Community Style Business – Rewarding Performance

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The core problem with any reward system is the question as to how to ensure the reward is representative of the effectiveness. Wether it is a paycheck/compensation, a bonus or results based compensation, companies find ways to reward their employees. These rewards are not an exact science, see Corporate Scarcity – The manager’s mindset, and can contain quite a bit of disparity from effectiveness.

Community Style Business approaches the problem around rewards preferably through the use of non-loss obverse point systems, leveraging lead measure tasks and gates to ensure high quality services are performed. This blog post will cover various theories around CSB reward systems, along with references which I found useful.

Results Based Rewards

The core concept in community style business is that its members are rewarded proportionally to to what they contribute. This creates a problem when trying to define what and how much a contribution is. How do you identify what is or is not valuable?

There are various guidelines, and examples, on how this can be done. None of these guidelines are absolute, as it is up to the community, ultimately, to correct deficiencies when they occur.

Defining a measurement

The first step in creating a value based reward system is to define a way to measure both effort, risk & need/desirability. Typically the points should be based off of effort relative to a baseline which everyone can understand. One example of how to evaluate tasks for points is a practice known as planning poker, which will be discussed later. This point system is re-evaluated as needed every iteration by the community.

Planning Poker

Planning poker is a means by which all members have the ability to vote as to how many points a task is worth. Each time there is a large disparity in the voting the a representative from the high and low point group can voice their arguments to the group.

The site below provides a good overview and guidelines for planning poker.
http://agile.dzone.com/articles/introduction-planning-poker

Setting the bar

If planning happens on a team level or there is a disparity based on the type of knowledge someone has to have, it is often a good idea to set a bar for a baseline for each discipline. This is meant to normalize the disciplines, while still allowing for adjustments based on need/desirability. The one I’d recommend is, what could an average individual skilled in the craft get done in a set duration. This allows for both normalization across disciplines as well as eliminating a notion of inflation causing disparity.

As the organizations cash reserves build it is best practice to get a third, non-invested party to do these evaluations. This is to ensure that there are no biases toward a discipline or career lifecycle. It also helps reduce the potential for political infighting.

Need / Desirability

I’ve stated multiple times this notion of need / desirability, but I want to take a moment to really define what that means.

In a community system, we start off by assuming all normalized efforts are equivalent, no matter what the discipline. This creates a problem right off the bat. Some work requires specialization, is not something people tend to enjoy or require more end entices to get the right level of talent to do the job well. Alternatively, other jobs it’s easy to find people to work on, these are the “sexy” jobs.

The goal here is not to reduce the value of the “sexy” jobs, but to find an equilibrium with those tasks which are less so. An example of this might be someone working the night shift might get more points than someone working a day shift, if the night shift isn’t attracting enough high caliber people.

This isn’t really a new concept for business, as worker salary is a reflection of this calculation. When applied to a CSB it is expected to manifest differently. Since things like schedules and efforts are ultimately influenced by a community of individuals working, more variation is expected to occur over time, as individuals find the niche which best fits their life. Rather than a stick approach, CSB tends to be best with a carrot.

Defining results not method

While lead measures are useful, they shouldn’t be the only mechanism which is used. Often times when looking at an objectives there is the work done which directly contribute and those which correct deficiencies along the way. A good example of this is a software developer & a software tester. In these types of scenarios there are two approaches which can be used: distribution of existing value or value created for the corrective action.

Understanding the impact of imperfection

The example of a software developer is a good example of missed potential. The reason for this is that if the software developer wrote perfect code, the effort needed by the software tester is minimal. Their job is to just verify the expected results. The problem is that perfect code is very hard to write for many various reasons. As the flaws in the software are discovered, the amount of effort given by both the software developer and tester multiply.

Distribution of existing points

The above scenario lays out a real life scenario, of which happens every day. With a distribution of existing points philosophy, the completion of the goal is seen as the value. There for efficiency is rewarded, but higher efforts will not be recognized. Points are distributed after the work is done based on the amount of effort and lead measures completed.

If applied to the scenario above, the more the tester has to work the fewer points the developer receives. The danger here is that points can reduce in value for effort pretty easily, causing the goal to become less compelling. The positive aspect here is that it rewards quality with more points regardless of time spent. This allows an individual to spend more time to produce higher quality upfront and have that behavior re-enforced.

