Dangling the Right "Carrot" in Changing Times

Posted by Deborah Hartmann Preuss on Jun 06, 2006

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Process & Practices,

Architecture & Design

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Stories & Case Studies ,

Performance Evaluation ,

Remuneration and Incentives ,

Agile ,

Performance & Scalability ,

Change

For organizations heavily dependent on software development, the shift to Agile methods touches on such core aspects of the business that dramatic ripple effects may ensue.  One area in which this eventually happens is the HR domain of incentives, performance and remuneration.  In fact, it may be worth thinking about it early on rather than waiting for the fallout, which may be insidious and hard to detect.

On Agile teams, individual performance becomes irrelevant, except as it enhances team performance.  And team performance is measured differently - in terms of  "customer value delivered" - no longer in function points, pounds of requirements documents, lines of code or defects found.  Organizational structures may flatten.  Manager roles, although still important, can become drastically different once teams are encouraged to self-organize.  Some developers or managers will feel thwarted, seeing their well-planned career paths disappear in a fog of new organizational patterns.  Others will worry about their skillsets (and jobs) becoming redundant, outmoded, irrelevant. New processes may require new approaches to rewards - causing friction with groups outside, still operating as they always have.

Consistent communication about "how to excel" in the new workplace is important - but what should we communicate, when we aren't sure how things are going to work?

Wharton University's online Leadership and Change journal last week published an interesting article on Employee Incentive Systems: Why, and When, They Are So Hard to Change, a review of a recent paper co-authored by Sarah Kaplan and Rebecca Henderson from MIT's Sloan School of Management, called: "Inertia and Incentives: Bridging Organizational Economics and Organizational Theory,"

In their paper, Kaplan and Henderson focus on the complexities involved in "ambidextrous organizations -- those in which one part of the organization continues to operate as before while another attempts to combine the best aspects of small, entrepreneurial firms with the advantages derived from being part of a more established company."  This situation will sound familiar to many leaders of Agile teams.

Kaplan and Henderson view their paper as an attempt to dig deeper into the set of explanations for why change can be so difficult to achieve in certain situations.  Two examples are mentioned: the first is when Andersen Consulting (now Accenture) started to hire specialist strategy consultants with different remuneration expectations, the other is how Kodak faced similar issues when it made the switch to digital photography, which was rather unknown territory at the time.  What these two companies have in common, says Kaplan, is that "conflicts around the understanding of what the new business would be, and around how to reward the people building it, led to failures" in creating the type of organization needed to pursue the new opportunity.

Another article taking on the question of incentives appeared recently in AllBusiness.com, written by Stanford professors Jeffrey Pfeffer, a professor of organizational behavior, and Robert Sutton, a professor of management science and engineering. In What's Wrong with Pay-for-Performance several approaches to incentives are mentioned, as well as some hazards: incentives that are too blunt or narrow, provoking behaviours that meet the stated objectives but are counter-productive; incentives that can skew hiring; and incentive practices, like ranking, which can damage morale and hence performance.

And so, back to the real world for another example: Robert Scoble has blogged that Microsoft has eliminated forced-ranking. Scoble says, "These are not small little tweaks. They are wholesale changes to how Microsoft treats its employees."  Scoble, author of Naked Conversations: How Blogs are Changing the Way Businesses Talk with Customers, sees it as part of an organizational realignment toward producing customer value, citing the influence of the anonymous blogger Mini.

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   Another good reference on measurement

   by Mishkin Berteig

   I tend to harp on this quite a bit, but the book "Good to Great: Why Some Companies Make the Leap... and Others Don't" by Jim Collins should be required reading for people interested in this topic. One aspect of transforming a company from good but mediocre performance to great long-term performance is to "get the right people on the bus". Get rid of people who are holding back the organization by their attitudes, their lack of talent, or their inability to change. Then load up the organization with people who are going to help, again looking at attitude, talent and ability to change.
   
   Another aspect of transforming a company which is closely related to incentives is the notion of a single "economic driver". This is a metric that is directly tied to the organizaton's long-term goals (decades, not quarters). The economic driver is used across the organization as a planning, performance measurement and incentive tool.
   
   I highly recommend reading the book for more detail.

