Ch6 Performance, Objectives and targets
Syllabus:
1(f) objective setting
1(h) standard setting and performance management
1 Introduction to control sys.
standards of performance
Plans and standards
Actual performance
Comparison of performance and standard
On target, no corrective action required
Deviations identified
control action
control action
2 Need for objectives
mission
goals
objectives
strategy
tactics
operational plans
All-embracing
General
Specific
Detailed targets
Implementation targets
Action targets
Hierarchy of plans
Mission
Four elements of mission (see P87)
A mission statement is either a description of the pervading culture of an organization or a strategic tool, a discipline that forces managers to think carefully about the goals they should be pursuing.
Goals and objectives
Definitions:
Goals are the intentions behind decision or actions.
Objectives are operational and quantitative goals.
Characteristics of objectives—SMART (see P87)
Purpose of objective setting (see the details in P88 )
Implement the mission
Publicize the direction of the organization to managers and staff
Appraise the validity of decisions about strategies
Assess and control actual performance
3 Profit and other objectives
Primary objectives—Profitability
Secondary objectives
— market standing
— productivity
— innovation
— employees and management
— public responsibility
Drucker’s classification of objectives
Factors against profit maximization
Separation of management and ownership (Cyert & March proposed a consensus theory or coalition theory of company objectives, in which the objectives pursued by an organization represent a compromise between objectives of various groups within the organization, including shareholders and directors. Business is seen as a ‘satisfier’ rather than ‘maximiser’)
Responsibilities and constraints (companies have obligations to groups other than shareholders, employees, customers and the public at large)
— Internal constraints: improving the welfare of other groups
— External constraints: legislation, etc.
Conflict between long and short term a company might be able to improve its profit in the long run by sacrificing some profit in the short term, . by spending on product developmnt.
Stakeholders approach
This approach suggests that the objectives of an organization should be derived by balancing the often conflicting claims of the various stakeholders in the organization.
Stakeholders: coalition of people within the organization and external groups.
Bowen proposed the idea of a social audit, to establish the needs and expectations of the various stakeholder groups that had been satisfied. Similar ideas were expressed by Humble with his social responsibility audit.
Cybert & March — behavior approach
Quasi-revolution of conflict: an organization is a coalition of conflicting interests
Uncertainty: something with which all organization must live
Problemistic search: used to determine which choices are thought to be available
Organizational learning: takes place when individuals are involved in the decision-making process
4 features of the decision-making process explain how decisions are arrived at:
organizational and personal objectives
Totally opposing
Partially opposing
Neutral
Compatible
Identical
An organization’s objectives almost always include financial objectives. Individual employees also have their own objectives (needs and aspirations).
There are a number of possible relationships between organization objectives and the individual objectives of those working for it.
4 Ethnics and Social responsibility
Definitions:
Ethnics are the moral principles by which people act of do business.
Social responsibility are actions which the organization is not obliged to take, taken for the well-being of stakeholders and the public.
Need for organization to take ethnical and social responsibility
Organization have to be responsible in these areas in order to retain public support for its products.
Gain a reputation as socially responsible employers to retain high quality employees.
Rely on the society for access to facilities, business relationships, media coverage, labor, supplies, customers etc.
Law, regulations and Codes of Practice impose certain responsibility on orga.
List of ethnical responsibilities
To shareholders: exercise of good faith
To society: concern for environment
To minority groups
To employees: existing, potential and past
To loan groups
To customers: honest ads
To suppliers: meeting agreed payment terms
Neighbor responsibility: immediate vicinty
Social responsibility of business is profit maximization
Enlightened self interests
Externalities
Managers and shareholders are citizens, too
Social sys. not just economic sys.
Business ethnics
Ethical values
Against social responsibility
For social responsibility
5 Personal objectives
Types of objectives for individuals and teams (see P96)
Methods to integrate organization’s and individual’s objectives— Management by Objective (MBO)
MBO is undertaken to permit individuals to establish objectives through which they can determine their contribution to the corporate objectives, as well as to their own personal ones.
The process of MBO is one in which managers or supervisors agree specific, measurable goals with each employee on a regular basis. The employee is then responsible for attaining these goals within a certain time. After this time, employee and superior meet to discuss results and establish new objectives.
Stages of MBO
Define main areas of responsibility and performance for each position
Agree and define key result areas (KRA). These are areas where an individual’s failure to perform would damage an important company objective.
Develop a means of measuring performance in KRAs.
Define one or two improvement objectives for each KRA
Review periods planned where manager and subordinates can discuss progress at regular intervals.
Results will be compared to objectives and a factual, constructive discussion will attempt to find the reasons for shortfalls.
performance measures for individuals
Lob-related
Controllable
Objective and observable
Data must be available
Principles to devise performance measures:
6 Performance management
Definition:
Performance management is a means of getting better results by understanding and managing performance within an agreed framework of planned goals, standards and competence requirements. It is a process to establish a shared understanding about what is to be achieved, and an approach to managing and developing people so that it will be achieved. (must remembered)
Process of performance management
Features of performance management (see table on P99)
Business plan and annual goals
Job description and essential functions
Standards of performance
Performance observation and feedback
Performance development plan
Performance evaluation
Giving the reviewed ratings and performance standards for each position
Throughout the evaluation period, performance manager observes and provides behavioral feedback on performance of the employee.
During the period, create a plan for employee training or development if necessary.
At the end of evaluation period, performance manager produces a final copy of written performance evaluation
Performance evaluation is a process of assessing, summarizing and developing the work performance of an employee.
Establishing performance indicators
Consistent with organizational objectives
Realistic
Specific
Measurable
Challenging
dynamic
Features of performance indicators:
Methods to develop written performance standards
Directive approach: performance manager writes standards in consultation with management and employee union representative.
Collaborative approach: the employees work with performance manager to develop the standards for their positions. (better method because both parties bring valuable info. to the process and the end result is more likely to be supported by everyone involved).
Responsibilities of managers in personal development process
Assessment
Providing information
Referral
Guidance
development
performance-related pay
Piecework or payment by results: employees are paid according to their output.
Measured day work: employee is under an obligation to achieve the level specified so that pay does not vary from week to week
Commission: paid on sales achieved
Productivity plans: extra payment based on the success of reducing costs, increasing production or expanding sales.
Profit-sharing: company-wide scheme
Incentives can be built into payment schemes via:
Performance-related pay will motivate only if the prospective payment is significantly large in relation to the normal income of that person.
