Thursday, February 17, 2011

Leadership Skills

At the age of seven, a young boy and his family were forced out of their home. The boy had to work to support his family. At the age of nine, his mother passed away. When he grew up, the young man was keen to go to law school, but had no education.

At 22, he lost his job as a store clerk. At 23, he ran for state legislature and lost. The same year, he went into business. It failed, leaving him with a debt that took him 17 years to repay. At 27, he had a nervous breakdown.

Two years later, he tried for the post of speaker in his state legislature. He lost. At 31, he was defeated in his attempt to become an elector. By 35, he had been defeated twice while running for Congress. Finally, he did manage to secure a brief term in Congress, but at 39 he lost his re-election bid.

At 41, his four-year-old son died. At 42, he was rejected as a prospective land officer. At 45, he ran for the Senate and lost. Two years later, he lost the vice presidential nomination. At 49, he ran for Senate and lost again.

At 51, he was elected the President of the United States of America.

The man in question: Abraham Lincoln."

Many of us are acquainted with this eloquent example of persistence and determination in achieving victory. We read it, stop for a moment and then sigh and say: "Wow! That's the stuff real leaders are made off."

And in saying this, it's all too easy for us to think about leaders like Lincoln almost as "mythological creatures", separate from the rest of humanity and empowered by some mysterious quality that smoothes their path towards inevitable success. This is the view of leadership that many people have traditionally taken: That leaders are marked out for leadership from early on in their lives, and that if you're not a leader, there's little that you can do to become one.

However, that's not the way we see it now. The modern view is that through patience, persistence and hard work, you can be a highly effective leader.

Friday, February 11, 2011

Management by Objectives (MBO)

Motivating people by aligning their objectives with the goals of the organization

For many people working in modern business environments, it's hard to remember a time when non-managerial employees weren't involved with, and interested in, corporate strategy and goals. We are regularly reminded about the corporate mission statement, we have strategy meetings where the "big picture" is revealed to us, and we are invited to participate in some decisions. And we're aware of how our day-to-day activities contribute to these corporate goals.

This type of managing hasn't been around forever: It's an approach called Management by Objectives; a system that seeks to align employees' goals with the goals of the organization. This ensures that everyone is clear about what they should be doing, and how that is beneficial to the whole organization. It's quite easy to see why this type of managing makes sense – when the parts work in unison the whole works smoothly too. And by focusing on what you're trying to achieve, you can quickly discriminate between tasks that must be completed, and those that are just a waste of valuable time.

Management by Objectives was introduced by Peter Drucker in the 1950s and written about in his 1954 book, The Practice of Management. It gained a great deal of attention and was widely adopted until the 1990s when it seemed to fade into obscurity.

Partly, the idea may have become a victim of its own success: It became so much a part of the way business is conducted that it no longer may have seemed remarkable, or even worthy of comment. And partly it evolved into the idea of the Balanced Scorecard, which provided a more sophisticated framework for doing essentially the same thing.

Using Management by Objectives

Peter Drucker outlined the five-step process for MBO shown in figure 1, below. Each stage has particular challenges that need to be addressed for the whole system to work effectively.

These steps are explained below:

1. Set or Review Organizational Objectives

MBO starts with clearly defined strategic organizational objectives (see our article on Mission and Vision Statements for more on this.) If the organization isn't clear where it's going, no one working there will be either.
2. Cascading Objectives Down to Employees

To support the mission, the organization needs to set clear goals and objectives, which then need to cascade down from one organizational level to the next until they reach the everyone.

To make MBO goal and objective setting more effective, Drucker used the SMART acronym to set goals that were attainable and to which people felt accountable. He said that goals and objectives must be:

* Specific
* Measurable
* Agreed (relating to the participative management principle)
* Realistic
* Time related

Notice the "A" in SMART is "agreed." This is sometimes referred to as "achievable" but, with MBO, agreement about the goals is a critical element: It's not enough for the goals and objectives to be set at the top and then handed down. They must flow, or trickle, down through various stages of agreement. The only goal that is going to be met is one that is agreed on. How much easier is to get buy in when the person responsible for achieving the goal had a hand in developing it?

For each objective, you need to establish clear targets and performance standards. It's by using these that you can monitor progress throughout the organization. These are also important for communicating results, and for evaluating the suitability of the goals that have been set.

3. Encourage Participation in Goal Setting

Everyone needs to understand how their personal goals fit with the objectives of the organization. This is best done when goals and objectives at each level are shared and discussed, so that everyone understands "why" things are being done, and then sets their own goals to align with these.

This increases people's ownership of their objectives. Rather than blindly following orders, managers, supervisors, and employees in an MBO system know what needs to be done and thus don't need to be ordered around. By pushing decision-making and responsibility down through the organization, you motivate people to solve the problems they face intelligently and give them the information they need to adapt flexibly to changing circumstances.

Through a participative process, every person in the organization will set his or her own goals, which support the overall objectives of the team, which support the objectives of the department, which support the objectives of the business unit, and which support the objectives of the organization.

