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Goal setting and Performance Measurement must be as old as the civilization, though these may not have been recognized as such. It is attributed that performance appraisal practices probably date back to the third century when the emperors of the Wei Dynasty (221 – 265AD) in China used defined methods to rate the performance of state officials. The performance during agriculture age could not be measured properly due to divine factors like rain and sun which played critical roles. With the advent of industrialization, the matter of performance became important. For a long time, the labor was considered as one of the materials and it was considered necessary to measure the output of every individual. Robert Owen of Scotland measured of workers at his cotton mills through the use of ‘silent monitors’ which were cubes of wood painted with different colors on each face. As manual labor was replaced by knowledge workers, the need for performance grew stronger. Confidential reporting was combined with self-assessment to make it more meaningful. During the 1990s, individual performance assessment was reshaped by two key trends: first was the popularity of self-assessment of performance, followed by feedback session with the managers; second was the integration between corporate strategic performance management and individual performance,
During the first decade of 20th century, Frederick Taylor developed the concept of scientific management. His ideas were further advanced by Frank and Lillian Gilbreth who evolved their famous time and motion theory.
A turning point in the evolution of strategic management and strategic performance management was Peter Drucker’s publication of “Concept of Corporation’ in 1946. In the mid 1990s, Kaplan and Norton introduced Balanced Score Card – BSC, as a performance management tool to be used by the organizations to capture value creating activities from an organization’s intangible assets, besides financial measures. BSC was further evolved as a tool then as a system, then again as a tool in the system of KPIs.
With this brief preamble, we go on to look at four performance measurement tools which are in use today.
Management by Objectives – MBO
MBO was probably invented quite early, however, it was popularized by Peter Drucker in his 1954 book ‘The Practice of Management’. The method continued to be developed for the next several years.
MBO is a simple method in which the employees and their managers set specific work-related objectives, and the actions which would be taken to achieve these objectives. The actions are integrated and incremental, and the employee can follow these in sequence. For example, a business objective of achieving sales of 100 million rupees is set, and then various steps to achieve this figure are worked out. The team members share the same objective with the difference in the figure only. For example, the corporate figure is 100 million while one individual’s figure is 2 million. The corporate would cover 5,000 customers while the individual would contact only 100 out of that.
MBO is mainly about quantitative, tangible things. Usually, it does not take into account qualitative aspects. Even the outcome is accepted without arguing about the way it was achieved.
MBO is preferred for the organizations whose business is less complex, and who are embarking upon the performance management system. It has its shortcomings, but it makes a good beginning to bring everyone on board.
SMART is an acronym for Specific, Measurable, Achievable, Realistic, and Timebound. The term SMART goals was first popularized by George Doran in a Management Review issue in 1981. It is also argued that the original inventor of SMART concept was Paul Myer, who used it in his ‘Personal Success Planner’ in 1965.
Over the years, different variations to each letter of acronym have been done by various workers, such as Assignable or Agreed Upon in place of Achievable; Result-focused in place of Realistic; and Trackable in place of Timebound.
Specific means that one objective shall focus on one target area. For different target areas, different objectives shall be set.
Measurable means the objective shall be tangible and calculable thereby verifying the achievement or otherwise. It would be indicators and milestones.
Achievable means the objective should be reachable with a degree of effort. It should neither be impossible to achieve nor too easy to reach without effort.
Realistic means the objective should be based on the available resources and on market realities.
Timebound means the objective must have clear timeframe for achievement.
SMART is used more as a reminder while objectives are being set in any system, rather than a system itself. For example, while setting objectives in MBO, the participants are reminded to set SMART objectives. In that sense, it has become a gold standard for setting objectives.
Key Performance Indicators – KPIs
Presently, KPI system is the most commonly used system for setting and following objectives. Balanced Score Card system preceded KPIs. KPIs system measures how successful a business is, or how productive an employee is, through a set of quantifiable parameters. The objectives and the parameters are set at the same time, usually at the beginning of the business year.
The initial custodians of KPI system were finance because all activities that take place in an organization ultimately lead to finance. However, it was a rather restricted view, and the baton has been passed on to HR in most organization.
Key Performance Indicators are somewhat more complex, and their implementation takes time. The KPIs must be clear, transparent, and relate to both the current work and the developmental pursuits. This is where some issues arise in understanding and designing appropriate KPIs.
Despite the difficulties, KPIs remain the best available option at present for large, complex, multistage organizations.
Objectives and Key Results – OKR
One of the three founders of Intel, the most famous company for computer processors, Andy Grove is credited with developing OKR system. He implemented it in Intel and later taught it at Stanford. John Doerr worked with Andy Grove at Intel for over ten years and learned and used OKR there. When he switched to Google in 1999, he took the system there, where it was adopted and is still used.
OKR has two components: Objective is a detailed description of what the company wants to achieve; and Key Results are quantifiable values to measure progress.
Apparently, OKR resembles KPI or MBO systems, but the devil lies in detail.
OKR encourages thinking outside the box, be unconventional, and have aggressive timelines. The timelines in OKR are kept short so that measurement is done more frequently.
There are fewer practitioners of OKR as it requires greater understanding.
All four systems have their pros and cons. The organization may pick up the one which suits them better. The real key is to make sound objectives with the spirit to achieve the same.
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