Hybrid Work and Outcome-based Performance Management

Hybrid raises the stakes for performance management

The worry that remote workers don’t have “hustle” is of a piece with the attitude that has resulted in the rise in desktop monitoring software and the seemingly endless stream of “check-in” video meetings that can lead to burnout. These are all an indication that input management still looms large in leaders’ performance management philosophies.

The persistent prevalence of input management should not surprise us. It has been the default management style since long before Frederick Taylor took his stopwatch to the factory floor. When managers know what work has to get done, it is natural to focus on how it gets done to try and make it better.

But for managers of 21st century knowledge workers, this focus is misplaced. The shift to a hybrid working environment makes it even more urgent to correct this focus, because input management in hybrid worlds can be difficult to tiresome at best, and unfair to damaging at worst. In fact, it is quite possible that the degree to which organizations adopt an outcome-based performance management culture will be the most important ingredient in the success of their hybrid programs.

To understand why, let’s first understand what input management is and how it is different from management approaches that place their emphasis elsewhere.

• Input management is a performance management practice that seeks to improve an organization’s outcomes by studying and adjusting the activities that produce those outcomes. Input management focuses on processes themselves.
• Output management is the practice of managing a work process for the sake of whatever it ends with: for example, a deliverable, a feature, a closed deal. Output management focuses on what a process produces.
• Outcome management aims to improve an organization’s results by focusing on the results themselves — by making goals transparent and empowering people to achieve them without attending to the details of their activity. Outcome management focuses on what work achieves, no matter how it’s done or what it produces.

People sometimes argue that one of these management approaches is better than the others. That is decidedly not the point of this article. Instead of urging us to shift towards one over the others, it is more important that managers understand how the three are related, and the circumstances under which it makes sense to shift from one to another.

The relationship between the three types of management

To understand how inputs, outputs, and outcomes are related, we can reflect on the anatomy of actions. The meat of an action is activity — the process by which an action proceeds. This is an input. Think: finger motions on a keyboard. When an action completes, it usually results in something. This is an output. Think: this sentence I just wrote.

Then, sometimes — when we are successful or lucky — actions also achieve things. These are outcomes. Think: you getting the point I am trying to make. Activity aims at achievement through its production of outputs. Input management errs by managing actions in the wrong order.

By focusing first and foremost on the outcomes an organization is trying to achieve and why, managers can guide their team’s energies toward finding the right kinds of outputs while trusting in their capacity to produce those outputs with the right kinds of inputs. If their desired outcomes are not achieved, managers can shift their attention to hypothesis-driven output exploration to test if those outcomes can be achieved by alternatives. When they cannot get the outputs they believe are needed to achieve their desired outcomes, managers can then shift their attention to adapting the inputs that are supposed to produce those outputs.

Finding the right balance

While a very lucky or successful manager may not have to bother with input or output management at all, it’s more realistic that they’ll eventually have to wade into it. When they do, they’ll stay afloat more easily if they avoid the temptations toward excessive focus on inputs or outputs.

It is easy to see how excessive output management can miss the mark. Not all outputs matter after all, and often the ones we thought would matter yesterday no longer matter today. Everyone is familiar with the planned deliverable whose relevance deteriorates over time, but which gets pushed through simply because there’s pressure to get it done — even when there’s no subsequent benefits realization.

Leaders who believe that they’re managing outcomes may inadvertently be managing outputs if they are not measuring the actual — rather than supposed — impact of outputs on outcomes. It is one thing to have a hypothesis that a product feature will lead to an outcome (say, less customer churn). It’s another thing to actually measure and validate that it had that effect (say, through A/B testing).

The output manager ends up praising their teams for getting work done, and their teams internalize this praise — focusing on the work itself while forgetting to verify the impact that it is supposed to have. The output management team inevitably gets burnt out when they sink more and more time into work that is disconnected from results. Even if they’re not managing by walking the floor, the output manager can still fall into a Taylorist trap that creates burn out and disengagement by turning their teams into “feature factories,” continuously producing outputs with unclear impacts.

By contrast, excessive input management errs by attending disproportionately to effort, activity, and attendance, regardless of the outputs these inputs might produce and the outcomes they achieve. Not all effort and activity yields the same quality of outputs — nor do quality outputs always achieve the desired results. While there are cases where recognizing effort is necessary to create the psychological safety high-performing teams require, these are better understood not as cases of input management, but as output management, where the intended outcome is to have a high performing team.

