Solving performance problems: the critical effect of organisational context

D. Kucharski, K.Kucharska/

When trying to solve performance problems, it is not enough to think in terms of simple cause and effect relationships. Causation often includes ‘contextual’ factors that complicate cause and effect. In this article, I explain Organisational Context, and show how leaders can solve problems more effectively by practising ‘Contextual Analysis’.

 Andy Milward Ph.D.


The only way to explain the performance of any organisation, is in terms of the sum total of behavioural choices made by its members.

Therefore, any factors that influence the way employees choose to behave have the potential to influence performance.

Managers usually try to understand and solve performance problems by considering cause and effect relationships.

For example, a new bonus scheme should lead to increased effort. An inadequate scheme will result in less than desirable performance.

Better working conditions will lead to improvements in employee engagement. Poor working conditions will demotivate employees.

Although these cause and effect relationships intuitively hold true, outcomes may differ from those expected.

To understand why this is so, it is necessary to understand the intervening effect of organisational context on the cause and effect relationship.

In this article, I introduce the idea of organisational context and suggest how managers might undertake ‘contextual analysis’ to help them better understand, and solve performance problems.

What is organisational ‘context’?

Organisational Context’ refers to conditions within and outside of the organisation that give rise to situational opportunities, and constraints that affect:

  1. cause and effect relationships in the workplace, that in turn, influence
  2. the occurrence and meaning of employee behaviour,

I have here modified the definition of Context given by (Johns, 2006)[ref]Johns, G. The Essential Impact of Context on Organizational Behavior. Academy of Management Review 2006, Vol. 31, No. 2 386-408.[/ref]

In the following paragraphs, I will explain each aspect of this definition.

Conditions within and outside of the organisation

Internal conditions refer to beliefs that employees hold in common, and the systems, processes and procedures that determine how work is done.

External conditions include the market, the overall economy, and political and regulatory policy.

Context gives rise to opportunities and constraints

To illustrate this idea consider the following scientific metaphor posed by Sociologists Pawson and Tilley.[ref]Pawson, R. and Tilley, N. (1997) Realistic Evaluation. London: Sage Publications[/ref]



It is reasonable to assert a cause and effect relationship between gunpowder and flame.

When a flame is applied to gunpowder, it will ignite.

However, whether the gunpowder does ignite depends upon context.

The context provides opportunities or constraints that determine whether the gunpowder ignites.

A damp atmosphere is a context that acts as a constraint, preventing the flame from igniting the gunpowder.

This constraint modifies the causal relationship between gunpowder and flame.

Conversely, dry conditions are a context that provide an opportunity for the flame to ignite the gunpowder.

Think in terms of cause and effect in Context

Rather than assert a cause and effect relationship between gunpowder and flame, it is more accurate to say that gunpowder and flame have the potential to ignite, given the appropriate context.

Levels of Context

As I noted above, context exists within and outside the organisation.

More specifically, context operates at different levels, each level exerting a downward influence on the level below.[ref]However, each successive level emerges from the interaction of phenomena at the level below. For example, organisational culture – norms that regulate behaviour – emerge from leadership policies, procedures, and the behaviour of employees towards one another. See for e.g. Klein, K.J., Kozlowski, S.W.J., (2000) Multilevel Theory, Research, and Methods in Organizations: Foundations, Extensions, and New Directions. San Francisco: Jossey-Bass[/ref]



For example:

  • Industry-wide regulatory frameworks will influence market conditions.
  • Competitive market conditions will influence marketing strategy.
  • Organisational culture influences how employees routinely behave.
  • Attitudes and beliefs in small groups shape the behavior of group members.

Each level is a higher level context that influences the levels below.

Context and behaviour in the workplace

Context can be visualised as a force-field; like a magnetic field within and outside of the organisation. This force-field ‘pulls’ behaviour in a particular direction.[ref]Lewin K. (1951) ‘Field Theory in Social Science’, Harper and Row, New York.[/ref]

The political and regulatory framework will pull firms to comply with legal requirements.

Competitive conditions will pull firms to invest as appropriate in marketing and sales effort.

Organisational culture will pull employees to behave in accordance with the unwritten rules that regulate behaviour.

For an example of how context within small groups pulls the behaviour of group members in a particular direction see my earlier post on Group Efficacy: “The Science of Self-belief (Part 2): Group Efficacy” https://andymilward.comthe-science-of-self-belief-part-2/


This pull on behaviour provided by context presents opportunities and constraints that influence performance outcomes at every level of the organisation.

Context and the meaning attached to behaviour

Context also influences the meaning that people attach to their behaviour.

For example, consider the ‘frog pond’ effect:

“It is better to be a big frog in a small pond than a small frog in a big pond”[ref]Davis, J. A. (1966). The Campus as a Frog Pond: An Application of the Theory of Relative Deprivation to Career Decisions of College Men. American Journal of Sociology 72(1), 17–31. p. 31[/ref]


 Petrov Anton/

The idea here is that the meaning people attach to behaviour differs according to their group context.[ref]Firebaughe, G. 1980. Groups as context and frog ponds. In K. H. Roberts & L. Burstein (Eds.), Issues in Aggregation: 43-52. San Francisco: Jossey-Bass[/ref]

People of similar seniority in small and large groups tend to evaluate their standing in their group differently according to the size of their group.

Members of small groups tend to attach greater status to their position than do people with similar seniority in a large group.

