation of Intrinsic Motivation, Social Development, and Well-Being’, American Psychologist, vol. 55, no. 1, pp. 68-78.

Smith, PB, Andersen, JA, Ekelund, B, Graversen, G & Ropo, A 2003, ‘In search of Nordic management styles’, Scandinavian Journal of Management, vol. 19, no. 4, pp. 491-507.

Warner-Søderholm, G 2012, ‘But we’re not all Vikings! Intercultural identity within a Nordic context’, Journal of Intercultural Communication, , no. 29.