Outcome management and OKRs

The objectives and key results (OKR) management framework that Andy Grove developed in the late 20th century illustrates how to begin implementing outcome-driven performance management. OKRs force managers to think about their organizations’ work from an outcomes-first perspective. Then, they set the objective measures that they believe would signal the achievement of those outcomes, and then later, they work with their teams to find ways to meet those measures. While implementing OKRs is not always sufficient to move toward outcome-based performance management, it can be an important step in the journey. Take the following examples:

• Revenue scale: Managers in a mid-sized B2B SaaS company want to grow a channel sales team, to enable them to continue to meet their revenue growth goals in a more scalable way (objective). They believe that they can start to do this by hiring a channel sales team and challenging them to bring 10% of the organization’s revenue from channel deals, within in three years (key result). Talent acquisition and the chief revenue officer set out to hire a director of partner sales (initiative).
• Product GTM: Managers of a global e-commerce retailer that has a historically older customer base want to expand into a younger-demographic market, so they can grow their market share and create brand loyalty that they believe will persist for many years (objective). They believe they can do this by doubling the (relatively small) sales volume coming from their mobile app — which is more popular with their younger users (key result). To test this hypothesis, they task their product and marketing teams with finding ways to increase total visits to the mobile app, and the percentage of visits that result in orders (initiative).
• Talent strategy: Managers of an incumbent life sciences company want to start developing AI/ML-driven treatment discovery, to reduce their development costs and boost their pipeline (objective). They believe that upskilling and re-skilling their existing data scientists and data analysts is a better approach than trying to compete for this talent solely through hiring, so they aim to fill 30% of their open AI/ML positions internally (key result). To do this, they spin up a series of programs to test different re-skilling methodologies and randomly assign candidates across these programs to begin collecting data on which are most effective at re-skilling (initiatives).

In these examples, the objectives can be thought of as outcomes — and, in certain cases, so can the key results. But usually a simple heuristic can sort between the true outcomes and the mere outputs: if we were to look at the potential outcome statement in isolation, would it make sense to ask why an organization wants to achieve it? Is it obvious how it might relate to an organization’s common and persistent existential goals? If yes, it is an outcome statement; if not, it is probably an output. The initiatives can be viewed either as inputs or as outputs, depending upon the granularity of a manager’s view.

How managers conceive of the key results and initiatives is less important from a performance management standpoint than where they place their focus. If team members in the e-commerce example above know their manager is focused on the outcome and not the particular feature, then they can pivot if they have better ideas about how to meet the desired outcome. On the other hand, if they get the sense that their managers are fixated on the mobile app itself, they may get the wrong impression, and begin focusing on just getting the new features done without reflecting on the impact these features are supposed to have.

Sometimes, managers adopt an OKR framework but remain stuck in an input- or output-management mindset. This can happen when they fail to treat key results and initiatives as hypotheses about what will achieve an objective, or when they confuse initiatives with objectives. A good way to tell whether a manager and their teams value outcome-based performance management is to look at how often they stop initiatives that don’t contribute to their key results — or achieve their desired outcomes.

Finally, these examples are intentionally silent over the question of where the input work that leads to the desired outcomes occurs. For those managers who believe that occasional co-located work will more reliably produce their desired outcomes, it’s important that they avoid the potential pitfalls that hybrid environments present for those prone to excessive input or output management.

Outcome management in a hybrid world

Hybrid remote working can mean many things, but for most organizations it will mean that not everyone will be working in the same place at the same time. For input managers who are used to “walking the factory floor,” this situation will present unique challenges that are distinct from those presented by fully remote work during the pandemic.

In a hybrid-work environment where managers have some team members working from offices and some working remotely (full time or part time), the ability to navigate between these three management activities is critical. A manager who spends most of their time rewarding inputs risks favoring those they can observe on the factory floor, potentially creating an inequitable experience for distributed team members. This can lead to resentment, disengagement, and unfair performance management outcomes if it causes differences in advancement.

In contrast, a manager who puts too much weight on outputs in a hybrid environment risks pushing their teams into burnout — a risk factor which may be elevated for remote employees who potentially have less positive social stimuli in their work environments. Hybrid managers must ensure that their team members know that they are focused on outcomes, and that as long as the team is achieving these outcomes, they don’t care much about the how. This can alleviate in-office FOMO because it reassures team members that what matters is results — no matter where they come from — rather than activity that managers happen to observe.

