Managing The Complexity Of Growth
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The 16 most important performance management decisions you need to make as a leadership team to build a high-growth organisation. Understand what they are, make them, and your business will thrive.
If you’re awesome, you’ll succeed. If you succeed, you’ll grow. As you grow, the scale will change everything and, then, you won’t be awesome anymore — unless you change a lot of what made you awesome in the first place. This is known as the scale up paradox. In a nutshell, what got you here, won’t get you there! The ability to recognise this and change yourself and your business is what separates great businesses from brands that have faded into obscurity.
Knowing what to change, when to change and how to change is the very essence of scaling up.
Take as an example the way we manage performance. A start-up can run everything on ‘check-ins’. Through frequent check-ins you can zero in on who’s doing what, by when and how. You can keep on top of how things are going and whether you need a course correction.
The check-in system is awesome. Until it’s not. Because you can’t run everything on check-ins when there are 30 people around. The ‘check-in’ system basically means that you are the system.
You, the founders, keep everything together. This means you’re the bottleneck. Your personal bandwidth is the ultimate ceiling on your growth. And that is bad news for your health — and your business.
If you’re awesome, and you succeed, and grow, it won’t be long until you can’t sleep because of the many loose threads in your brain: Tasks you need to assign headspace to, projects and people you’re not ‘on top of’, discussions to be had that you can’t get to.
So, to get some sleep, you’ll be forced to take delegation to another level. This is not simply a question of giving away tasks or projects; it means giving away responsibility for entire parts of the business. That’s scary. But if you have great people, it’s also liberating.
Now you’re sleeping again. For a while. Because if your people are awesome, you’ll succeed, and you’ll grow, and pretty soon the balls will be dropping again. You’ll realise that what you assumed people were doing, they’re not doing, just because they assumed they should be doing other things.
And you’ll long for the days of the ‘check-in’ system when you could be on top of everything through enough ‘check-ins’. But there’s no going back now. You’re too big. You simply can’t check-in with everyone when you’re at or beyond the 30-person mark.
Maybe you’re having a conversation with someone at that point, and they tell you about OKR: Objectives and Key Results. Now there’s a system you can hang your keys on! A rhythm to align on key priorities and targets every two or four weeks (or every month or quarter, if you’re a bit more mature). Liberation! Suddenly you can be on top of everything without the check-in overwhelm.
It’s a thing of beauty, really. Until it’s not.
Because if you’re awesome, and you succeed, and you grow, the day will come when those balls will once again drop. And it won’t be because the senior team aren’t doing what you agreed when you set your quarterly OKRs. It will be because the business is too complex now for OKRs. OKRs still rely on a lot of manual alignment through collaboration and regular ‘check-ins’ at the operating level.
Even simpler than that, the balls are dropping because, suddenly, there are a whole lot of new people issues you have never had to deal with before at this level:
- Accountability vacuums: A rising tendency for important things to fall into ‘no man’s land’ with nobody accountable for them
- Major differences in contribution: A rising number of people in cruise mode while the rest of the team do all the work
- Performance politics: Lots of high performers are unhappy because people aren’t being treated fairly. Slackers are getting good reviews and rewards just because their managers are lenient; high performers, on the other hand, are getting the same as them because their team has higher standards
- Compensation politics: People aren’t satisfied that bonuses and increase decisions are being made fairly
- High Performance Culture slide: All of this is causing relational friction and culture issues that are impacting performance.
So, right now, there’s way too much going on for OKRs and ‘check-ins’ to work. Things need more alignment and coordination than you’re going to get through your team interactions. You need a new way of aligning the different parts of the business without falling into ‘check-in overwhelm’.
You need a performance architecture with more processes and systems that maintain alignment across teams. Big words. Corporate words, which we know entrepreneurs tend to dislike. But let’s understand them.
Basically what they mean is that, around about this time, performance management needs a major upgrade. Why? And how should you do performance management? Isn’t it an awful relic of industrial-age corporate management, which is why so many top employers are moving to something new?
True enough. The dilemma is that a lot of the new age buzz about liberating talent to thrive without backward-looking performance reviews don’t work in most contexts; most often, it will break things even more than a frustrating, antiquated performance management system would.
The reality is that performance management is much more complex than an annual review and, furthermore, is definitely not a ‘one-size fits all’ approach.
If you’re scaling up and keen to build a scalable performance management system that works in your context (and at the same time reinforces your greatest culture assets), here are 16 of the most important performance management decisions you will need to make as a leadership team.
1. Performance management intent
What is the main goal of our performance management system? Accountability for performance, coaching for development and improved performance, or both? Havard Business Review says this is a 70-year old debate. Don’t assume your other leaders see this the same way you do.
2. Individual appraisals
Do we believe that focusing on individual appraisals would result in better — or worse — business performance? Does it adversely affect team work and a ‘looking beyond my scorecard’ mentality?
Given that various parts of the business are so different, should we be doing the same thing across the business? How do we do performance management differently (if we even should) in areas as different as engineering, sales and customer service?
4. Target setting processes
Should targets be set from the top down, bottom up, or some combination of the two?
5. Nature of targets
Should performance targets be activity targets, behaviour targets, intermediate outcome targets (closest to ultimate outcome, that are fully within control) or ultimate outcome targets (even if not within our control)?
Should we link rewards to personal performance ratings? Some say that you should just pay really well and bake everything into a fixed bonus, or into basic compensation, and fire the non-performers. Which works best?
7. Bonus pool formula
Which proportion of an individual’s bonus should be determined by either individual contribution versus the performance of their team or division, or the business as a whole?
8. Long-term incentives
What percentage of variable incentive remuneration (VIR) should be long term, and which should be deferred to future years/long term (LTIR)?
How should performance ratings affect salary increases?
10. Formal or informal feedback
What is the right balance between formal appraisal and informal continuous feedback?
- Are there objective measures?
- If not, who gives input to the appraisal?
- If there are multiple parties, how are their inputs weighted?
- Is a line manager’s feedback more important than multiple, non-line individuals or ‘bosses’?
11. Performance appraisal scale
How do we summarise individual performance assessments?
12. Appraisal frequency
How often do we appraise performance and give feedback? Would this be per assignment or based on time, such as weekly, monthly, quarterly, bi-annually or annually?
13. Bonuses versus career investment and opportunity
How do we decide which individuals to prioritise for investment in growth and promotions? How do we balance bonuses versus investment in learning, development and promotions?
14. Dealing with high performance that doesn’t produce results
What do we do when people perform well, but don’t deliver the business results due to issues outside their control?
15. Performance management roles
Who does what in the performance management process? What belongs to HR? What belongs to line managers?
16. Performance management software
When do we move from Excel (or similar) to software products that streamline this process? What are the best packages for our business? (Small Improvements and Engagedly are our top recommendations).
- Fire faster. Bad performers are toxic for the culture. Use the three-month probation period brutally. The culture impact of firing fast is much superior to that of firing slow.
- Attune to sentiment. Many poor performers are great at upward management. They can look like performers to you, but people around them know the truth. Stay attuned to, and respond to grumblings.
- Give immediate, direct feedback on any performance issues. This should never wait for a formal performance review. We do a formal 360-review once a year.
- Keep it super simple to start — we definitely over-complicated it.
- Centre on weekly one-on-one meetings. Then performance management becomes the way you work, not a chat between strangers once a quarter.