This is the tenth in a series of 14 articles based on the Teal Organisational Model. The model is designed to help leaders understand and apply teal principles in practice. The series, which summarises each topic on the link above, covers teal leadership, organisational design, team culture, hiring, training, performance management, promotion and compensation.
Overview
This tenth article in the Teal Organisational Model series explains teal performance management and how teal organisations measure success without creating competition or gaming metrics. It compares orange appraisal systems focused on individual KPIs and manager ratings with teal approaches based on systems thinking, team performance, peer review and coaching-style development conversations. It also offers practical steps to transition safely from orange.
Introduction
Performance management is a key success factor, together with structure, that determines the culture of an organisation. What gets measured gets done. How people are rewarded determines how people behave. This post looks at Teal performance management and gives some ideas about what performance management in a Teal organisation might look like.
Purpose of Performance Management
The purpose of performance management essentially relates to a single question, namely: “How well are we doing towards our vision?”Performance management intends to serve as an organisational GPS. It aims to help you navigate towards your desired destination. Performance management is your north star. It tells you which direction to go and guides you back when you get distracted from your goal.
What’s Your North Star?
Looking at performance management from this perspective makes it clear that everything starts with a vision and purpose. When an organisation can clearly articulate their vision in such a way that everyone can see the desired destination, performance management becomes a useful tool. However, if it’s used as a tool to punish people for not meeting a goal, it becomes a meaningless activity that results in gaming the numbers to look good.
When there is no purpose-driven goal to reach, performance management often has an unintended, adverse effect that leads to conflicting goals and competition within the workplace.
The Cobra Effect
This adverse effect, known as the Cobra Effect, occurs when a well-intentioned measure results in the opposite effect. The name “Cobra Effect” is said to originate from a community where there was a large number of deaths and injuries from cobras. To reduce the cobra population in an area, and thus the safety of the people, a bounty for dead cobras was advertised. The unintended effect, however, was that people started cobra farming.
In many organisations, performance measures have a similar, unintended effect. You might intend for customer service to improve by rewarding agents for closing support tickets. However, the effect is that agents rush through calls without adequately resolving the issues, resulting in a decline in customer service.
Or, you might intend to increase the ability to deliver software by rewarding engineers for completing features. The unintended effect, however, is that no one wants to fix the outstanding bugs, and although there are more features delivered, the quality of the system dramatically decreases. Or, you might reward sales agents for landing new customers. The unintended effect is that the support and engineering teams are unable to handle the load, resulting in unhappy customers and a negative impact on your reputation.
What Are You Rewarding?
The most important question you can ask regarding performance management is: “What are you rewarding?” The second most important question is: “What could the unintended negative consequences of this reward be?”
An organisation operating primarily from an orange paradigm rewards individuals, and specifically the high achiever. The unintended negative consequence often includes competition and silos forming, and the more introverted hard workers being overlooked.
If you’re sincere, it also may result in skewed metrics and dishonest behaviour. For example, using the Scrum framework, where velocity is often used as a measure of performance, teams inflate the estimated cost of delivery to look good. However, they’re not doing any more work any faster; by inflating the estimates, they give the perception that they are improving. A manager only looking at the numbers is easily fooled into thinking this team is better than the other, more honest teams. Unintentionally, you are rewarding manipulation and dishonesty.
Characteristics of Orange Performance Management
The Cobra effect is an example of a non-systems approach to reward systems. It takes one desired outcome and translates it into measurable KPIs. It doesn’t look at the overall system but rather one aspect of a system. An organisation operating primarily from an orange paradigm typically follows this approach to performance management, the main characteristics being:
1. Individual performance focus
‘Orange’ organisations focus on individual performance. Typically, rewards are based on a bell curve, rewarding the top individuals compared to the rest.
The unintended consequence of this approach is that it creates competition between people and teams. Silo’s form and even within a single silo of information, top performers typically will aim to ‘win at any cost’. Often, this means making another team member look bad so that they can look good.
Self-promotion is rewarded. An underachiever who can aggressively defend their results, hiding their mistakes, is rewarded, while a quiet hard worker admitting their mistakes is punished.
2. Superior establishes appraisals
Another key characteristic of performance management within organisations primarily operating from an orange paradigm is that the immediate line manager within the hierarchical system establishes and completes the appraisal.
Line managers complete the performance appraisals, often without input from anyone else. The unintended consequence is that employees will do anything to make their boss see them as good performers, often at the cost of their relationships with their peers. It can result in a subjective rating rather than a fair and objective rating.
3. Appraisal is a snapshot of past performance
Finally, an organisation operating mainly from an orange paradigm has appraisal discussions that look at a snapshot of past performance. The KPIs decided at the start of the financial year remain static. At the end of the year, the manager evaluates performance against these metrics.
There is little to no room for changes in KPIs during a specific measurement period. A performance appraisal looks at the goals set out at the start of the period and compares these goals to actual performance. It is, essentially, a time for reflection, allowing you to look back at what you hoped to achieve and what you managed to achieve.
Looking back allows you to adapt your plan for the next period and set different goals.
