Leaders are almost always looking for new ways to incorporate more innovation into their organizations. As we all know, employees (well, humans) generally behave in alignment with how they are measured and incentivized. If a leader wants employees to be more creative and nimble, performance measurement systems have to change to better nurture employee talent. Eric Ries discusses this in his book, The Startup Way. He states that in the modern company, evaluation systems must change to measure and recognize those who deliver real outcomes for the organization.
So how (and for what) is a team held accountable in a modern company where failure is embraced? What happens if the team keeps failing? At some point, doesn’t the team have to come up with a winning idea or product? Will the project leader eventually need to find a new line of work if she keeps failing to lead her team to discover a winning idea?
In the new year, many of us in corporate environments set our annual plans through team and individual goal setting. With a passion for planning and organization, in years past, I’ve eagerly looked forward to this process. Then I’d jump into the year ready to execute and deliver on a product roadmap. At the end of the year, I was evaluated by what I accomplished (usually based on quantity and quality), by when and how I worked with others. It was a straightforward system in which I generally did well.
When a team wants to solve a big problem using Lean Startup methodology, traditional methods of performance measurement, like I described above, no longer work. It’s no longer about launching features or executing on time (and within budget), but rather discovering truth and finding a viable solution as quickly as possible.
Let’s review the components of a modern company per The Startup Way:
- Made up of cross-functional teams
- Operate rapid experiments
- Reward “productive failures” that lead to smart changes in direction
In a modern company, the team has space to fail as long as it results in learning that progresses the organization forward. Let’s walk through what a manager should think about in evaluating a project team (or an individual on such a team) at the end of the year. I divide the evaluation criteria into two categories: results and behaviors.
At the most basic level, the manager considers, “Did this team make progress?” I would consider any work completed that resulted in achieving the desired outcome or unlocking new sources of value as progress.
This can be measured by evaluating the improvement in defined team metrics. A brand new team just starting to figure out if a new idea will get any kind of traction will have a different set of metrics to review than a team who has found product-market fit and is now scaling their idea. For example, a new team may only be looking at revenue per customer where the numbers are small but increase each week. A team that has a moved from exploratory ideas will have a more fully-realized business model with assumptions they are validating. Regardless of stage, the team must show improvement or results over time in order to fare well in an evaluation.
How the team went about their work should matter too. This is important because it’s very difficult to change behaviors. Think of the last time you went to a class where you were able to incorporate the content into your job. Changing to a Lean Startup mindset requires discipline and focus.
In traditional companies, a team might be evaluated by how well they worked cross-functionally and whether they followed defined processes. In the modern company, new behaviors are reinforced. The team should be evaluated by how fast they moved in conducting experiments to validate learning, and how well they applied learning from previous iterations.
I’d also look at how well the team stayed connected to the business objective assigned. A team must avoid wandering off into experiments that don’t connect to the next thing they must learn. The order of how experiments are run also matters. I’d look at how the team conducted customer discovery and research and the frequency of this. For an excellent team, it should be integral to its daily activities.
Did the team quickly identify pass, pivot or persevere moments from their research and customer discovery? If a team learned that a project was doomed and killed the project right away, they should be rewarded. A team that tried to solve the hardest part of a problem and designed good experiments should be praised.
Finally, there’s a piece of this evaluation that must include communication. The team should have let senior leadership know about its progress honestly and regularly, and they should also share their learnings with other teams. Perhaps the team struggled to come up with a winning idea, but what they learned they shared, and it led other teams to come up with something great. This is worth factoring into the evaluation too.
Both Results and Behaviors Matter
Ultimately the best teams produce results by staying close to the customer, working iteratively and validating assumptions. It’s not enough to just nail the how or process. Teams need to deliver results too. But applying Lean Startup principles to how a team works minimizes the risk of failure and maximizes the probability of delivering results.
What did a team learn and how did they know? How well did they apply what they learned and shared it with others? Did they go after the toughest problems and stay focused on them? Did their work result in unlocking new sources of revenue? The answers to all these questions should be how a manager assesses a team’s performance in a modern company.
Accountability may be daunting at first, but your teams will love working in a creative, iterative and agile way that improves their probability of success. By evolving your understanding of how employees COULD be evaluated, leaders can properly incentivize employees to bring forth bold, new ideas and contribute very real outcomes for your modern company.
Thanks to Beth Sordi for contributing this piece. She is a highly analytical and data-driven product manager specializing in approachable styles to energize cross-functional teams. If you want to bring the entrepreneurial spirit to your large organization, Lean Startup Co. can help.