PERFORMANCE MANAGEMENT:THE CHALLENGE OF ALIGNMENT IN A FAST-CHANGING WORLD

COMBINING THE FORMAL AND INFORMAL ORGANIZATIONS: THE CHALLENGE OF ALIGNMENT IN A FAST-CHANGING WORLD

Organizations can hardly be called organized if people throughout them are pursuing goals that are random, unaligned, and conflicting. Managing performance, then, must include an effort to align goals, both against performance challenges and across the various parts of the organization (and increasingly, effort beyond the organization itself, e.g., by strategic partners). Until a decade ago, alignment was considered a simple task, one conducted mostly at budgeting and planning time to be certain all the numbers added up. Today, alignment is far more subtle and challenging. To meet that challenge, readers must be certain they are paying attention to only the relevant challenges, the relevant metrics, and the relevant parts of both the formal and the informal organization.

The formal organization equates to formal hierarchy. It reflects the official directions, activities, and behavior that leaders want to see. The informal organization relates to the actual organizational behavior. It reflects the behaviors that individuals and teams exhibit regardless of official leadership. Both are necessary for truly successful performance management and both are real in contributing to outcomes. Readers will fall into a trap if they worry only about alignment among the official, formal organization.

Identifying the Working Arenas That Matter to the Challenge at Hand To avoid that trap, readers need to learn about ‘‘working arenas,’’ which consist of any part of an organization, whether formal or informal, and whether inside the organization or beyond it (e.g., strategic partner), where work happens that matters to performance. Working arenas are where people make performance happen. They include and go well beyond any single individual’s job. Today’s organizations exhibit much more variety in how work gets structured, as Figure 5 shows.

A real shift has occurred from hierarchy-based work structures to more horizontal and open work structures. This reinforces our message earlier about the pace of change and how it forces us to consider these newer forms of structuring work to create connection and speed. That is exactly what you and your colleagues need to do with your performance goals—create connections so that you can increase your speed during implementation. The absolute is that you must set outcome-based goals that fit all the relevant working arenas, not just the jobs, of the people who must achieve those goals.

Fit is not a new concept. It has been attached for a long time to the time-honored managerial maxim that formal accountability matches formal responsibility. However, today this maxim is im- possible to apply. Performance challenges have too much overlap across formal structures. And they change far too often to live within any set of formal control processes around all we do. Instead, you should apply a new version of fit—where accountability for outcome-based goals must fit the working arenas of those involved in achieving the goals. The right column in Figure 5 implies both formal (departments, businesses, jobs) and informal (teams, initiatives, processes) working arenas. Fit still makes sense; it just needs to cover a broader spectrum of how work actually gets done. Our argument is that more and more high-performing organizations are learning to apply fit to a broader array of

informal approaches. It’s still all about being effective and efficient—but with greater speed and nimbleness.

The concept of working arenas can help you divide up work in ways that include but go beyond the formal job–department–function–business model. It frees you to ask a critical series of six ques- tions that make it easier to apply performance-based outcome goals, including:

1. What is the performance challenge at hand?

2. What outcomes would indicate success at this challenge?

3. What are the working arenas relevant to this challenge?

4. To which of those working arenas do I (or we) contribute?

5. What metrics make the most sense for these working arenas?

6. What SMART outcome-based goals should we set and pursue for each of these working arenas?

If you were to think through any specific performance challenge in your organization, several patterns would emerge. First, most people contribute to only two or three working arenas at any one time. Second, most contributions come first and foremost in the context of the individual or the team. Third, without identifying the working arena that makes the most sense for any given performance challenge, it is hard for people to confidently believe they are organized for success.

Using Logic to Achieve Alignment across the Relevant Working Arenas In the silo or pyramid model of organization that dominated for most of the 20th century, alignment was a matter of adding up costs and revenues to be certain that budgets and plans made sense. Given the entirely formal character of organizations and the relatively small number of working arenas (see Figure 5), this made sense. However, in the fast-moving, flexible, ‘‘real’’ world of today, there are far too many different kind of working arenas, far too many different kind of performance challenges, and (as we discussed in Section 3.2), far more kinds of metrics for success. Budgeting- and planning- driven approaches to alignment that focus solely on being sure the numbers add up do not work in this world.

Instead, readers must get comfortable with two approaches to alignment, quantitative and quali- tative. Both of these are logical. If a team is working to increase the speed of a critical process such as new product development, they might measure success by speed and quality. Those metrics will not add up or roll up to quantitatively support the entire business’s revenue and profit goals. But those metrics do logically reinforce the entire business’s strategy to grow through innovation. In the new world of alignment, then, it is most critical to ask whether the outcome-based goals set across a relevant series of working arenas are logically aligned, not just arithmetically aligned.

Table 1 lists many of today’s most compelling performance challenges and suggests whether readers will find it easier to discover logical alignment quantitatively, qualitatively, or through some combination of both.

Leadership of Both the Formal and Informal Organization During Periods of Change Leaders who must manage performance in the face of change will be more likely to succeed if they attend to both the formal and informal aspects of the organization. Those who focus solely on the formal, official organization will fail. Not only will they fall into the trap of believing that formal goal alignment is in place so long as the financial numbers add up, but they will also fail to address the most critical performance-management challenge of all: how to get existing employees and man- agers to take the risk to do things differently.

