Authors:
Luca Crudeli, Senior Technical Director, ACDI/VOCA
Michael Field, Senior Systems Thinking Specialist, Vikāra Institute
In our experience, one of the biggest challenges in organizational change is getting teams to shift from a task-focused mentality to a systems-oriented approach. It's something both of us have noticed in various Market Systems Development (MSD) projects in which we have been involved with over the years. Teams are often so focused on checking off tasks that they miss the bigger picture—how their work connects with the broader goals of the organization.
We’ve both seen how crucial it is to align performance evaluations with the behaviors and outcomes that actually matter. In one project we were both engaged in some time ago, the objective was to help the organization embrace systems thinking. But when we started, it was clear that everyone was fixated on their own to-do lists. We had to step back and talk to the team about why teamwork—real, effective collaboration—was essential. This wasn’t just about getting along better; it was about fostering a culture of learning, assessing, and adapting that would ultimately make the organization more effective at catalyzing change in complex market systems.
In response to this clear misalignment, the project engaged a human resource (HR) expert to help rethink the performance evaluation process. The HR expert, having had extensive experience working for the private sector in different sectors, applied some basic principles that are common HR/performance management and remuneration practices in well-managed companies, known as Adaptive Performance Management. Adaptive Performance Management is a strategic approach that customizes performance evaluation, management systems, and remuneration mechanisms to suit varying levels of complexity and uncertainty within an organization or project. This approach emphasizes flexibility, responsiveness, and alignment with specific contextual factors, such as the level of uncertainty a company faces to enhance productivity, innovation, and long-term success. Adaptive Performance Management ensures that individuals and teams are effectively motivated and supported to achieve sustainable outcomes in dynamic and evolving environments by integrating tailored evaluation criteria and incentive structures.
How would a company typically tackle uncertainty and tailor performance management and measurement to drive adaptability and innovation?
Tasks are well-defined in environments characterized by high certainty, such as manufacturing or clerical work, and outcomes are highly predictable. Task-based pay schemes like fixed wages or piece rates are effective in such settings. Employees operate under clear guidelines with minimal autonomy, focusing on executing specific tasks efficiently. The primary focus is developing task-specific skills that ensure consistent and reliable performance. According to Taylor’s Scientific Management theory, this approach can significantly enhance productivity by breaking down tasks into simple, repetitive actions that are easy to monitor and measure (Taylor, F. W. (1911). The Principles of Scientific Management).
As the certainty of the environment decreases to a moderate level, such as in sales or technical support roles, the tasks and outcomes become less predictable but are still relatively structured. Performance-based pay schemes, including bonuses and commissions, are more appropriate in these settings. Employees are granted moderate autonomy, allowing them to employ personal discretion and initiative to achieve their goals. This approach requires the development of specific skills related to their roles, along with competencies such as problem-solving and decision-making. Herzberg’s Two-Factor Theory suggests that performance-based incentives can enhance motivation when coupled with intrinsic job satisfaction factors (Herzberg, F., Mausner, B., & Snyderman, B. B. (1959). The Motivation to Work).
In environments with low to moderate certainty, such as in consultancy or project management, the predictability of tasks and outcomes further decreases. Hybrid pay schemes that combine fixed pay with performance bonuses and profit-sharing are effective. Employees need high autonomy to adapt to changing situations and variable outcomes. This setting emphasizes developing essential technical skills and broader competencies like critical thinking and adaptability. Hackman and Oldham’s Job Characteristics Model supports that providing autonomy and meaningful work can lead to higher job satisfaction and productivity in such environments (Hackman, J. R., & Oldham, G. R. (1976). Motivation through the Design of Work: Test of a Theory).
In highly uncertain environments, such as startups or highly innovative sectors, traditional task definitions and performance metrics become impractical. Profit sharing, stock options, and equity stakes are effective in aligning employees' interests with the organization's long-term success. Employees have very high autonomy to innovate and take initiative. The focus is developing advanced competencies, including leadership, strategic thinking, and innovation. Equity theory posits that employees are motivated by fairness and strive to reduce perceived inequities, making such compensation schemes particularly motivating in uncertain environments (Adams, J. S. (1965). Inequity in social exchange).
