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Performance Management in Agile Organizations
Performance management in the digital age… What does it mean to you? To your organization? To your employees?
For some, it represents a traditional evaluation model, one by which employees are ranked against one another and individual performance is tied directly to compensation. For others, it is a more modern and holistic approach, one implementing some or all of the elements of the continuous performance management model. And while enterprise-level performance management practices tend to differ from organization to organization (i.e., survey 100 companies and you are likely to find 100 unique variations), there is one category of organization – of any size and across industry – that is worth paying attention to. It is in this category that we find the risk-takers, the innovators and the trailblazers of enterprise performance management.
I’m talking about agile organizations.
Agile Organizations – A Brief Overview
To begin, it is necessary to highlight some important differences between agile and traditional organizations.
Given its historic dominance, the traditional model is something that many readers have probably experienced at some juncture in their professional careers. With fixed hierarchies that conduct operations through linear planning and centralized control, traditional organizations are engineered for stability. This emphasis on stability often results in strategic goal setting processes that originate at the c-suite level, before flowing down the chain of command to management, teams and, finally, individual employees. While the traditional model has proven to be a force for predictability and stability, it has been rather ineffectual in overcoming the business/talent challenges of the digital age.
These challenges, from a human capital management perspective, are embodied in the following trends:
- A global talent shortage
- Digitalization and the continuous introduction of new technologies
- Rapidly evolving stakeholder preferences (i.e., labor, business partners and customers)
In an era where stakeholder demands are continuously shifting, where job availability outpaces unemployment and where technology radically impacts both our personal and professional lives, the agile framework provides organizations with a viable option for both stability and dynamism. This is accomplished through networks of flexible, autonomous and scalable teams that are driven to co-create value for all stakeholders – not just shareholders. It is an operating model predicated on efficiency, adaptability and value, and one that allows for quick strategy reconfiguration when necessary.
But, OK – enough with the fancy talk.
How does the agile framework actually relate to performance management?
Well, as you might imagine, traditional and agile organizations significantly deviate in their approach to employee appraisals. Whereas most readers are probably familiar with the top-down and compensation-based appraisals of their own traditional employers, agile organizations have shifted their performance management processes to better reflect their flat structures and affinity for adaptability. This has manifested in a number of interesting performance management practices, three of which we will review below.
Let’s dive in.
Agile Organizations Use OKRs in Goal Setting
“Objectives and Key Results” is a collaborative goal setting framework that has proven invaluable in helping organizations drive performance while meeting the challenges of the digital age. Pioneered at Intel in the 1970’s by all-star executive and former Time Man of the Year, Andy Grove, the framework is divided into objectives and key results:
- Objectives – ambitious, often qualitative goals that define where an organization, individual, or team wants to go
- Key results – measurable, often quantitative outcomes that outline success
Although strategic OKRs are generally established at the executive level, it is not strictly an exercise in “top-down” planning. Once c-level leadership has determined company-wide objectives, employees and teams are directed to create their own OKRs in pursuit of both individual goals and organizational priorities. To help visualize, let’s take a look at a high-level example for an individual employee. Imagine you’re a recruiting manager looking to improve your outreach initiatives for engineering positions in Q3.
Your OKRs could look like this when written out:
O: Improve recruitment outreach for engineering positions in Q3
- KR1: Participate in career day at 10 universities
- KR2: Source at least 300 new candidates
- KR3: Interview at least 50 candidates
At this point, a typical reader will say:
“Wait just a minute! How are these any different from regular goals/KPIs?”
While OKRs may appear as nothing more than a simple exercise in goal setting, there are a number of elements that prove invaluable in meeting the challenges of the digital age.
Again, OKRs are bidirectional.
That is, rather than simply cascading down from the c-suite level, employees are directed to develop their own OKRs in harmony with an organization’s strategic vision, the health of which is then reviewed in a quarterly evaluation process known as a “QBR.” This results in enhanced collaboration across an organization, as well as greatly improved agility. If something is working well, QBRs help you identify and retain it. If not – and in the words of Avature CEO Dimitri Boylan – QBRs help you kill it and move on.
Agile Organizations Provide Employees with Ongoing Feedback
A second material characteristic of agile performance management lies in the frequency of the feedback itself.
As the dominant model, most readers have likely experienced a traditional performance management appraisal:
Annual. Retrospective. Compensation-based. Rank and yank.
In contrast, agile organizations are increasingly implementing an “ongoing” approach focused on goal alignment and outcomes. Rather than simply providing employees with a list of performance highlights/lowlights from the previous fiscal year, agile organizations make it a point to review OKRs and individual development on a continuous, non-episodic basis. Given that traditional evaluations are well-known for their capacity to kill time (i.e., Deloitte estimated their previous model to occupy somewhere in the range of 2 million hours per year), many managers are likely thinking:
“But we already dedicate countless hours to a single evaluation! How can agile organizations make it ongoing?!”
One word – culture.
As with most organizations, agile employees can only develop to the extent that they receive both feedback and growth opportunities. With the agile model, frequent feedback is the foundation of a culture of risk taking and adaptability, both on a direct report and company-wide level. Agile organizations encourage the habitual occurrence of both formal and informal performance conversations. This better empower employees to adjust to business issues as they arise in real-time. While often easier said than done, successful agile enterprises will dedicate significant resources to the development of an actionable and constructive feedback loop, one that provides employees with guidance while it is relevant to do so.
With most enterprises still searching for an answer to the engagement, retention and development challenges of their Gen Y and Gen Z workforce, a culture of ongoing feedback is becoming increasingly important for traditional and agile organizations alike.
Agile Organizations Focus on Transparency
A final characteristic of performance management in agile organizations is a heightened focus on transparency in goal setting and employee appraisals.
Most traditional organizations regarded confidentiality as a crucial pillar of the performance management/appraisal framework. This is based on the belief that guaranteed confidentiality encourages performance management stakeholders to provide their peers or direct reports with more open and honest feedback (i.e., it prevents employees from “sugarcoating”). And while this premise is still being tested by many enterprises in 2020, the importance of anonymity in agile organizations appears to be waning.
There are two primary reasons for this.
First, given their decentralized nature, agile organizations run the risk of employee autonomy regressing into disorder. What agile proponents have come to understand is that anonymity in the extreme is not compatible with the collaborative feedback processes that agile organizations depend on for employees and teams to develop, evolve and adapt. Second, a decentralized and transparent performance review model encourages a culture of accountability. It is for this reason that many executives at agile organizations such as Google and LinkedIn share their individual OKRs not only with their executive teams, but with all employees.
Transparency not only reinforces the non-hierarchical nature of agile enterprises, but results in revived buy-in on both an organizational and individual employee level.
As this non-exhaustive list shows, agile organizations tend to think outside of the box. While the agile model may not be the right performance management framework for all enterprise level organizations, when done well, it is highly effective in its ability to answer many of the pressing challenges of the digital age.