   Reply

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   Two reactions

   by Joe Little

   While I generally agree with what Deb wrote, to connect some additional neurons I will add three "somewhat different" comments:
   1. People matter. I was leading an Agile training recently, and someone said "if the only thing we get out of this is never to call a person a "resource" and always call them a person, that will be enough." (Should I hope they would get more than that?) While I think people working together in a team is something special, I hope we continue to respect people as individuals, not as inter-changeable parts of a team (or a firm).
   2. Respect. So, what do I really mean? Money matters, but really not all that much. Let's stop waiting and hoping for justice in the world (eg, equal pay for equal work). I no longer pray for justice; I pray that we are rewarded far more than we deserve. And...let's realize that power is shifting, the slaves are awakening, and those that see their own magic will demand reasonable compensation, among other things. Agile is one way many will start to see their own magic.
   3. I refer people to Herzberg's classic (see HBR): "One More Time: How Do You Motivate Employees?" One form of motivation is a Kick In The pants (he called it KITA). And he said that "incentives" are (usually/always?) just another form of KITA, a belief that we can "motivate" people externally. People are motivated by what /they/ want, and we don't motivate them. Perhaps another version of respect.

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   Re: Two reactions

   by Alex Popescu

   Joe, these are excellent points.
   
   

   
   1. People matter. I was leading an Agile training recently, and someone said "if the only thing we get out of this is never to call a person a "resource" and always call them a person, that will be enough." (Should I hope they would get more than that?) While I think people working together in a team is something special, I hope we continue to respect people as individuals, not as inter-changeable parts of a team (or a firm).

   
   
   I've been leading teams for quite a while and in completely different environments. And individuals inside the team is one of the most important aspects of the team. I thing it is a say "treat him as you want to treat you". If you start thinking about your teammates/your developers as anonymous persons than it is a big chance that they start thinking about you and the company as an "it". This will quickly lead to less interest in their job and in understanding team/company goals.
   
   

   
   2. Respect. So, what do I really mean? Money matters, but really not all that much. Let's stop waiting and hoping for justice in the world (eg, equal pay for equal work). I no longer pray for justice; I pray that we are rewarded far more than we deserve. And...let's realize that power is shifting, the slaves are awakening, and those that see their own magic will demand reasonable compensation, among other things. Agile is one way many will start to see their own magic.

   
   
   Let's face it: money matters, and matters a lot :-). However passionate you are or how much you love what you are doing, your performance needs a measure. And inside organizations, money is a form of it. In the environments I've worked, different solutions were looked for, but finally everything went down to money. Call it pragmatism, call it materialism, but that's the truth I learnt.
   
   I am not saying that everything else doesn't matter. Respect, individuals, money, all these matter. The best employee is one that respects the company and his teammates, the one that identifies itself with the company goals, the one that prooves continuous performance. The organization should offer back the same to each employee.
   
   ./alex
   --
   .w( the_mindstorm )p.

   Reply

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   Re: Two reactions

   by Dan Bunea

   I remember reading in Alistair Cockburn's Agile Software Development about how different compensation schemas influenced badly the business:
   - lowest number of bugs - speed of development decreased significantly
   - number of lines produced - people made programs overly complex adding all sorts of interfaces and unnecesarry code making debugging a nightmare
   - too many thank you's, T shirst and pizzas made people imune to them fast
   
   Regarding what I consider important in a job, I did write something some time ago at: danbunea.blogspot.com/2004/12/encourage-win-win... where I said that a good job needs to be a balance between 3 factors:
   - material benefits
   - working environement
   - career opportunities
   
   Regarding the fact that money matters, I think that the money is the first thing that people notice when they aren't. If there are more bad conditions at your job, the first thing that comes to your mind is that you're underpaid. However, money as a motivational factor are to me like aspirin: the first time, the pain goes away instantly, the second time it is slower, the 5th time it has no effect anymore.
   
   A friend of mine, recently quited a job, where he was working for large amount of money, but he never had the time to spend it. He said he quited, because he was tired of speaking with his 3 year old son on the phone on Sundays. Most people think he was insane, but I think he exposes very well the money-aspirin analogy.

   Reply