I want to evaluate processes and learning: Why do new businesses fail? Overcoming the 'Second Wall: The Wall of Evaluation and Career'! ①

An excellent personnel evaluation system boosts the motivation of those in charge of new business development and leads the business to success.
However, evaluation systems are mechanisms optimized for existing businesses, and there is almost no room for the value of 'challenge,' which new businesses hold dear. As a result, even if you proceed with a new business, you will face the structural problem that 'challenges are not evaluated.'

To solve this, it is necessary to review the 'evaluation criteria' and 'evaluators,' as well as to develop and integrate a new 'career path' for those in charge.
First, here (in Part 5), we will consider 'evaluation criteria' and 'evaluators.'

Redefining evaluation criteria: Evaluating processes and learning

I would like to think about evaluation criteria for new businesses.
New businesses take time to show results. This is because the 'mechanisms' necessary for a new business must be created from scratch. Unlike the sales or profits generated by existing businesses, the results of a new business are, first and foremost, the creation of the business 'mechanism' itself.
Therefore, evaluation criteria require new standards that evaluate processes and learning, not just the conventional performance indicators like sales and profits.

Diversification of evaluation criteria

Therefore, as evaluation criteria, we adopt indicators that show business progress, such as the number of hypothesis verification cycles, the number of pieces of feedback from customers, and the amount of market insights acquired. While it is difficult to determine how to weight these against existing indicators, this allows for the visualization and evaluation of business processes and the efforts of those in charge, even before the business becomes profitable.

However, if you are going to take the trouble to review your evaluation criteria, why not question the value of the business itself? New businesses harbor values that are invisible from the perspective of existing businesses. These are multifaceted, such as corporate brand value, environmental value, organizational value, and customer value, and the acquisition of these is what leads to the true profit of a company.

Therefore, after visualizing these business values (converting them into economic value), we set new goals. In addition to the financial goals such as sales and profits that have already been set, there will be multiple business goals. Naturally, we will also review the evaluation criteria to match the newly added goals.
Only by doing this can we be freed from the constraints of existing businesses, and the multifaceted value brought by new businesses becomes the company's assets. Furthermore, while there are many cases where new businesses are withdrawn because financial goals are not met, this also leads to the continuation of the business.

Introduction of process evaluation and additive evaluation

Many personnel evaluation systems are based on performance-based pay and consist of deductive evaluations. However, if we can incorporate mechanisms for process evaluation and additive evaluation, we can evaluate not just failures as negatives, but what was learned from the failures and how that was applied to the next action. For example, we can create things like failure reports and add items to the evaluation criteria such as 'sharing lessons learned from failure' and 'obtaining feedback from customers.'

This approach increases the psychological safety of those in charge of new businesses and builds a foundation that encourages innovation. By establishing an environment where failure is tolerated, the entire team can take risks more actively and focus on creating the business.

When Adobe Inc., which provides creative cloud services, shifted from package sales to a subscription (SaaS) model, it abolished the conventional annual Management by Objectives (MBO) system and introduced a 'check-in system' where supervisors and subordinates conduct evaluations on an ongoing, as-needed basis.
In the conventional MBO, if goals were not met, evaluations would drop, but in the check-in system, the process of identifying the causes of failure, the lessons learned from them, and the next steps are evaluated, so evaluations do not necessarily drop.
Also, by changing the timing of evaluations from annual to as-needed, it became possible to provide immediate feedback and make course corrections even when projects were delayed.
It is said that this has rooted a culture of rapid PDCA cycles and challenges without fear of failure.

In addition, some companies are not only evaluating the process of failure but also turning the lessons learned from failure into a company-wide knowledge base mechanism.
A famous example is Fujifilm. They launched a system called the 'Astalift Project' to create a mechanism for sharing the knowledge gained from failures accumulated during expansion into new fields such as the medical and healthcare sectors across the entire organization, succeeding in a major transformation from the conventional film business. This system is a mechanism where the experience and knowledge gained from challenging and failing are treated as company-wide assets and are fully utilized by all employees and all departments.

Utilization of peer reviews and peer bonuses

Peer review (mutual evaluation) is a mechanism where team members and colleagues evaluate each other's contributions, skills, and work attitudes. It allows for a multifaceted grasp of individual contributions and actions that are difficult to see with the conventional method where only supervisors and department heads conduct evaluations.

For example, in a '360-degree evaluation' that includes multifaceted evaluations from supervisors, colleagues, subordinates, and self-evaluations, contributions to daily work and roles within the team that cannot be fully grasped by supervisors alone are visualized. Also, 'peer bonuses,' where small bonuses (points or money) are sent to colleagues with high contributions, have the effect of visualizing gratitude and contributions in real time.

The author also has experience introducing peer reviews in the department they belonged to. It was a large-scale system where, at the end of a project, all members mutually evaluated each member's contribution, and the profits generated by the project were distributed to each member based on that.
What was surprising was that there was almost no difference in the evaluations of any of the members. I think it is a very effective system if the rule that evaluators are identified by name and evaluate in an open environment is followed.

In this way, peer reviews increase the fairness and transparency of the evaluation system and create a sense that individual efforts are justly rewarded. It also activates communication within the team and deepens trust among members.
Especially in new businesses where there are many cross-departmental projects, having all stakeholders participate in the evaluation is very effective in maintaining the objectivity of the evaluation and maintaining the motivation of those in charge.

Training evaluators: Understanding the characteristics of new businesses

The effectiveness of personnel evaluation in new businesses depends heavily on whether the "evaluators" themselves deeply understand the characteristics of new businesses and possess the appropriate perspective. It is essential to train evaluators so that they can correctly assess the uncertainty and processes of new businesses without being bound by the success stories or evaluation criteria of existing businesses.

Evaluator Training

It is necessary to conduct specialized training for evaluators on management methods unique to new businesses. They need to learn the basic concepts and frameworks inevitable for new businesses, such as "Lean Startup," "Agile Development," and "Design Thinking," and gain an experiential understanding of how new businesses are conducted.
Through such training, evaluators will be able to see the activities of those in charge not as "mere delays," but for the first time as a "Pivot stage." This training represents a 180-degree shift in values for evaluators who only know existing businesses, and its effectiveness cannot be expected from mere classroom lectures alone.

Diversification of Evaluation Processes and Utilization of Experts

Training is not the only way to compensate for the lack of expertise among evaluators.
One way is the utilization of external mentors. By bringing in external experts with experience in launching new businesses or veteran employees from other departments within the company as mentors to participate in the evaluation of those in charge, the objectivity of the evaluation is increased, and those in charge can receive more professional feedback.

Also, "verbalizing evaluation content" is necessary. This means requiring evaluators to specifically verbalize the reasons for their evaluations.
For example, by clarifying "why that failure is highly evaluated" and "what is expected as the next step," those in charge can understand the basis for the evaluation and feel a sense of conviction.

By improving the skills and perspectives of evaluators through these initiatives, it becomes possible to maintain the motivation of those in charge of new businesses and enhance the innovation capability of the entire organization.

(Kazuyuki Maruta)

Next time (Part 6), we will continue to think about the nature of "career paths" to break through the "Second Wall: Evaluation and Career Wall."