Working effectively with goals is a challenging process for many business owners. There are several ways to address this issue. We discuss one of them in our article.
Company Goals, KPIs, and Employee Motivation
A goal-based management system is a closed-loop process consisting of the following key elements: goals—metrics—performance. The company sets goals for a specific period, tracks progress toward those goals using metrics, and then improves employee performance through a clear and transparent incentive system.
Depending on its field of activity, a company may have a wide range of goals:
- increasing sales;
- modernizing the production process;
- increasing customer loyalty;
- launching a new product on the market, and more.
To achieve these goals in a timely manner, it is necessary to move away from the traditional management system and start working differently. There are two ways to do this: motivate employees to independently seek new approaches to solving problems, or transform the company “from the top down”—by changing business processes using management tools.
Who should be appointed to oversee changes in business operations? The answer is simple—management, which will lead the transformation of the company’s operations. This approach works effectively in traditional companies with established processes and organizational structures (which account for about 90% of the market).
Setting Company Goals
Therefore, when management faces the need to transform the business in a particular direction, it begins by defining goals. It is important to note that there are no “wrong” goals. It is difficult to imagine a situation in which management chooses such an ineffective course that the business closes down within one or two years. However, defining goals is such a complex and time-consuming process that companies often seek assistance from consultants. We propose a method that enables management to define company goals independently. It is called “Formulating Company Goals Based on Management Objects.”
Working with Management ObjectsProduction, personnel, resources, the customer base, and market share can all be classified as management objects. In general terms, a management object is a group of processes that reflects a particular aspect of the company’s operations. These objects can be analysed and described at any time using a simple logical model in an X/Y coordinate system. To formulate goals, management must complete two main tasks: assess the current state of each object and define its desired state. For example, the number of target customers may need to double within six months.
Three Rules for Defining Goals- A company’s operations can be viewed from four universal perspectives: finance, including capital structure and volume; customers, including the customer base, market segment, and loyalty; processes, including maturity, flexibility, and metrics; and personnel, including the number of employees, team satisfaction, corporate culture, and competencies. Management objects are located within these perspectives and should be identified accordingly.
- A goal should reflect the desired state of a management object.
- Goals should be specific, measurable, achievable, relevant, and time-bound (SMART). This means that both the current and desired states of a management object must be quantified.
It is also important to remember that a company should not set too many strategic goals for a single period. The optimal number is five to seven. Formulating these goals requires considerable intellectual and emotional effort and depends heavily on the “context” — the specific situation that can be understood using various strategic analysis methods.
KPIs and Performance Metrics
Let’s return to the closed-loop model, specifically to its second component—metrics. In the rules for setting goals, we mentioned SMART. Essentially, this is the same as a KPI—a key performance indicator for a company. It naturally emerges from quantifying the current and desired states of management objects.On the one hand, a KPI must be linked to the company’s main strategic goals; on the other, to the indicators and metrics of specific processes. How do you link KPIs to the company’s performance indicators? You need to view the company as a business process diagram.A business process is a repeatedly executed, logically connected sequence of actions (tasks) aimed at creating value and/or producing a result. Every process has indicators—the outcome or value it generates (for example, sales volume is the outcome of the sales process)—and metrics that reflect the progress of the process (cycle time, process inventory, throughput, resource utilization). Every process has a specific owner, a department head, and executors.
If we imagine a company as a single high-level process and then break it down into several subprocesses, we can combine the “goal tree” with the business’s “metric tree.” This is implemented as follows: department heads, based on the overall strategy, set goals for improving their business processes and begin transforming them. It falls within managers’ purview to restructure the logic of processes, assign tasks to staff, and change the flow paths of process units. By influencing performance indicators and metrics, managers will improve the efficiency not only of individual areas of operation but also of the company’s KPIs as a whole.
Incentive System
The third component of the framework is employee motivation. It is shaped by the value generated by a given process and, accordingly, depends on the overall results of efforts to improve performance metrics.
Neither managers nor employees can assess how successfully business processes are being executed without flexible performance matrices. These matrices provide real-time insights into whether tasks are being completed effectively and in accordance with established procedures. There are numerous options for configuring these matrices. It all depends on the specifics of the processes and the value they bring to the company.