Value created for the corrective actions

This philosophy states that those efforts directly inline with the goal will be rewarded statically. The corrective efforts will be rewarded without the scarcity of the initial goal.

The example above would be handled by the developer getting a static set of points, while the tester would be rewarded more for anything extra beyond the initial verification effort.

This method plays more nicely when looking at objectives which run longer than expected. The problem is that this method increases the value a goal is worth artificially based on how much correction is needed. The positive aspect is that important goals don’t become meaningless. The developer in the example would have to spend longer to fix the issues before his points would be realized, which also balances out the effort to reward ratio for lower quality work.

Dividing up the spoils

As I stated in the overview, the gross profit is first used to pay for all materials and expenses the community is required to pay. Once that is done, any community initiatives are taken out, things such as a rainy day fund or saving for a consultant to normalize efforts across disciplines. After those two are completed, the points from all contributors are added up, and each member’s percentage of points are calculated. The remaining money is distributed accordingly.

The importance of peer leadership. Who’s in charge?

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When looking at a team or business which operates efficiently, continually makes great decisions and has fun doing it on all levels there’s usually a large presence of peer level leadership.

Peer leadership is when individuals at all levels are empowered with the ability to change the standard operating procedures around them through influencing and evangelizing ideas, rather than through managerial direction. Just like with any learning process, this form of peer / self directed leadership has the potential to obtain more immediate buy in, but also has the ability to distract from the team.

Another advantage to the peer leadership model is that issues which contributors know about but won’t bring up to their managers are more likely to be addressed. Typically these types of issues contribute heavily to a company’s turnover rate. A few examples would be process optimization, as well as discipline standardization and safety measures / practices. In an organization with little peer or contributor leadership these examples could be seen as organizational or management issues, even if management was not fully aware of them.

The science behind peer leadership

There are several aspects which are involved with leadership in general. This section will go into a few, and talk about the science behind successful peer leadership.

Individual investment

Those who contribute the most buy in the most.  Its been show that the concept of ownership and collaboration lead towards lower turnover rates and higher employee moral as can be seen in this article by Scott Thompson on “The Most Effective Techniques to Encourage Team Members to Contribute to a Project”.

So why does individual investment matter?  There is a difference between the motivation to make other’s ideas successful and our own ideas successful.  The following article on the impact of motivation, written by Richard E. Clark, “Fostering the Work Motivation of Individuals and Teams” ,which helps define how motivation effects us and how it is destroyed.

As stated above, there is a difference between the motivation which comes from making other’s ideas successful and our own. Taylor and Francis Online has an article available, titled “Employee participation in decision making …” which helps explain the psychological impact of ownership in the workplace.

Cross discipline team building

One of the biggest benefits and issues with modern business is that more and more work can be done remotely without much collaboration.  The advantage here is that individuals can accomplish more without as much overhead.  The problem which arises is that a sense of tribalism can develop in the workplace, or the us vs. them mentality.  Although a peer leadership model can develop within the “Tribe”, expanding the impact to cross discipline agendas will help eliminate tribalism, and increase the team member’s cross domain knowledge.  This in turn helps with decision making, as it results in decisions being made from a “what’s best for my tribe and other tribes” mentality.  This mentality can eventually translate into a larger tribe identity.  NewWorkplace.com has an article “How about more tribes and less tribalism?” which dives into the psychology of tribes in the workplace.

Another article, by Ekaterina Walter, which I found very interesting on this topic dives into how siloed discipline environments can impact to the product(s) being delivered. titled “The Missing Ingredient of Modern Marketing”.  The reason I bring this up is that not only can a shared tribe bring about better cross discipline collaboration, but it can improve the quality and decision making around your products.

Engagement

An aspect of humanity which should never be dismissed is people’s desire to mean something.  By being a leader, and helping drive change to both culture and products, contributors become personally involved in something more than themselves.  This buy-in produces more engaged employees, as they start identifying what is produced as being a part of them, and more discipline throughout an organization.

Cultureuniversity.com published an article “The Four Roots of Engagement”, which discusses the four aspects, and reasons behind those aspects, as to how employee engagement is generated.