Similarly, getting promoted in a group where the rate of promotion is ten per cent, has more significance for the person promoted than it has for a person promoted in a group where a much higher percentage of members get promoted.[ref]Johns, G. The Essential Impact of Context on Organizational Behavior. Academy of Management Review 2006, Vol. 31, No. 2 386-408[/ref]

Case study: declining profitability

To pull together the above ideas it is helpful to analyse a case study.

Consider a software business experiencing declining profitability.



Investigation shows that the sales incentive scheme to encourage salespeople to sell more solutions, leads salespeople to make promises that the technical support staff struggle to implement.

This scenario results in quality problems, which reduce the firm’s reputation with its clients making it harder to sell solutions.

The cost per project rises because technical support staff have to deploy extra resource to make solutions work.

Cause and effect: increased pay leads to increased performance

Assuming a direct cause and effect relationship between performance and pay, one intuitive solution could be to award all sales and service staff a bonus based on the profitability of projects.

This should promote cooperation between the groups and maximise project profit.

However, often such schemes have only a minor positive influence on performance, and can even cause it to fall.

How can we explain this?

There are a couple of contextual issues here that act as a constraint on behaviour.

Perceived impact of extra effort

Firstly, employees may feel that there is no point in exerting additional effort.

This is because the desired outcome is either too remote in time, or so complex, they feel their own efforts make little difference.[ref]Milward, A. (2007). Group Efficacy, Self Identity and Workplace Behaviour: A Critical Analysis. Unpublished Ph.D. Thesis. Lancaster University Management School, Lancaster, England.[/ref]

Accordingly, the scheme has limited use as an incentive mechanism.

Social loafing


Blue Sky Image/

Also, employees come to see the bonus as a ‘giveaway’ that they will receive anyway.

The idea here is that employees believe other peoples’ efforts will earn the group bonus from which all employees will benefit, so there is no need to work harder, a phenomenon known as social loafing [ref]Karau, Steven J.; Williams, Kipling D. (1993). “Social loafing: A meta-analytic review and theoretical integration”. Journal of Personality and Social Psychology 65 (4): 681–706.[/ref]


Finally, as the scheme is focussed on profitability, this may deflect employee behaviour from other desirable activities such as cooperation, networking or quality, even if these factors influence profitability in the long run.

University of Chicago based Labour Economist, Canice Prendergast, refers to this as the ‘multitasking problem’.

The idea is that the incentive is focussed on a narrow aspect of the overall performance variables that the firm needs to promote. So overall performance does not improve and the employees do not get their bonus.[ref]Prendergast, C. “What Have We Learnt About Pay for Performance? Geary Lecture Winter 2010.” Canice Prendergast; Economic and Social Review, 2011, 42(2), pp. 113-34[/ref]

So rather than incentivising greater effort, the scheme has a minimal impact, and may even make the situation worse.


However, both incentive schemes, the original sales scheme, and the new shared profit based scheme have the potential to work, subject to the influence of context.

Both schemes are specific initiatives that create a social-psychological context.

Employees come to hold beliefs in common about the need for them to exert greater effort.

If they feel their extra effort will have little impact, or that their colleagues’ efforts will generate the bonus, or, the scheme yields a minimal positive outcome because it focuses on too narrow an area, they are likely to form shared beliefs that will work as a constraint.

Conversely, if these conditions do not apply, their shared beliefs present an opportunity to ‘activate’ the intended effect of the bonus scheme.

Contextual Analysis



The case study above shows that causation in the workplace is more complex than we think.

Interest in the effect of context on organisational behaviour has spawned the new field of ‘Multi-level’ or  ‘Contextual Analysis’.

This is the systematic analysis of the relationship between outcomes and context at different levels.[ref]See for example: Klein, K.J., Kozlowski, S.W.J., (2000) Multilevel Theory, Research, and Methods in Organizations: Foundations, Extensions, and New Directions. San Francisco: Jossey-Bass[/ref]

Missing variables

Another way of thinking about context and performance outcomes is in terms of missing variables.[ref]Johns, G. The Essential Impact of Context on Organizational Behavior. Academy of Management Review 2006, Vol. 31, No. 2 386-408.[/ref]

Managers’ intuitive focus on cause and effect relationships excludes their consideration of contextual factors that modify the cause and effect relationship.

In the above case study, perceived impact of effort, social loafing, and a narrow focus on one aspect of the performance problem are missing variables that limit understanding of the problem and formulation of a solution.

Often, contextual variables are not readily apparent to managers, unless they make a specific effort to look for them.

Contextual Analysis aims to surface these missing variables and determine how they modify cause and effect relationships.

The process can help resolve productivity, profitability, quality issues, and employee attitudes and behaviour.

When helping clients to understand and resolve performance problems, I always guide them through a process of contextual analysis.

This helps leaders to avoid the trap of jumping to conclusions and other forms of decision bias that will lead to errors.

By embedding contextual analysis in their routine approach to problem solving, leaders will make decisions based on all of the facts.

This way they will avoid flawed decisions that will lead to disappointing (and expensive) outcomes.

Andy Milward

Andy Milward Ph.D. is founder and principal of Milward, a consulting and research firm specialising in Strategic Leadership.

©Andy Milward and Milward: Consulting in Strategic Leadership: Latest Thinking, 2014-2015.

Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Andy Milward PhD and Milward: Consulting in Strategic Leadership: Latest Thinking with appropriate and specific direction to the original content.

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