MEASURING OUR PERFORMANCE
This organization has always had certain goals and standards to be met. What changes have you seen in recent years in the way goals and standards are being set? In the way performance toward them is being measured?
What are some of the reasons for the increased emphasis this organization is placing on quality and continuous improvement?
Some organizations set standards as “minimum expectations that must be met.” Examples: “No more than six sick days per year” or “Telephone should be answered by the fourth ring.” Other organizations see standards as maximum expectations that require stretching and great effort to attain. Example: “Each salesperson will increase next year’s total sales volume ($) by at least 20% over this year’s volume.” How are standards seen within this organization? Give examples.
Performance standards occur at many levels of the organization. At the highest level of a profit making organization, the board of directors may set certain minimum expectations of return on investment so as to satisfy stockholders. At the middle level, managers and supervisors set standards regarding the time required and the funding needed to accomplish different projects and procedures. What standards are being set or could be set by the members of a team or work group? Give examples.
When new practices, procedures, or equipment are installed in an organization, it’s difficult to set standards regarding employee performance (e.g., on error rate, time required, measures of quality). How standards set in this organization as changes in operations are are made?
Sometimes innovation and experimentation are keys to finding better ways of doing things and thereby improving the performance standards. Are employees in this organization encouraged to experiment and try out new ideas, or are such actions discouraged or even punished by supervisors? Give examples.. Copyright McGraw-Hill 2000.
Objective Setting Processes
Earlier fundamentally different approaches to planning were presented-top-down, bottom-up, combination of these two, and the team approach. In very small companies the objective setting process is generally top-down but in most other enterprises it is either a combination of top-down and bottom-up or the team approach. In small companies and in strategic business units of large corporations the objective setting process is frequently a team effort.
In larger diversified companies a pure top-down model of objective setting would be unsuitable. First, top management does not have sufficient knowledge of all the businesses in the company to establish realistic goals. Second, the typical division manager would resent being handed an objective without an opportunity to discuss its feasibility. (One practical reason for this attitude is that objective setting is a very complex process involving all sorts of trade-offs, as will be noted later.) On the other hand, there are few if any top managements willing to accept divisional objective setting without top management review and approval. For these reasons the objective setting procedure in larger companies generally involves cooperation between top management and divisional managers.
In his study of fifty firms it was found a wide variety of models that existed in practice between the pure top-down and the pure bottom-up approach to objective setting. He called them “dialogue models,” a useful description of the process. Several objective- setting patterns appeared: First, as the companies became more experienced in planning, the relationship among managers and staffs in objective-setting became more complex; Second, the larger and more diversified the company, the more complex were the relationships; finally, companies that established corporate planning offices tended to emphasize a bit more top management direction over the setting of objectives. Refer G Steiner
Methods Employed in Setting Objectives
A number of different methods are employed by businesses in establishing long-range planning objectives. The following are common practices, in no particular order of importance.
A company may examine past performance and assume that past trends will continue into the future. To base objectives on such simple trend extrapolation is a naive approach. A more sophisticated approach is to extrapolate past performance into the future and then to adjust the trend line according to forces that can alter it. Such forces, to illustrate, are industry sales forecasts, market segment forecasts, new market opportunities, competitive threats, government regulations, product obsolescence, and company resources. Company resources include capital for expansion, new product development, worker productivity, and so on.
A company can make a projection of industry trend and deter- mine the share it wishes to capture. Another approach is to calculate resources available to a company and determine possible and desirable utilization of them. For example, plant capacity will be calculated at a particular level. The greater the plant capacity used, of course, the lower the product cost per unit. Using all plant capacity will involve, of course, balance among other resources such as maintenance, employees, advertising and other promotion, and cash flow. If sales can be projected above plant capacity with any credibility then the company must determine whether it will expand. Some years ago Pendleton shirts were in great demand and the maker was faced with this question. The decision was made not to expand because the higher than normal demand was considered to be a fad, as turned out to be the case. In large decentralized companies division objectives are often set as a result of negotiation between top management and division managers.
When agreement on objectives is reached, plans to achieve them are then prepared. Top management can of course dictate objectives with or without documented analyses. There have been instances, for example, in which a chief executive said that the sales objective of his company was to grow at the rate of 15 percent a year, or some such number.
There is nothing wrong with this approach if the chief executive has a feel for what is possible in his industry. Of course, the more such a dictated objective can be supported by rigorous analysis, the better. Also, it is not generally wise to announce that such a dictated objective will hold for a long period of time. Circumstances do change and the objectives may need revision. There is much iteration in the planning process, especially between objectives and strategy. This is as it should be because strategies may not be found to achieve stated objectives. On the other hand, in the search for strategies to reach an objective, a company may discover new sources of opportunity that will justify a higher objective. Through analysis of company opportunities, threats, strengths, and weaknesses managers and staff will identify alternative objectives and strategies from which firm objectives eventually will be established for the company. As noted previously the planning process may begin with strategies. Once creditable strategies are formulated it is easy to determine the objectives that will be achieved if the strategies are properly implemented.
Trade-offs in Setting Objectives and Performance
Setting objectives is not a simple matter of determining one’s wishes and announcing them. A manager can proceed this way but most managers go through an intricate process because numerous factors must be taken into consideration in setting objectives.
To illustrate, an increase in market share may require an expansion of plant and equipment. Every company, of course, has other uses for capital so this expansion would have to be made at the expense of something else. An increase in research and development to get a new product on the market may reduce current profits but enhance long-range profits. So, there may be a reduction of dividends today with the likelihood of higher dividends in the future. Is the trade-off worth it? A company may want to increase sales to maintain employment but to do so in a particular environment may mean price reduction and profit loss.
These illustrations make it clear that it is more than likely that most important objectives set by a company will necessitate trade-off analysis in which top management and lower level managers will be involved. Objectives are finally set after trying different combinations and permutations of objectives, strategies, and tactical plans. This is what is meant by iteration.