Setting measurable goals is not a new technique in management. While qualitative goals are reasonable, quantifying them makes reviews more easy and fair. No room is left for interpretation when the numbers are clearly set and reviewed. Or as management consultant, educator and author Peter Drucker used to say: “What gets measured gets managed”.
But which measures should be used when evaluating an employee? There are various proven concepts out there, like KPIs, MBOs and OKRs. But what do all these abbreviations really mean and which is used in what context?
Key Performance Indicators, short KPI, have been around forever. They give information about success, performance and capacity of a company, a department or a certain machine. They are very popular in accounting. Much used metrics involve Return on Investment (ROI) or Return on Equity (ROE). KPIs are a very good basis for investment decision regarding machines. E.g. looking at the total order volume and the capacity of machine 1, does it pay off to buy machine 2? Since KPIs were not developed for HR purposes, they have their limitations in this department. They are a good match in project management or sales where qualitative goals are at center.
MBOs try to combine qualitative and quantitative goals. Using a top-down approach the employee objectives are oriented on the overall company goals. The company goals will mostly be qualitative, like e.g. become market leader in IT management solutions. The leaders within the company, e.g. CEO, department heads, need to be aware of those overall goals in order to set the objectives for their employees. Best Practice recommends 1 to 3 challenges per employee. These challenges should be demanding and require high-skills of your employees. Don’t set objectives that are too easy to achieve. Then, the last step is to check if the objectives are quantifiable in order to review them later on.
The management system Objectives and Key Results (OKRs) follows a similar logic as MBOs. Based on qualitative objectives, quantitative key results are set. Thereby key results path the way on how to achieve a certain set objective and how to measure its success. In other words, key results make the progress behind an objective visible. Qualitative key results will measure milestones by criteria like stage of completion, while quantitative key results measure certain metrics (e.g. number of sales in Q1). Rather than describing activities they should describe desired outcomes. One big difference to the MBOs is the consideration of contributing goals. Rather than being subservient goals, they are usually as important as key results but simply not owned by the key employee. So let’s say, the sales manager needs to increase the market share by 15 percent - that would be the key result. In order to make this goal happen, the sales manager cooperates with various department heads inside the company, e.g. the marketing manager. A contributing goal could be: Increase publicity efforts by 25 percent. Both goals are essential for the companies success, they just executed by different roles within the company.
Reviewing performances should be an ongoing process. Although many organizations have the compulsory performance reviews once a year, manager and employee should establish a review cycle that is much shorter and more frequent. That way problems can be detected faster and counteracted easier. On top of that, we live in very unpredictable times. Setting goals at the beginning of the year and clinging to them, come what may, for 12 months is not only risky but also naive. Depending on the department and the defined tasks, it makes sense to review at least on a quarterly basis. It could even make sense to do short weekly or monthly meetings for a quick update. Although frequent reviews may feel like more time-consuming, in the end they often turn out to be more efficient. Firstly, because problems can be addressed faster and kept at bay and secondly, because weekly 15 minutes meetings feel less of an effort than, e.g. having a 8 hours meeting half way through the project.
Depending on your company structure, your goals and your specific industry, KPIs, MBOs and OKRs will help you set your employees on common objectives and optimize your outcome. Instead of setting a task, you set a certain target that needs to be achieved. Especially in times where tasks pile up faster than they can be worked through, the right setting of priorities has become crucial for success. KPIs, MBOs, OKRs help the employee to orientate themselves towards set key results. Thus, they will be able to decide on priorities themselves, making coordination meetings with their manager less frequent - saving time and money. Especially considering a good mix of qualitative and quantitive goals has become a good strategy for success.
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