Management Rewards: Doing Work vs Creating an Environment

My agile transformation clients struggle with this big question: How do we effectively reward managers? The more the organization wants or needs an agile transformation, the less the current reward structure works. How do you incent the managers? What makes sense for management compensation?

Cindy, a director in a 500-person IT organization struggles with this—for herself and for the managers she leads and serves.

Her HR department and her manager, the CIO, want to measure her work. They can measure the “doing” work. They can see how many projects her department releases. Or, how well the department met its objectives. (Even though these objectives are called OKRs, they look a lot more like MBOs.)

And, when HR and Cindy's boss measure cycle time or lead time, they only look at one aspect: how well did Cindy's department reduce cycle or lead time?

That's useful on a micro-level. As I wrote in Why Minimize Management Decision Time, the greater cycle/lead time might be much more important.

Cindy wants this agile transformation to succeed. She thinks the organization would do better if they increased their experimentation. She realized several key ideas:

  • Cindy has to collaborate with her fellow directors to accomplish all the work so the organization can satisfy the customers.
  • The effects of Cindy's work to serve all her teams often takes much longer than a quarter to see effects. IOW, her work takes longer than the measurement cycle.

Cindy doesn't quite see how to reconcile her quarterly incentives and rewards with her measurements. The KPIs don't align with the value she brings to the organization.

Cindy serves her teams with a collaborative environment.

Cindy Serves her Teams by Creating an Environment that Works

Cindy's management and HR think that Cindy's organization looks like the picture on the left, where Cindy is in the middle, orchestrating the doing.

You can easily translate an org chart into those kinds of nice pretty pictures.

That's not how Cindy and her department work.

Instead, they work a lot more like this small-world network.

Teams and individuals have seemingly random connections to and from each other. Some people are more connected, some less so.

Cindy sees her job as creating the environment to facilitate those connections.

Cindy also has to create guidelines and constraints for the teams. Some of her guidelines and constraints are:

  1. Make sure that what you do is auditable. (Cindy operates in a regulated industry.)
  2. Show your work at least as often as once a week internally. Work towards daily showing. (The more often you can show your work, the faster everyone can experiment and learn.)
  3. Continue to check that the work you're doing corresponds to the higher purpose for the IT department and for the product you're working on.

Notice that Cindy doesn't create guidelines for how teams should work. She's talking about the outcomes she wants, for the team, the product, and the organization. The teams make their own decisions. The teams take responsibility for their work. They solve their problems. When they can't, the teams ask her for guidance.

Cindy started to manage her organization this way six months ago. The teams just started to show the effects of focusing on outcomes and collaboration instead of a standard process.

Cindy's compensation is at risk. Not just because of the teams but because the managers aren't collaborating.

Agile Transformation Requires Management Collaboration

When the managers collaborate to deliver a superior, overarching goal, the organization can succeed. When managers focus on their specific deliverables, the organization might or might not succeed. Worse, the organization can't tell if these deliverables are useful to the organization.

When organizations measure managers on the doing, they reinforce a too low-level outcome. When organizations assess managers on creating the environment, everyone is more likely to succeed.

Notice I used two different words: measure and assess. I don't know how to create direct measurements for rewarding managers. I only know how to create oblique measures.

The first measure I use is management collaboration. That's why I wrote Why Minimize Management Decision Time.

The more managers collaborate towards an overarching goal, the purpose of the organization, the more likely the organization will see the outcomes the organization wants.

You don't need to reward managers for the doing. Instead, reward managers for creating the environment that facilitates other people doing. That's a lot more difficult and a lot more valuable.

If you want an agile transformation, start with the managers and their incentives. Are you asking the managers to collaborate and make collaboration possible across the organization? If not, what might you need to do?

(I address these issues in Modern Management Made Easy, in final proofing and editing.)

See the Japanese translation here:

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