Key to Effective Organizational Performance Management Lies at the Intersection of Paradox Theory and Stakeholder Theory

• Published date: 01 April 2019
• DOI: http://doi.org/10.1111/ijmr.12199
• Date: 01 April 2019

International Journal of Management Reviews, Vol. 21, 185–208 (2019)

DOI: 10.1111/ijmr.12199

Key to Effective Organizational

Performance Management Lies at the

Intersection of Paradox Theory and

Stakeholder Theory

Jonathan Pinto

Imperial College Business School, South Kensington, London SW7 2AZ, UK

Corresponding author email: j.pinto@imperial.ac.uk

One of the fundamental and recurring issues in performance management is the adop-

tion of a simplistic, short-term, narrow,metrics-oriented approach, which often results

in unintended negative outcomes, some of which could be disastrous.This paper makes

the case that the key to preventingthis syndrome lies at the intersection of paradox and

stakeholder theories. Both theories encourage a more complex, long-term, holistic, bal-

anced approach to management. Stakeholder theory focuses on addressing the many

(sometimes conflicting) goals of multiple stakeholders, and paradox theory provides

insights into how this challenging task (i.e. of simultaneously addressing multiple con-

flicting priorities) can be accomplished. Thus, the former provides the ‘what’ and the

latter the ‘how’ of effective organizationalperformance management. Accordingly, the

literature at the intersection of both theories (composed of 69 scholarly outputs), was

reviewed,and in so doing, identified seven domain areas and 21 constructs, all of which

implicitly deal with either performance management or its communication, thereby

lending support to this paper’s thesis. The implications of this review for both theory

and practice, including the role of paradoxical cognitivemechanisms, is discussed.

Effective organizational performance management

has proved to be one of the most enduring man-

agement challenges. Organizations tend to apply the

well-established management practice of ‘manage-

ment by objectives’ (Drucker 1954; Odiorne 1965),

which is based on two commonsense premises, i.e.

‘what gets measured is what matters’ (Bevan and

Hood 2006, p. 517) and ‘measuring outcomes leads

to better outcomes’ (Grizzle 2002, p. 363). And al-

though these premises and their underlying intuitions

are solid, managing by metrics could, and often does,

lead to negative outcomes. The downside of focusing

largely, if not exclusively, on a narrow set of short-

term performance metrics (cf. ‘targetology’, Rouse

1993) is well established in the management litera-

ture (e.g. Bevan and Hood 2006; Brownell and Hirst

1986; Smith 1993, 1995). This downside includes un-

intended negative outcomes such as mistakes(Brewer

2018), corruption (Ashforth and Anand 2003; Pinto

et al. 2008) and gaming (Radnor 2008).

A recent example of these negative consequences

is the resignation of the UK Home Secretary Amber

Rudd on 29 April 2018 after an official memo wasdis-

covered which showed that she was aware of targets

for the deportation of illegal immigrants even though

she had earlier denied the existence of such targets

in the British Parliament. On the same issue, even

more recently, a Home Office asylum caseworker co-

denamed ‘Alex’ has claimed that, because manage-

ment were obsessed with unachievable ‘stats’, staff

had to work so fast that their decisions to deport were

a lottery (i.e. more based on chance than on proper

analysis), which mayhave resulted in innocent people

being sent home to their deaths (Brewer 2018).

And though it is tempting to dismiss this as politics

and bureaucracy as usual, metrics-related pressures

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186 J. Pi nt o

have also resulted in individual-level negative con-

sequences in the supposedly more noble profession

of academia. The pressures of the ‘publish or per-

ish’ (de Rond and Miller 2005; Miller et al. 2011)

performance management model has resulted in an

increase in unethical methods to achieve publishing

targets. These unethical methods include plagiarism,

data duplication and statistical irregularities, as in the

case of Ulrich Lichtenthaler (Retraction Watch 2012,

2014) or evencompletely fabricating data, as Diederik

Stapel did (Bhattacharjee 2013). And when the key

metric is not publications, it is grant income, and ex-

cessive focus on that too can be tragic. For example,

in 2014, Stefan Grimm, professor of toxicology in

the Faculty of Medicine at Imperial College London

committed suicide because he could not cope with

the pressure of (and perceived consequences of not)

achieving his grant income target (Parr 2014).