In an MBO system, employees are more self-directed than boss-directed. If you expect this type of independent performance from employees, you have to give them the tools they need.

Once you have established what it is that someone is accountable for, you must provide the information and resources needed to achieve results. You must also create a mechanism for monitoring progress towards the goals agreed.

4. Monitor Progress

Because the goals and objectives are SMART, they are measurable. They don't measure themselves though, so you have to create a monitoring system that signals when things are off track. This monitoring system has to be timely enough so that issues can be dealt with before they threaten goal achievement. With the cascade effect, no goal is set in isolation, so not meeting targets in one area will affect targets everywhere.

On the other hand, it is essential that you ensure that the goals are not driving adverse behavior because they have not been designed correctly. For instance, a call centre goal of finishing all calls within seven minutes might be useful in encouraging the staff to handle each call briskly, and not spend unnecessary time chatting. However, it might be that customers' calls were becoming more complex, perhaps because of a faulty new product, and call centre operators were terminating the call after 6 minutes 59 seconds in order to meet their target, leaving customers to call back, frustrated. In this situation, the monitoring process should pick up the shift in the goal environment and change the goal appropriately.

Set up a specific plan for monitoring goal performance (once a year, combined with a performance review is not sufficient!) Badly-implemented MBO tends to stress the goal setting without the goal monitoring. Here is where you take control of performance and demand accountability.

Think about all the goals you have set and didn't achieve. Having good intentions isn't enough, you need a clear path marked by accountability checkpoints. Each goal should have mini-goals and a method for keeping on top of each one.
5. Evaluate and Reward Performance

MBO is designed to improve performance at all levels of the organization. To ensure this happens, you need to put a comprehensive evaluation system in place.

As goals have been defined in a specific, measurable and time-based way, the evaluation aspect of MBO is relatively straightforward. Employees are evaluated on their performance with respect to goal achievement (allowing appropriately for changes in the environment.) All that is left to do is to tie goal achievement to reward, and perhaps compensation, and provide the appropriate feedback.

Employees should be given feedback on their own goals as well as the organization's goals. Make sure you remember the participative principle: When you present organization-wide results you have another opportunity to link individual groups' performances to corporate performance. Ultimately this is what MBO is all about and why, when done right, it can spur organization-wide performance and productivity.

When you reward goal achievers you send a clear message to everyone that goal attainment is valued and that the MBO process is not just an exercise but an essential aspect of performance appraisal. The importance of fair and accurate assessment of performance highlights why setting measurable goals and clear performance indicators are essential to the MBO system.

Repeat the Cycle

Having gone through this five-stage process, the cycle begins again, with a review of the strategic, corporate goals in the light of performance and environmental monitoring.

When you reward goal achievers you send a clear message to everyone that goal attainment is valued and that the MBO process is not just an exercise but an essential aspect of performance appraisal. The importance of fair and accurate assessment of performance highlights why setting measurable goals and clear performance indicators are essential to the MBO system.

Tip 1:
Implemented on a team level, MBO shows itself in clear team briefing, in effective goal setting, in successful use of reviews, in effective delegation and in the giving and receiving of feedback. These are many of the key techniques needed for effective team management.

Tip 2:
Implemented on an organizational level, MBO needs the full commitment of the organization, and an underlying system for tracking goals and performance. Because goals must be transmitted from level to level with agreement, goal transmission can inevitably be slow. Full implementations of MBO can therefore be slow and difficult, particularly if non-accounting-based goals are included. This is perhaps why MBO has evolved into the idea of the Balanced Scorecard: MBO on its own may too-easily slip into being nothing more than a financial management mechanism.

Tip 3:
MBO is essentially a managerial process. Don't use it as a substitute for good leadership: The two should work together!

Tip 4:
There's so much more to motivating people than using MBO! Take our How Good Are Your Motivation Skills? self-test to find out which aspects of team motivation you can improve on.

Key Points

Management by Objectives is a powerful tool for aligning employees actions with an organization's goals.

Its overarching premise is that of employee empowerment. By empowering employees to take responsibility for their performance and allowing them to see how their achievements impact the organization as a whole, you increase people's motivation, dedication, and loyalty. When you bring that full circle and link performance to evaluation and appraisal, you have a strong system that supports and values employees and facilitates great performance.

Performance Management and KPIs

Linking Activities to Vision and Strategy

Managers talk a lot about employee performance. There's constant pressure to achieve performance targets, to reach higher performance levels, and to ensure that people's work supports and furthers the organization's goals.

Performance management is the process used to manage this performance. The key question asked is, "How well is an employee applying his or her current skills, and to what extent is he or she achieving the outcomes desired?"

The answer has traditionally been found in the performance evaluation process, where managers look for hard data to tell how well an employee has performed his or her duties.

What is often missing from this evaluation, however, is the part about making sure that the employee is doing the right thing. After all, you may have a very hard-working and dedicated team member, but if he or she is not working on things that advance the organization's purpose, what is the point?