Outcomes-based performance management supports flexibility in where work happens — and also when work happens. As organizations adopt more geographically dispersed location strategies in their hybrid work models, the number of time zones and schedules across which teams collaborate will continue to grow. While some companies encourage these distributed teams to adopt core “working hours,” where they’re expected to be online for spontaneous collaboration, this pressure for more online-together time can be relieved when a workforce has clear guidelines on the outcomes they’re expected to achieve. Trust and autonomy empower workers to move toward those outcomes in a way that’s consistent with the organization’s vision and values.

The distinction between input, output, and outcome management also provides a useful tool to evaluate return-to-office decision-making. For example, the pressure to choose less remote-friendly hybrid models where, say, an executive team decides which days are on-site and which days are remote, or one where employees must apply for fully remote roles rather than self-select into them, may betray bias toward input management. Managers who make these kinds of decisions may not believe that their workforce can achieve their desired outcomes unless they work in a particular kind of way. It may also betray an affinity for the collision theory of innovation.

In either case, if managers are unwilling to test whether a certain work model really does have an effect on their organizations’ desired outcomes, they have likely fallen into the input management trap. Others who take a more experimental approach understand that their belief in the efficacy of frequent co-located work is a hypothesis to be tested — ideally under robust and rigorous experimental conditions — and then compared to results from other institutions. These managers understand that finding the right location strategies is not the result of a single set of decisions about how to return to offices in fall of 2021 or winter 2021. Rather, they believe that it will be an adaptive journey lasting several years, not quarters.

Adopting outcome-based performance management

Shifting toward more outcome-based performance management is no easy task. Input and output-based performance management philosophies are deeply embedded in institutions. It takes intentional hiring, continuous training, and transparent feedback to shift toward outcome management. Managers who believe that they were hired to supervise — or who may even still have “supervisor” titles — may not understand the evolutions, distinctions, and research uncovered by management sciences since Taylor wrote his first article.

Managing outputs is far easier than outcome-based performance management, because it’s easy to generate hunches about which efforts might work to achieve a particular business outcome than it is to actually empirically demonstrate that it did. Decades of internalized Taylorism have made it second nature to see work as first and foremost a task-based activity, rather than a value-creating activity. Completions and activities happen far more often than achievements, and we celebrate the former as if it were the latter.

It takes effort to break work down into bite-sized chunks — and to measure the impact of each. It takes courage to terminate projects or products with outputs that do not yield outcomes. It takes time and thoughtful change management to shift to a results-oriented work environment. It takes a significant shift in mindsets for managers to believe they are not paying workers for their time (inputs), nor even primarily for their work products (outputs), but first and foremost for their impact (outcomes). Input management mindsets run deep. Even when organizations do attempt to adopt outcome-based performance management — by, say, using the popular “OKR” framework — they may fall back into output-based mindsets, substituting program delivery for objectives, some quantifiable number of outputs for key results, and some list of related projects for initiatives.

Outcome management isn’t just hard because of the amount of effort it takes to define measurable objectives and relate work to those objectives in a hypothesis-driven way — it’s hard because managers most directly observe their team members’ activity and outputs. Indeed, they may think that such observation work is their job. Organizations that quickly transitioned to fully remote work to survive the pandemic may have been able to get by on input management when everyone was in the same boat. But, the transition into hybrid will be much riskier for those organizations where input management persists as the dominant mode, because suddenly, one set of inputs will be far more visible than the others. Shifting to an outcome-management culture will therefore be essential to keeping all but the most restrictive hybrid work programs alive.

The opportunity ahead

As organizations announce plans to return to offices, we’re seeing patterns emerge. Those whose cultures include a history of command-and-control may be less inclined to empower their workforce with the flexibility to work where and when they want. Or, as is also happening, they may view this as an opportunity to transform their cultures to become more results-oriented. Wherever an organization lands on the hybrid spectrum, it’s clear that management mindsets and behaviors likely had a significant effect on why it landed there. What is less clear is whether organizations can remain in their desired position within hybrid space without intentionally addressing the management mindsets and behaviors that can push people back toward input management, praise for butts-in-seats, and delight at being able to walk a buzzing factory floor.

Slalom is a global consulting firm focused on strategy, technology and business transformation. Learn more about our ETHOS approach to hybrid work and reach out today.