And it is not just individuals who are impacted.

The negative unintended consequences of an exces-

sively metrics-oriented performance management are

also felt at the organization and economy levels. For

instance, incentive compensation and emphasis on

short-term profits are among the causes of accounting

scandals (Ball 2009) that have sometimes resulted in

organizational deaths, e.g. Arthur Andersen, Enron,

Parmalat and Satyam Computer Systems. Similarly,

perverse incentives were among the structural causes

of the 2008 financial crisis (Coval et al. 2009; Crotty

2009).

This begs the question – if the negative conse-

quences of a narrow, excessively metrics-oriented

performance management system are well known,

and its antidote, i.e. a broader, more holistic and

balanced-across-multiple-goals approach (e.g. Dodd

and Favaro 2006; Kaplan and Norton 1996), is well

established – why do practitioners continue to make

the same mistakes? There are two potential rationales.

First, the perceived primacy of a single stakeholder

(typically the shareholder) and consequent focus

largely on the one (or few) metrics that matter to that

stakeholder (typically,earnings or shareholder value).

Second, the complexity (both cognitive and behav-

ioral) of attempting to address multiple, sometimes

conflicting priorities. The first rationale is consonant

with the view advocated by scholars who claim it is

logically impossibleto maximize in more than one di-

mension, and social welfare is maximized when each

firm maximizes its total value (cf. ‘enlightened value

maximization’, Jensen 2001). And with regard to the

second rationale (i.e. simultaneously trying to achieve

positive results on two conflicting dimensions)

Dodd and Favaro (2006, p. 70) put it best when they

said, ‘if we chase two rabbits, both will escape’.

These two rationales are addressed by stakeholder

theory and paradox theory, respectively. The first ra-

tionale, i.e. overfocus on one stakeholder, is counter

to stakeholder theory, which describes and advocates

‘simultaneously attention to the legitimate interests

of all appropriate shareholders’ [emphasis added]

(Donaldson and Preston 1995, p. 67). The second

rationale, i.e. the challenge of focusing and manag-

ing multiple, often conflicting priorities is addressed

by paradox theory, which considers tensions or con-

flicts as inherent in organizational systems and seeks

approaches to embrace their persistent nature (Smith

and Tracey 2016, p. 456). Thus, stakeholder theory

and paradox theory together address the performance

management challenges faced by managers and

leaders.

The two theories have three key common features,

which is where they intersect and guide effectiveper-

formance management. First, both theories deal with

multiple elements or plurality. Paradox,by definition,

needs to have two elements, and stakeholder refers to

all (i.e. multiple) entities who can affector are affected

by the achievement of an organization’s objectives

(Freeman 1984). Secondly, both theories deal with

conflict between or among these multiple elements,

and this conflict may or may not be drivenby scarcity.

In paradox theory, the conflict is explicit, whereas it

is usually implicit in stakeholder theory. Finally, both

theories are about managing (and not eliminating) the

conflict. Stakeholder theory advocates simultaneous

attention to all legitimate interests, even if they are

conflicting (Donaldson and Preston, 1995), whereas

paradox theory provides multiple approaches to man-

aging persistent contradictions among conflicting ele-

ments. Thus, stakeholder theory provides guidance on

the ‘what’ (i.e. simultaneously address multiple, of-

ten conflicting interests), and paradox theory provides

guidance on the ‘how’ (i.e. howto manage competing

objectives simultaneously). And since both theories

are needed to address the challenge of effective orga-

nizational performance management, I reviewed pa-

pers at the intersection of both theories to see if they

provided greater insight into this issue.

This paper is organized as follows. In the next sec-

tion, the two focal theories, i.e. paradox theory and

stakeholder theory, are compared and contrasted, and

their implications for performance management are

discussed. After that the Methodology section de-

scribes the process followed to identify the 69 papers

that are at the intersection of the two theories. The

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