Here’s a cautionary tale of good intentions gone awry. Several years ago, a major manufacturer’s executive team, looking to boost productivity, studied the management practices of other large corporations. The team’s conclusion: Borrow a page from General Electric’s then-CEO Jack Welch and regularly rank employees. Lavish rewards on the top performers, and routinely let go of the bottom 10 per cent. What the team didn’t foresee was the disastrous effect the new system would have on teamwork. The rank-and-yank approach certainly did drive individuals to strive for stellar results, but it motivated them to do so at the expense of their teams.
Because it tacitly encouraged people to keep their best ideas to themselves, it inhibited a key ingredient in any successful team: Free information flow. Individuals took to revealing their ideas only at high-profile events and presentations, hoping to wow their boss and their boss’s boss.
“People were keeping secrets from each other,” says Justin Menkes, a Los Angeles-based management consultant and the author of Executive Intelligence: What All Great Leaders Have. “It really killed efficiency. Not only did collaboration and cooperation suffer, but so did the quality of ideas; without the benefit of others’ input, many of the managers’ long-hoarded ideas were underdeveloped and failed to wow anyone.”
A stated commitment to teamwork is the norm at most companies today, as standard a part of corporate life as cubicles and yearly performance reviews. Yet many performance-management and incentive systems are so focused on individual contributors that they inadvertently undermine teamwork.
It’s a real conundrum: Of course, companies want to motivate individuals, especially their high performers, to work at the top of their form. And when an individual turns in a winning performance, she expects recognition. But how do you motivate individual contributors to shine in lead roles while simultaneously shaping them into strong ensemble players? It’s a challenge requiring a stage director’s dexterity and diplomacy, but it can be done. What follows is advice from thought leaders and practitioners on the policies and practices that drive stellar performance on both the individual and team levels.
It’s almost too obvious to say, but here it is: Reward both individual and team performance. “Rewards are a powerful signal,” says Bradley Kirkman, associate professor of management at A&M’s Mays Business School, in College Station, Texas. “People are going to do the kind of work they’re rewarded for. If you want people to work together but concentrate your energies on rewarding the individual, there won’t be any significant cooperation.”
Silver Spring, Maryland-based consultant Howard Ross points to a car dealership that compensated its 20 employees only on individual sales. While the system encouraged people to hustle, it also gave them an incentive, says Ross, “to behave badly toward their fellow employees” by stealing one another’s customers, for example. Salespeople spent time trying to undermine colleagues instead of devoting it to customer service. Worse, clients started to notice the chilly, unfriendly atmosphere in the store?–?and it affected sales.
Ross helped the dealership put in place a system that compensated people for the results of the group as well as for individual sales. The change not only created a new sense of camaraderie, something that customers quickly picked up on, but also improved employee retention.
For a dual-focus incentive system to be effective, employees need specifics about how much performance in each sector counts?–?say, 40 per cent for individual performance, 60 per cent for team performance. Such precision and clarity will communicate unambiguously just what type of results you value and provide guidelines about how employees should behave.
As a case in point, Kirkman cites a study that divided Xerox technicians into three groups: Those who were individually paid, those who received team-based compensation, and those who were awarded both individual and team-based compensation. Surprisingly, the group with the worst results was the one with mixed compensation. But an easily avoidable factor was to blame: Managers had failed to specify exactly how employees should divide their time between team and individual activities. As a result, employees were confused about just how much time and effort to devote to their individual and team results. “They weren’t sure what to commit to each task,” says Kirkman.
As much as possible, use the same or similar metrics to evaluate both team and individual performance. Consider Home Depot’s overhaul of its performance management system several years ago. The first step for the Atlanta-based home repair giant was to standardise metrics used to assess employees across the board; previously, there were more than 150 different appraisal forms being used throughout the company.
The new metrics were grouped in four categories: Financial, customer, operational/process, and people outcomes. For example, a store manager’s financial metrics would include store sales and profits; his customer metrics would include customer-satisfaction scores; his ability to realise operational efficiencies would go under operational/process outcomes; and people outcomes would include employees’ ability to meet goals.
Then, says Don Allen, senior organis-ational effectiveness consultant at Home Depot, the company instituted an award to be given to teams that met or exceeded their goals. The metrics used to measure team performance fell into the same four categories as the individual metrics. Allen credits Home Depot’s impressive revenue growth over the past several years to this change in the reward system along with other significant enhancements to HR, IT, merchandising, and marketing processes: From 2000 to 2005, the company’s yearly revenues jumped from US$46 billion to US$81.5 billion.
Include peer reviews in evaluations
To make teamwork integral to an individual’s performance review, include peer assessments. For instance, Allen says that at Home Depot, team members participate in regular 360-degree evaluations of one another’s leadership ability, and the results are included in reviews.
Nancy Beaulieu of Harvard Business School points to a mutual fund company whose performance evaluation system for portfolio managers has proven highly effective at motivating teamwork. Because financial results are obviously important, and because accurate and objective measures of results are readily available, 60 per cent of a manager’s bonus is determined by the financial performance of the funds she directs. The remaining 40 per cent is dependent on the quality of her teamwork, assessed through structured feedback gathered from team members, such as analysts and traders, and analysed by top managers.
A caveat: To make such an approach work requires significant time and effort. The mutual fund company conducts these evaluations every six months. And, to make sure they’re objective and thoughtful, respondents must include substantive explanations for their insights, and they are then interviewed by managers. “It takes a huge investment to collect this kind of data, and, just as important, an extraordinary amount of trust in the evaluation system and the people doing the evaluations,” says Beaulieu.
“Individuals and teams cannot be aligned unless they both understand how they fit into the larger mission,” says Jim Haudan, CEO of Root Learning, a Maumee, Ohio-based strategic learning consultancy. Haudan recalls a pharmaceutical company trying to expand its product line past its one successful offering. Trouble was, while teams were working together to produce several products, the salespeople on the teams were really only pushing the established item. Because they were compensated on the basis of volume, the salespeople concentrated on the easiest sell. The company eventually changed the compensation system so that it rewarded salespeople for helping forward the company’s goal of expansion by pushing new products.
In the end, fostering strong team performance while giving individuals encouragement to shine at solo efforts comes down to dexterous, emotionally intelligent management. The leader “must empower the team as a whole, so as to create a climate where the team feels encouraged,” says Gilad Chen, associate professor of management and organisation at the University of Maryland’s Robert H. Smith School of Business, “but each member must feel he is supported.” The likely result: Because individuals know they are being recognised, they will contribute more to the team’s success than they might otherwise.
Harvard Management Update
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