On rewarding and performance systems...

The ideas of "pay-for-performance", and it's twin sister "management by objectives" exist to try and increase the performance of a group and ultimately the whole company. The basic idea is: promise them a carrot and they'll work more / better. But is that true? Can a company really perform better by promising people they will get more money if they individually perform better?

It is an appealing though. Instead of working with the people, managers are advised to put the right rewards in place and let people loose. Things will magically work out, or so the theory goes.

Although there is some truth to that, the fact is that this simplistic view of reality hides, or ignores, the deeper impacts of the individual performance reward culture:

• First, by placing rewards at the centre of the performance system, the companies shift the conversation to rewards and away from work
  
• Most people feel they perform above average, but reward systems tend to grade people on "the curve". This leads the lower performers to get a higher grade than they deserve (but still lower than they think it should be) and the top performers a lower grade than they deserve because of the need to "follow the curve". This has the notorious effect of leaving everybody unhappy.
  
• Most importantly, the reward mechanisms that focus on individual performance completely miss the fact that a company exists in a complex environment. Especially non-trivial work (like software), is impossible to reduce to a set of repetitive steps. The immediate consequence of this is that, even if all the people perform at their best and get the top evaluation, the company could still totally fail to meet the level of their competitors. The performance of the system (the company) depends on the complex interactions between the different people in the company. If all try to optimize their personal performance, the system as a whole can perform a lot worse.http://www.blogger.com/img/blank.gif
  

What amazes me is that there are still people who advocate "pay-for-performance" in complex environments like software development.
The fact that we work in a complex environment all but ensures that "pay-for-performance" is at best indifferent to the overall company's performance and at worse an active value detractor for the company.

An additional bonus

Deming and Shewhart proved that in a stable system, trying to change it's performance from the outside can actually reduce the performance of the whole system. Deming called this "tampering": messing about with a system you don't understand (link to Deming and tampering).
"Pay-for-performance" and "management by objectives" are an instance of "tampering". Instead of messing about with a system we don't understand we, as managers, should focus our energy on understanding that system and changing the system through the use of small and controlled experiments.

This is not as easy as it sounds, but is the only way in which managers add value to their companies.

If you still want to have variable salary costs in your company, then use a profit sharing scheme: where everybody shares in on the success and pain, rather than individuals independently. Besides, can you really evaluate a single individual's contribution to the success of the whole company? (Especially when the company is not succeeding and that individual still claims their bonus?)

One question that is raised against the view I tried to explain is: "Fine, but how do I keep top performers? They certainly want to be rewarded by their good work, right?" My answer to this question is that people value many different things. While some people are influenced by short term gains, most people do not act consistently with that hypothesis. There's evidence that people react more consistently with (see this video):

• "meaning", i.e., they are more motivated and committed when they feel that their work has meaning; or
  
• "peer-recognition", i.e., people tend to feel more committed and motivated in an environment where their work is appreciated by their peers.
  

A better way to keep your best people is to work on creating an environment where people's work is recognized by their peers, and the meaning or nexus of that work is clear to everyone.

You, as a manager, have to focus on those things!

Photo credit: L2F1 @ flickr

LESS goes Stockholm for LESS2011, join us there in October

Last year I was involved in the organization of a unique conference. LESS2010 was a unique conference because it brought together different communities. We wanted to make sure that people with different points of view would discuss those points of view. The aim was to create a space for sharing ideas from different communities in the hope that new ideas would emerge. And emerge they did!

When the conference was done we had brought together the academic community which is involved in researching Agile adoption in the real world; the Agile community that is day-in-day-out applying Agile ideas in their own places of work; the Lean community and finally the Beyond Budgeting community that is sharing novel ways to manage and lead companies. This year we are doing the same, only better!

LESS goes Stockholm for LESS2011

You can check the details of the conference in the web-site, but here's a hint. We are working again on bringing different communities together!

The tracks that we have chosen are around the topics of Agile, Lean, Beyond Budgeting, Complexity Sciences, Systems Thinking and one topic that we deal with every day: Organization Transformation.

This year the trend is even more clear that LESS2011 is a conference for leaders in R&D organizations. Perhaps the only leadership focused conference in Europe at this point.

I do hope that more of these start happening because that's the next frontier for Agile and Lean adoption in our places of work.

So, I encourage you to submit a paper/session to the conference. Being there and talking to the the people with the experience and ideas is very important for us to continue our day-to-day work with new ideas and fresh energy!

See you in Stockholm!

Why failing is learning, and learning is needed

This week we had a couple of world-class trainers and speakers at our company, and boy did we learn!

Dyson, the guy who re-invented the vacuum cleaner said that failure is the essential part of innovation and learning. In his company's site he states that "15 years (...) and 5000 failed experiments" were required for the new dyson vacuum cleaner to come to light. Think about it: 5000 failed experiments!

Would you say he is a failure because he failed so many times? No, failure was needed for the re-invention to happen!

Very often we hear in the software world: "Don't try it, do it!", or "Plan it better so that you don't fail!". These phrases are bad for us, and they are bad for business. Failure is the key part of learning, which in turn means that if you never fail you will never learn, and in the software business not learning is as good as being dead.

So this week was both a humbling and learning experience for me and I suspect for many other people at our company. Being face to face with world-class people and listening to their experiences made me (and I hope others) understand that even though we do know a lot, we are still learning. The future is bright with the lights of knowledge waiting to be discovered! Bring it on!