Employee Performance Management in Contexts that Range from Certain to Uncertain
Environment Certainty Level | Knowledge Before Intervention | Remuneration Tools | Employee Autonomy | Skills vs. Competencies |
Highly Certain | Detailed | Fixed wages, piece rates | Low | Skills |
Moderately Certain | Moderate | Performance bonuses, commission | Moderate | Skills with some competencies |
Low to Moderate Certainty | Limited | Mixed schemes, profit sharing | High | Competencies with essential skills |
Highly Uncertain | Minimal | Profit sharing, stock options | Very High | Advanced competencies |
By tailoring wage schemes and management tools to the level of environmental uncertainty, organizations can optimize performance, enhance employee satisfaction, and achieve alignment between individual contributions and broader organizational goals. Each step along this spectrum requires a nuanced approach to remuneration, autonomy, and competency development supported by relevant management theories and practices.
Applying Better Accountability Metrics for MSD Activities
This experience brings into sharp relief the continued misalignment in applying market systems development approaches. The way indicators and targets form the foundations for donor accountability requirements does not align with sound systems thinking, grounded in the idea that socioeconomic development is complex and, therefore, grounded in uncertainty, testing, learning, and adapting. While it is clear that donors need to account for their investments and hold implementing partners accountable for how they use donor funds, it is equally clear that complex systems change in ways that do not comport with current accountability practices. Current accountability metrics for private sector/market system development projects focus on specific behaviors and outcomes the market system should exhibit. Making projects responsible for those market system change outcomes, in addition to not making sense from a systems thinking perspective, is often counterproductive as it incentivizes projects to push market actors to act in response to temporary forces (i.e., donor money and influence) that are not resident in the market system. Much like an aspirin that masks the underlying causes of disease, projects are encouraged to achieve a target and then measure it while the driving incentives are still in place.
In systems thinking, transformational market systems change only emerges over time from within a system and often follows a meandering process based on how internal forces and factors combine and recombine in ways that drive ongoing, context-dependent improvements toward competitiveness, inclusiveness, and resilience. Systems-thinking approaches focus on catalyzing and guiding this internal meandering change process. To catalyze such an internal change process requires intentionally targeting and leveraging internal forces and factors already resident within a system. It is also essential from a systems-thinking perspective that projects collaborate with other projects around the donor’s systemic change objectives. More specifically, projects need to collaborate to identify emergent internal system changes that align with the donor’s systemic change objectives and amplify those emergent changes, so they take hold and encourage ongoing changes in the same or similar direction. Complex systems are dynamic, and unforeseen events can often derail initial changes, creating a sense of meandering. Projects need to collaborate around constant shepherding of the change process through engagement, testing, observation, learning, and adapting to amplify and dampen various systemic signals, making ongoing positive change more attractive than alternatives.
Co-Creating A Way Forward
Addressing the issue of accountability for donors in the context of Market Systems Development (MSD) and Private Sector Development (PSD) approaches requires rethinking accountability mechanisms and protocols. One potential solution involves adapting accountability and performance metrics for these approaches. Drawing from best practices in HR, one option is to hold projects accountable for core competencies that contribute to achieving the longer-term systemic change goals envisioned by donors. These competencies include: applying systems thinking; Collaborating, Learning, and Adapting (CLA) principles; monitoring and tracking systemic change; catalyzing change; upholding integrity; effective financial management; and fostering staff development.
Developing specific metrics for these competencies would ensure that practitioners effectively manage donor investments, without incentivizing projects to act in ways that could impede systemic change. More specifically, it would be important to introduce new contract/agreement models based on competencies and contribution to systemic change results that also give donors assurances that resources will be managed in a professional and responsible way. By allowing implementers to experiment and learn quickly without the fear of reputational risks, this approach encourages innovation and the exploration of unconventional solutions, ultimately contributing to more effective and impactful outcomes.
By integrating performance management systems and management styles with the certainty-uncertainty spectrum and implementing new accountability measures focusing on core competencies and long-term systemic change, both donors and implementing partners can enhance their support for the transformative goals of MSD projects while facilitating sustainable development outcomes. This comprehensive and flexible approach will foster a more favorable environment for sustainable market development and safeguard the effective use of donor investments.
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