This is where key performance indicators come into play, and they apply both at the organizational and individual levels. At an organizational level, a Key Performance Indicator (KPI) is a quantifiable metric that reflects how well an organization is achieving its stated goals and objectives.

For example, if your vision includes providing superior customer service, then a KPI may target the number of customer support requests that remain unsatisfied by the end of a week. By monitoring this, you can directly measure how well your organization is meeting its long-term goal of providing outstanding customer service.

If your KPI is inappropriate or naïve, however, the resulting behaviors may be counterproductive. For example, using the same goal of providing superior customer service, the first KPI that often comes to mind is the number of customer complaints received. Intuitively, you may feel that the fewer complaints you receive, the higher the customer service you're offering. This is not necessarily true: You may be getting fewer complaints because you have fewer customers, or because customers are not able to access your support services.

Taking this a step further, while it is important for organizations to choose the correct KPIs for business performance, it is equally useful if managers and employees define KPIs for members of their teams. In fact, an ideal situation is where KPIs cascade from level to level in the organization (in reality, this may be impractical if there are many levels to the organization.) This helps people work in such a way that their activities are aligned with corporate strategy.
Employee Goals and KPIs

So part of performance management is setting goals with members of your team. This may be done within the formal appraisal process, but it doesn't have to be. The important factor is that the goals that are set are aligned with the department's strategy, which in turn is aligned with the overall strategy of the organization.

This follows the common adage in management that says, "What is measured gets done." If you set a goal around a certain outcome, the chances of that outcome occurring are much higher, simply because you have committed to managing and measuring the results.

When an employee's goal is defined in terms of an organizational KPI, it ensures that what the employee is doing is well aligned with the goals of the organization. This is the critical link between employee performance and organizational success.

Let's take an example of how an individual employee's goal is linked to organizational strategy:

* Organizational Vision – To be known for our superior customer service and satisfaction.
* Organizational Objective – To reduce the number of disatisfied customers by 25%.
* Organizational KPI – The number of customer complaints that remain unresolved at the end of a week.
* Team Member's Goal – To increase the number of satisfactory complaint resolutions by 15% this period.

Taken to the next level, each employee goal should have at least one associated KPI. How will you specifically measure, on a regular basis, whether or not this person is meeting his or her goal?

* Team Member KPI – The weekly percentage difference in complaints handled that result in satisfied customers versus unsatisfied customers.

For a detailed discussion on setting strategic direction, see the Strategy Tools section of Mind Tools. Of particular relevance is the article on Critical Success Factors (CSFs) as KPIs are essentially a way of making CSFs measurable.

Use the following questions to help you work towards defining effective KPIs:

Understanding the context

* What is the vision for the future?
* What is the strategy? How will the strategic vision be accomplished?
* What are the organization's objectives? What needs to be done to keep moving in the strategic direction?
* What are the Critical Success Factors? Where should the focus be to achieve the vision?

Defining KPIs

* Which metrics will indicate that you are successfully pursuing your vision and strategy?
* How many metrics should you have? (Enough, but not too many!)
* How often should you measure?
* Who is accountable for the metric?
* How complex should the metric be?
* What should you use as a benchmark?
* How do you ensure the metrics reflect strategic drivers for organizational success?
* How could the metrics be cheated, and how will you guard against this?
* What negative, perverse incentives would be set up if this metric was used, and how will you ensure these perverse incentives are not created?

KPIs and Rewards, Recognition, and Development

When you are satisfied that you have meaningful metrics for measuring organizational or employee performance, you now have to make sure that the supporting elements of employee performance are aligned as well.

Just as what gets measured, gets done; so does what gets rewarded!

When you are establishing your rewards and recognition practices, make sure that what you are rewarding ties directly to the KPIs you set. For example, if you are measuring people on how well they deal with customer complaints, then rewarding them for lowering numbers of complaints confuses the message you're trying to send.

Conversely, if your organization wants to attract new customers, then you might have a KPI that measures how many new customers are attracted each week. Depending on the situation, a well-aligned performance system may reward employees based on the number of new customers they personally help to attract.

Tip 1:
Use of formal performance measures is one approach to managing performance. However, don't forget the importance of inspiration and good leadership! For more on this, click here for the Mind Tools Leadership Section.

Tip 2:
For more on performance management, see our articles on the Balanced Scorecard, Feedback, and 360° Feedback.

Key Points:

KPIs are metrics that link organizational vision with individual action. If you think of strategic practice as a pyramid, as shown in Figure 1 below, with vision at the top and actions at the bottom, in the middle you find the KPIs that have been derived from the strategy, objectives, and critical success factors of the organization.

Below the KPIs are the activities and projects that are pursued by the organization in an attempt to achieve the KPIs.

To ensure that these activities are in fact aligned with the organization's strategy, you need to concentrate on what the employees are actually doing. You do this through performance management. By applying the principle of KPIs to employee goals and performance, you create a direct link between all of the key success factors that have been derived from the overall strategy. The result is that members of your team actually do what they should be doing, and that your measurements for determining how well they are doing are clearly tied to organizational success.