When performance itself depends on lots and lots of existing people learning new skills, behaviors and working relationships, leaders are faced with behavior-driven change. By contrast, if a new strategy or direction can be accomplished based on existing skills, then leaders are faced with de- cision-driven change. Many of the old assumptions reviewed in Section 2 work better for decision- driven change than for behavior-driven change. However, an ever-increasing number of performance challenges now require leaders to master the disciplines for managing behavior-driven change.

Here are four questions that will help you tell the difference between decision-driven and behav- ioral-driven change:

1. Does all or any significant part of your organization have to get very good at one or more things that it is not good at today?

2. Do lots of already employed people have to change specific skills, behaviors, and / or working relationships?

3. Does your organization have a positive record of success with changes of the type you are considering?

4. Do those people who must implement the new decisions and directions understand what they need to do and urgently believe the time to act is now?

If the answer is no to the first two questions and yes to the second two, you can employ a decision- driven change approach. If the answer is yes to the first two questions and no to the second two, you are facing behavior-driven change.

If you do face decision-driven change, we suggest following the following best practices (Kotter 1996):

1. Establishing a sense of urgency

• Examining the market and competitive realities

• Identifying and discussing crises, potential crises, or major opportunities

2. Creating the guiding coalition

• Putting together a group with enough power to lead the change

• Getting the group to work together like a team

3. Developing a vision and strategy

• Creating vision to help direct the change effort

• Developing strategies for achieving that vision

4. Communicating the change vision

• Using all available avenues to communicate vision constantly

• Having the guiding coalition role model the behavior expected of employees

5. Empowering broad-based action

• Getting rid of obstacles

• Changing systems or structures that undermine the change vision

• Encouraging risk taking and nontraditional ideas, activities, and actions

6. Generating short-term wins

• Planning for visible improvements in performance, or ‘‘wins’’

• Creating those wins

• Visibly recognizing and rewarding people who made the wins possible

7. Consolidating gains and producing more change

• Using increased credibility to change all systems, structures, and policies that don’t fit to- gether and don’t fit the transformation vision

• Hiring, promoting, and developing people who implement the change vision

• Reinvigorating the process with new projects, themes, and change agents

8. Anchoring new approaches in the culture

• Creating better performance through customer- and productivity-oriented behavior, more and better leadership, and more effective management

• Articulating the connections between new behaviors and organizational success

• Developing means to ensure leadership development and succession.

If, however, you are confronted with behavior-driven change, Kotter’s transformational leadership approaches will not necessarily work. Indeed, as extensively discussed in Smith (1996), study after study shows that up to four out of five change efforts either fail or seriously suboptimize. And the root cause of these failures lie in leaders who follow decision-driven approaches like those suggested by Kotter when, in fact, they face behavior-driven change.

Managing performance through a period of behavior-driven change demands a different approach. Here is a series of best practices:

1. Keep performance, not change, as the primary objective of behavior and skill change.

2. Focus on continually increasing the number of people taking responsibility for their own performance and change.

3. Ensure that each person always knows why his or her performance and change matter to the purpose and results of the whole organization.

4. Put people in a position to learn by doing and provide them with the information and support needed just in time to perform.

5. Embrace improvisation; experiment and learn; be willing to fail.

6. Use performance to drive change whenever demanded.

7. Concentrate organization designs on the work people do, not on the decision-making authority they have.

8. Create and focus your two scarcest resources during behavioral-driven change—energy and meaningful language.

9. Harmonize and integrate the change initiatives in your organization, including those that are decision driven as well as behavior driven.

10. Practice leadership based on the courage to live the change you wish to bring about—walk the talk.

Please take these and practice. Get others to try. They will make a huge and lasting difference for you personally and for your organizations.

Bringing It All Together

We will close with a few suggestions on how your organization can put it all together into an integrated performance outcomes-management system. The concepts, frameworks, and techniques presented in this chapter can be deployed to establish an outcomes-management system in your organization. The objective is performance. You should seek to establish a system and set of practices to help the people of your enterprise routinely set and update the SMART outcome-based goals that matter most to success as well as to choose which management disciplines to use to achieve their goals. The outcomes-management system will enable everyone to see how the goals in your orga- nization fit together and make sense from a variety of critical perspectives, from top management (the whole) to each small group, working arena, and performance challenge and each individual throughout the organization.

Figure 6 presents an overview of the design of what a business outcomes-management system might look like.

Figure 6 summarizes the skeletal design of an outcomes-management system for any single busi- ness. It brings visibility to the outcomes that matter most to customers, shareholders, and people of the business. It then links these outcomes to the most critical functions, processes, and initiatives that contribute to overall success. This design can be extended to the multibusiness corporation and can be driven down through the organization to every critical shared service or working arena that is critical to success. See Smith (1999) for more illustrations of how this cascading performance outcomes-management system model can work.

An integrated performance model requires that you create the critical linkages, bring visibility to the interdependencies among working arenas, and drive performance through aggressive planning and execution. But avoid the trap of spending all the organization energy around the activity of creating the integrated plan. Make sure you remember the paramount rule: focus on performance outcomes, not activity.