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Dangling the Right "Carrot" in Changing Times

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, 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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