The organic/structured hybrid

There is no hard and fast rule which says a organization can either be structured or operate organically. Often times the companies that thrive have some type of hybrid which utilizes aspects of both. The ability to allow some structure with an organic component can most accessibly be seen with franchises such as McDonald’s and Burger King, in the relationship of the franchise and franchisee. These franchises have a structured approach to marketing, a majority of menu items and the overall look to the operation. What’s fascinating about these franchises is that they allow the individual franchisees to determine if and when to implement optional aspects of the franchise, such as what type of soda is to be offered, participation in promotions, and the tactical operation of the stores. From this aspect the franchise and franchisees become peers in some respects.

Conclusions

Peer leadership helps drive buy-in, engagement and team building, and can generate more meaningful innovation with those performing the tasks driving cost reducing measures.  Companies which exceed expectations continually tend to have some level of peer leadership built into their cultures.  Companies like Costco, Microsoft, Google and many others can be looked at to identify some different approaches to peer leadership.

Peer leadership is also becoming more applicable given our continual evolution of individual and group psychology. Matching up the psychology of the group and individual behavior around a peer leadership therefore could lead to keeping more qualified talent, as individuals are more bought into what they work on.

While this can be very useful, the pure organic form of peer leadership wont work for everyone.  Both structure and cultural factors must be built to support it.

To answer the initial question in the title “Who’s in charge”, the answer is simple.  In a peer oriented system, the individuals take ownership of leadership to the scope the structure allows them to.  Existing company, division and team leadership members start focusing on how to increase the ability for contributors to lead, and how to help educate and evangelize concepts, problems and general direction for the contributor leadership to pick up.

Community Style Business – Investment

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One of the key staples for community style business is the notion of rewards that are equivalent to value created. A problem which quickly forms is that most companies need some form of up front capital either to get started or grow to their potential. This capital is given in exchange for a long term share of the profits. So with this disparity, how can investors invest in a system which turns around with profits and gives them to the employees? This post will go over some potential mechanisms which can be put in place to accomplish this without going outside the bounds of a CSB. A quick note, this post builds upon the point system initially laid out in Community Style Business – An Introduction

Capital creates value

The first type of investment I will go over is a capital investment to be used for purchases, whether it is equipment, marketing materials, or even a booth at a state fair. In this type of investment, the capital essentially creates value by itself. The points are therefore given based on the expected impact provided by the investment. In the case of marketing materials, this could last for longer than just the immediate time the money was spent. By doing this, the investor has a direct return on their investment, based on tangible forecasts. With this form of investment there is assumed a set duration and point amount.

Loans

Just like in any other business, sometimes it’s more preferable to take out a loan, rather giving away points. These are the cases where the community has a track record which can allow them to treat the loan as a community expense before revenue sharing. Since the loan doesn’t consume points, it doesn’t come with influence on the community, or other long term impacts.

Investing in individuals

Another form of capital investment is in people. This form of investment is very common in small businesses and startups, where revenues are not expected for a significant duration but people are needed full time for an initial effort. With this scenario it’s important to note that the realization of points is often a future event. The investor should be given the points in full with an iteration cap. These points can then be used at the time when revenue is being realized. The cap is a way to protect the team and system from having an iteration where an investor can devalue a a contributor’s points to where they become irrelevant. It is expected that the investors can become part of the community to help guide, but they hold no special status other than their ability to influence others.

Buying and selling points

A third form of investment is short term individual based investment. This is where a single individual requires a working wage to get off the ground and become self sufficient in a CSB. In the above scenario, the investment is for a specific individual, for a specific iteration or iterations. Due to the nature the points sold are for the specific iterations as well. When selling iteration points it is best to sell a specific number per iteration, based off of the teams baseline. This allows the point sale to be able to be forecast for the investor’s profit margins. It also allows the individual to exceed expectations and still be able to receive compensation proportional to the value they create.

The point commodity

Just like any shares system, points can ultimately be perceived as a commodity, with investors being able to buy, trade and realize them. Although similar to stocks, the point system has a more definitive value, as ultimately they are meant to be realized by profits in an iteration.

The selling of a CSB

While selling a CSB might sound a bit odd, given the nature, it’s actually expected for some to get purchased just like any other business.  This usually occurs when a business reaches a threshold where competition with other business require more than partnerships, or a larger corporation wants to add better integration into its own services without creating new costs.

