What Is Agile Performance Management?

The evidence is clear: a small number of priority practices make the difference between an effective performance management approach and one that isn’t. Organizations that tie employee goals to business priorities, invest in managerial capabilities, and differentiate rewards across performance extremes are 84% more likely to have performance management approaches that their employees perceive and recognize as fair.

Furthermore, these practices are mutually reinforcing: the implementation of one practice can have a positive effect on the performance of others, which leads to a positive impact on the performance of employees and the organization, which in turn leads organizations to outperform your peers.

 But how do these priority practices work in the context of agile organizations, which have networks of capable teams and have a dynamic model of people? Almost all Agile Performance Management, for example, feel the need for more frequent feedback. Working in agile sprints of a few weeks creates a cadence into which collective and individual feedback naturally fits. Likewise, a culture of greater autonomy and risk-taking opens up opportunities for employees to expand, take on more responsibility and quickly discover how they can improve.

 Source: McKinsey & Company

 Transparently linking employee goals to business priorities and maintaining a strong element of flexibility are key practices of agile ways of working. They are also significant practices for employees to have a sense of meaning and purpose in their work.

However, agile organizations may be concerned about how the emphasis on individual goals marries the autonomous teams that characterize agility. There are three approaches that can help agile organizations adapt and ensure goals remain meaningful and linked to business priorities.

 Introduce team goals in addition to (or instead of) individual goals

Empowered and autonomous teams are essential for agility. Therefore, it makes little sense to manage performance only – or even primarily – at an individual level. Successful agile organizations focus on team performance when setting goals and evaluating performance, often allowing teams to set their own goals to drive ownership.

 In a bank, for example, performance objectives are a combination of team goals, individual contributions to the team, mastery of required competencies at the individual task level, and alignment of professional behavior with the bank’s values. The weighting of these components varies by role, with experts in particular more inclined to team performance to encourage collaboration.

Another financial institution experimented with replacing individual goals in contact centers with team goals. In a few months, it achieved productivity gains of more than 10%, compared to the centers of the control groups, as well as a notable increase in teamwork and cohesion.

 Set team goals, discuss results often and rotate as needed

Teams in agile organizations work autonomously and quickly, with a clear focus on production. They follow broadly defined strategic directions and priorities rather than detailed, top-down instructions. Agile organizations often rely on a rigorous execution process – often a quarterly business review (QBR) to ensure alignment across autonomous teams.

 This is where Objectives and Key Results (OKRs) come in, popularized at Intel in the 1970s and now used in many organizations, from the Bill & Melinda Gates Foundation to Google. Each quarter, a clear cascade from strategic priorities to team-level objectives is created, while performance versus key results is transparent and discussed.

To allow for shifting priorities out of the QBR, team and individual goals need to be dynamic rather than fixed in an annual exercise. Setting goals collectively can have other benefits as well, particularly when it comes to engagement and ambition.

 Not surprisingly, commitment to goals you’ve set for yourself is typically stronger than commitments to goals set for you by others. In a B2B sales organization, switching to bottom-up goal setting (versus top-down setting by executives) resulted in 20% higher overall goals.

Performance management design concept. Typographic poster. Performance management concepts for web banner and printed materials.

 Create goal and performance transparency

The decentralized nature of agile organizations creates a risk that devolution and empowerment could descend into chaos. One way to avoid this is to introduce extreme transparency of goals and performance. At Google, all OKRs, starting with CEOs, are visible to all other employees. On LinkedIn, the CEO’s executive team reviews OKRs weekly. This kind of transparency also has several benefits: increasing interdependence between teams and units, creating urgency and “idea sharing,” and reinforcing the non-hierarchical culture and mindset that characterize truly agile organizations.

 Previous McKinsey research shows that managers are important stewards of effective performance management. Investing in their coaching skills to help them become better arbiters of everyday justice is often the most powerful intervention in performance management transformations.

 Clarify the roles leaders play in development and evaluation

In successful agile organizations, feedback is the heartbeat in a risk-taking culture, and this aspect relates directly to leadership. Industry leaders assess, promote, train and develop their people. Team leaders set directions tied to business priorities, match the right people to opportunities or squads, train their teams on how to enable collaboration across organizational boundaries, and empower people.

Leaders strive to keep a cohesive team by inspiring, coaching and providing feedback to everyone. The common theme among these leaders is active training for ongoing development and the arbitration of day-to-day justice.

 Focus on ongoing feedback and ongoing development conversations

As in any organization, individuals in agile companies thrive by receiving feedback and being exposed to development opportunities. These organizations encourage employees to constantly ask for and give feedback. Making that happen is often difficult.

Managers and non-managers may need to overcome barriers in mindset and ability to give and receive feedback more often – not just within the hierarchy, but within peers as well. One European financial institution, for example, invested in dedicated team training on how to have similarly courageous conversations.

 Collect insights frequently from multiple sources when evaluating performance

Agile organizations need disciplined rituals to continually gather feedback and measure performance. Traditionally, the immediate manager is the channel for all information about the employee.

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