If everyone in the group pursues their own goals, it will be impossible to succeed.
It is extremely important that the actions and objectives of all departments in a company, no matter how large, are harmonised and focused on a single result. However, it is worth noting that the goals do not have to be the same, they can and should be different, as each department, service and employee has their own roles, responsibilities and functions.
The idea of management by objectives was first documented by Peter Drucker in 1954.
Below we will tell you about it, the KPI system and how you can automate such a management system.
Definitions
Management by objectives is a way of managing a company in which each structural unit and individual employee is given objectives that are aligned with the company’s objectives. At the same time, each objective should be achievable and measurable, so that the final result can be compared with a certain benchmark and, based on this, the remuneration for the work (contribution to the common cause) can be calculated.
A small number of objectives are usually set — no more than 3-5. They are formulated according to the SMART criteria. This means they should be relevant, specific, achievable, with clear deadlines and, most importantly, measurable.
Understanding the ‘task benchmark’ is the crux of any planning exercise. The clearer you can visualise the outcome of the work to be done, the more accurate and appropriate the outcome will be.
How do you measure efficiency? There may be different ways, we have a separate material on this topic — Criteria for assessing employee performance.
But the authors of the idea of management by objectives relied on the KPI system.
KPIs are key performance indicators, i.e. criteria for evaluating the work and actions of individual employees, departments, services and even companies as a whole, which have a clear numerical expression and the possibility of comparison with the planned value. KPIs make it possible to determine with a high degree of reliability the degree of achievement of set goals.
If the result cannot be assessed in terms of specific figures, percentages are used as a conditional assessment.
The KPI model can use various concepts defined in common management systems, such as EVA indicators, quality management, competence management, strategic maps and others.
What are the results of implementing a system of management by objectives and KPIs?
Correctly agreed goals stimulate growth and development in the right direction. Most internal processes become controllable.
Management processes become more transparent, each employee and manager of a department or service knows the goals of their work and understands how their earnings (usually the incentive part) depend on achieving them.
It becomes advantageous for employees to help each other achieve goals, and everyone wins in the end.
There is also a personal interest, which means increased motivation.
Top management and business owners get an effective evaluation and monitoring system. It becomes easy and simple to assess the quality of the work of the entire organisation or an individual unit.
The management system can be automated to a large extent. And automation means potential cost reduction and increased productivity.
How to automate the management system with goals and KPIs
It is important to understand that a company or organisation must first mature to the point where it can move to management by objectives and key performance indicators.
And this is a serious process. Desire alone is not enough.
First, the system needs to be implemented, which means training managers and frontline professionals, which takes time and resources (people will be absent from their jobs for the duration of the training, the services of implementation partners will be required, etc.). This is serious organisational work and a global plan agreed at all levels of the company. And the bigger the company, the more complex this plan will be.
Secondly, it may be necessary to install special systems and/or hardware/software complexes in the field to collect the data required for further analysis and evaluation — the key indicators. For example, counting the number of production units, downtime, waste, etc. Some employee activities are more difficult to evaluate, for example in marketing and sales departments or in retail outlets. For these, the key indicators can be partly formed manually by the first-line managers.
Thirdly, the system needs to be balanced and aligned with the objectives of the business, individual services, departments and even employees.
Fourthly, a budget needs to be allocated: you need to pay for software, implementation, training, etc.
Benefits of automating KPI collection
- Errors in data collection and entry are reduced.
- The likelihood of falsifying performance appraisal results (to obtain higher payments) is reduced. Requires specialised technical knowledge.
- Data can be collected in near real time.
- No ambiguous interpretations or misunderstandings. All assessments are objective.
- At the same time, the necessary evidence base is created (in case of detection of deficiencies and other breaches included in the assessment).
- The burden on management is reduced. Managers can devote this time to other more important tasks.
- Accumulated data provides a sound basis for future analysis. Statistical data can be used for planning, justifying conclusions and more.
- Together with the software for collecting indicators, you can get a number of support functions for working with business processes: collaboration application, task accounting, access control and management system, etc.
- Management activities and many interaction processes are standardised, i.e. brought into a single format.
- Such systems can be integrated with other business software in the company, such as accounting software.
Should you design and implement a goal-based management automation system yourself?
Such control systems, on the one hand, are highly personalised when implemented at a particular enterprise, but on the other hand, developing them independently is a huge amount of work.
It’s all about what it requires:
- Experience in the development of software products.
- Experience in integrating software with hardware: sensors, controllers, workstation input devices, etc.
- Large amount of time and qualified programmers.
- Experience of integration in a specific company (software customisation).
- Creation of documentation for users and administrators.
- Time and money to maintain the operability of the system.
All of this depends on the financial and intellectual resources of the organisation. If a company has its own IT department capable of developing and supporting such a system, then the introduction of automated management by objectives and KPIs may be financially justified.
However, it is much easier to take an off-the-shelf management system and implement it in-house. This will save you time and initial investment, and you will be able to outsource the necessary tasks. For example, if there are problems and downtime, there will be someone to ask if it is covered by the support contract.
Mass systems are easy to adapt in the field, they have been running in other companies for a long time, so the likelihood of problems and errors is extremely low, rather there will be small rough edges.
Whether it is worth implementing performance management systems in small businesses
Rather than summarise, let us say that the cost of purchasing and implementing off-the-shelf software systems for automating KPI and target management is such that only large and medium-sized market players can afford the investment. These are mainly manufacturing companies and groups.
For small businesses, such systems will be an unjustifiably expensive investment. They will not deliver the efficiency expected of them.
It will be much easier and cheaper to implement simpler BPM systems, schedulers, project management systems, for example Projecto.