Characteristics of Teal Performance Management
In contrast to ‘orange’, a ‘teal’ organisation views it as a living, breathing organism. Each part of the organism is equally essential. The entire organism needs to be in harmony with the different parts within the system for it to be able to perform well.
The organisation essentially takes on a systems perspective. Within this system, everything is seen as interacting parts. Feedback loops connect the parts to form a well-functioning whole. The system views each action within the system as input into another action in a cause-and-effect cycle. A change in one part of the system has an overall effect on the rest of the system.
1. Feedback loops
From a systems perspective, there are two primary feedback loops. There are reinforcing loops or feedback loops that cause change. Reinforcing loops promote growth or decline when the causal relationship between two elements creates a change in the same direction. Then there are balancing loops that aim to keep the system in its current state – or equilibrium – by having an opposite effect between the causal relationships. The balancing loop is what causes a system to return to the status quo after the change occurs.
To effectively change a system, you have to ensure that the correct reinforcement loops are affected. And you also need to allow for a bit of change to become standard in the balancing loop. The key to sustainable change I believe is to make the fluctuation in the balancing loop small and consistently practice it.
In an organisation operating from a mainly teal paradigm, the organisation is seen as one whole with a primary balancing and a primary reinforcing loop. Each unit within this system impacts these feedback loops and all the other parts of the system. The output from one part within the system becomes the input to the following metaphorical link in the chain. To improve or change the system, the reinforcement loop that will take you towards your desired state needs to be stimulated. At the same time, however, changes to the balancing system need to be made in small increments.
Knowing that each change in the system affects the entire system, it is also important to change only one thing at a time. Translating this to performance management, the top 3 characteristics of a teal organisation are listed below.
2. Team performance focus
In a ‘teal’ organisation, the entire team and organisation as a whole are rewarded for performing well. Individuals are not separated from the team they are in. For a team to perform well, all the members of the team need to contribute and pull their weight.
Similarly, the success of the organisation considers all teams’ performance. There is no one winner and another loser. Instead, everyone wins together or loses together.
3. Peer-based processes for individual appraisals
Another key difference compared to an ‘orange’ organisation is that appraisals are peer-based rather than decided by a single superior. As there are typically no bosses in a primarily ‘teal’ organisation, the people you work with evaluate your performance.
4. Appraisal discussion turns into a personal inquiry into one’s learning journey and calling
As individual purpose is such a big part of a thriving ‘teal’ organisation, the performance management discussions turn into inquiries into personal learning journeys aligned to individual purpose.
A teal organisation understands that you can’t have above-average performance from people who are not aligned with its values and growth. To grow the organisation, you also need to develop the people.
Performance management typically looks at the whole individual, including their health, wellness, and relationships outside of work, as this all impacts their performance within the work environment. Someone going through a divorce or the loss of a loved one, for example, will tend to be more distracted than someone without such challenges at home. The appraisal discussion essentially becomes a coaching conversation.
Getting From Orange To Teal
It’s advised to choose a low-risk, small project as an experiment to roll out and optimise before rolling out the process to the entire organisation. Only once you’re convinced that this new approach is beneficial, scale it up to other projects in an organic manner.
Here is a rough guide to get from orange to teal:
1. Identify the main feedback loops
Firstly, understand how the parts of the system impact the whole with their interactions. Map out the system to identify the causal relationships between parts and the core feedback loops. Know what causes growth and decline in the system, as well as what keeps it in balance.
To change the system, the reinforcing growth loop in the direction of the desired change needs to be impacted enough to create a change in the entire system. The balancing loop also needs to be affected enough to sustain this new change.
2. Decide what you want to reward
Once you’ve identified the primary feedback loops, decide what you want to reward. What would lead to collective ownership? Also, what is the most critical change that will result in a positive change?
What are the key metrics that would allow you to keep an eye on both the reinforcing and balancing loops for this change and translate it into organisational behaviours? Identify at least two key metrics that will alert you as to whether you are growing or getting further away from your vision.
3. Define a peer-review process
Finally, define and agree on a peer-review process and how to roll it out. How will you select the reviewers? Which roles will you include in the review? What will they be expected to look at? How would they gather objective evidence? How and where will they record their feedback?
These are some of the questions you might ask to define a peer-review process. In addition to these procedural questions, also consider measuring the impact and how values were lived in achieving the results.
Once everyone agrees on the process, it’s time to start using it. After each appraisa, rinse and repeat until it works for you. The key measure of success is whether you are better able to adapt. Are you better able to take steps towards your vision?
Are You Ready For Teal?
Transitioning to teal doesn’t have to result in chaos, and it doesn’t have to disrupt the status quo. The question is whether the pain of staying where you are is bigger than the pain of trying something new. It’s been done, and every case study reports positive results.
Are you ready to take a step towards a more teal way of operating? Do you need help to diagnose where you are and define a strategy to transition towards teal? Do you need a coach to instil a more teal way of operating in your organisation?
Find out about an organisational growth coaching program tailored to your organisation. Or get in contact to design a consulting or mentoring engagement to help take your organisation to teal.
The Eleventh article in this series discusses Time Commitment In A Teal Organisation
