How do we evaluate performance in hierarchical companies with agile or self-organised teams?

This morning, during our betterplace Status Call, one of my co-shareholders asked about the performance of a large betterplace lab project. In our monthly Status Calls, the operational leadership of the three parts of our company – the donation platform betterplace.org, the betterplace lab, and our co-working and events hub buM – meet with the supervisory board to discuss the latest financial and operational developments. But while the donation platform works with concrete numbers, and is therefore easy to grasp for the supervisory board, the diverse projects of the think tank are harder to get a grip on.

This, however, is not merely due to the variety of projects, but also because the self-organised, agile betterplace lab does not make use of KPIs as a leadership tool. Therefore, it came as no surprise that the betterplace lab colleague present was unable to answer the shareholder’s question herself, but had later to be updated on the project status by the project leader. I can understand clearly that it is much harder for the supervisory board to understand how projects in the betterplace lab are doing than with the platform, which can present dozens of clearly laid out indicator figures each month. So that the supervisory board does not get the impression that chaos reigns at the betterplace lab, the team had to lobby for an understanding of its different, self-organised way of working. 

This situation is typical for organisations that are developing new structures and processes. For, with these, other principles and assumptions of our organisation and leadership culture are also changing, among them how we evaluate performance. 

Many companies make use of KPIs (key performance indicators) or key figures as leadership tools, under the assumption that they can thus optimise their performance. When we choose meaningful key figures and judiciously track them, it seems possible to evaluate and, if necessary, steer our performance in a timely manner. KPIs give leadership and supervisory bodies the necessary overview and hence a feeling of security and control. 

If, for example, we introduce agile methods, our measuring instruments change as well. Agility is based on the assumption that the best results are achieved when we follow an iterative (stepwise), creative process, in which the needs of the client are at the center. Instead of fixed goals, we pursue a flexible horizon of results, as we assume that we will, in the course of the project, come to many new realisations that will have an effect of the desired result. 

Instead of linearly orienting ourselves using KPIs or fixed milestones, employees steer the process in recurring, reflexive steps, decisively incorporating the perspective of the client.

In our experience, many companies are unaware that these two approaches pursue different values, and their performance must thus be evaluated differently. So we see a lot of companies with agile teams still using KPIs suited to a functional hierarchy. These companies rather need a much more flexible system, in which the key figures can change as dynamically as the course of the project. Thus the strongly fluctuating KPIs may suggest to the company leadership that the team is not delivering what was agreed upon. Additionally, agile processes, with their many iterations, are often confusing and don’t follow a linear logic. All of this leads to the leadership feeling like they are losing control, and can’t even be sufficiently informative to third parties like the supervisory board. 

The same goes for when teams develop toward self-organisation within a hierarchical company. The Future of Work is based on competency-based hierarchies, in which whoever is most competent for the task at hand assumes leadership. As soon as the task has been completed, the hierarchy dissolves. Teams build employee networks that, without fixed leadership, together keep an overview, stay oriented, and control quality. 

From the perspective of the rest of the organisation, it seems as if leadership had lost their overview and control, especially since the progress and results of projects are no longer able to be grasped with standardised metrics. To avoid conflicts arising between these different evaluation mechanisms and the failure of the cooperation, the intersections must be managed and suitable processes have to be developed for the hybrid situation. From this follows that, even if only one part of the organisation changes, the entire company must be informed and actively included.