The difference when it comes to a CSB is that since there are no real share holders, a new mechanism is required when divvying up the purchase revenue. First I want to point out a founding principle in business development. Businesses don’t start from scratch ready to be bought. It is the people who invest and contribute who make a business sell-able. With this in mind, the recommended approach for realizing sales revenue is to leverage the point system, but rather than just use a single iteration, the total points for the life of the business is used. This will allow all of the CSB members to benefit, including the investors.

Conclusion

Community Style Businesses doesn’t have to place all the financial burden on the contributors, and investment has a place. While there are various ways to invest and realize those investments, the form it takes differs greatly from the typical corporation. Even so, realizing profits and revenue off of business acquisition stays relevant to the investor.

 

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Community Style Business – Leadership

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A genuine leader is not a searcher for consensus but a molder of consensus.

Martin Luther King Jr.

When looking at a CSB, it is important to grasp the concept of not only what leadership is, but why it occurs. Leadership comes in various aspects in a business. These include: product / organizational vision, practice area, cultural, team and quality. Depending on the organizational model, these leadership roles can be distributed countless ways.

Currently, organizational leadership is put on a pedestal. Leaders are those with both the information and the power, with long term success relying on a few chosen to make the right decisions. These individuals get rewarded for their efforts, which tend to be well beyond those typically performed by contributors.

The problem here, ultimately, is that people come with different talents, strengths and weaknesses. We all approach problems differently, and leverage different types of crutches to minimize our weaknesses. Given this, we create positions with fairly ridged ideas around roles and responsibilities, rather than creating a system which leverages people’s unique strengths, while not forcing them into make or break situations around their weaknesses.

The cultural change which needs to be made here is that CSB is run more like an organic ecosystem rather than a rigid structure. In essence, each skill set and partition in a CSB is responsible to self organize and adapt to their own unique environment independently. Through communication and sharing of success and failures, these independent pieces enable each other in the larger organization to improve independently, without changes being forced on the teams. This viewpoint changes what type of leadership is needed.

Leadership is a means to an end, and is not the sole objective for any one member. There is no ordained leadership position which is a given. Those who choose to lead can provide leadership across the board, or in a specific area they’re adept at. These leaders then help improve their part of the organizational ecosystem through influencing consensus, both on their team and by working with others.

An example on how this can apply is by taking a look at a hamburger restaurant, specifically the cooks team & their schedule. Staffing a restaurant cooks team includes ensuring enough members are on hand at any given point in time to fulfill the orders received in a timely manner. In this case providing leadership might be as easy as creating a draft board for hours having to be worked, and challenging working with others to make sure all the shifts are covered. Since everyone has a personal stake in the success of the business, it is everyone’s responsibility to make sure the area is staffed. It is the leaders job to help the members achieve the schedule creation.

Rewarding leadership

So what is the reward for providing leadership? Why would anyone do it? This is the question I struggled with. In the ideal world the leaders would lead because that’s what they enjoy doing. In the real world leadership can be time consuming, and offers challenges of its own. So how do we reward leaders for their efforts?

In the above example the leader might get first draft choice, where the compensation is a better schedule. Alternatively the leader could be compensated based on the schedules timely completion, and more points are rewarded for each active participant who contributes to helping create the schedule.

The best initial solution available is to reward through lead measures (or tasks which when occurred lead to effective results. This makes it possible to ensure rewards can be obtained, but still ensure that those who gain more efficiency in these tasks to be compensated accordingly, sticking with the montra, you get out only what’s perporsional to what is put in.

A new type of leadership

The team or CSB will there for tend to have more micro focused areas of leadership. Rather than having formal structures which have specific roles and responsibilities, leadership is a set of goals, which the community identifies as being valueble. The team can then either elect their leaders, or approach it via lasefair, where people can pick up what they choose. In both cases those who want to lead can pick and choose what goals best match their unique talents and skillsets. Since there’s no strict position which is gained or lost, people are allowed to find those aspects and ways they can best lead, without taking on too much, or being put in a position where loss obversion can effect decision making and direction.

With this approach determoning leadership, or baring poor leaders, has to be left up to the community members. In this way the leader is a servent of the community, only serving as such if the community approves.

This differs from hierarchical leadership where a single decision can span across various loosely related groups, and peer leadership where through organic independent adoption change is brought about.