smartKPIs.com Performance Architect update 7/2010

Setting targets, cooking steak and using thermometers

Setting targets is relatively easy if you want to make it easy – just pluck a number from the air, make it your target and strive to achieve it. However, there is more to target setting than a simple number selection.

One of the first things to be clarified when using target is why they are used. The answer might seem intuitively simple: to facilitate their achievement. Still, there are more reasons to using targets.

One of my favorite metaphors regarding using targets is the thermometer. Thermometers are used in multiple ways:

  • To check if the temperature is within certain limits. In medicine 37° Celsius / 98.6° Fahrenheit is considered the average healthy temperature of a healthy human body. In a way it can be considered a target, however a flexible one, based on a variance interval around it.
  • To ensure the temperature meets a specific value. For example, in cooking some dishes require a specific temperature to be reached as per the recipe. In this case, meeting the target temperature is required for the successful preparation of the dish.

Similarly, in other aspects of human administration, such as business, targets can be set for multiple reasons:

  • To learn – targets provide a good reference point for evaluating achievement and comparing results.
  • To motivate their achievement – as per the principles outlined by the Goal Setting Theory
  • To control / ensure compliance – to verify the achievement of a specific limit required as part of the successful delivery of a business plan.

In time, the latter two reasons worked hand in hand to overshadow the learning aspect of target setting. They work fairly well in the short term and bonuses based on meeting short term targets have become the norm in business. However, their long term impact is in many instances less positive. The Global Financial Crisis is only an example of the manifestation in practice of this thinking.

Coming back at the thermometer metaphor is as we would use thermometers only to check the temperature of the steak we are cooking (satisfying our short term hunger), having forgotten to also using them to monitor the temperature of our body, for long term health benefits. In practice (medicine and manufacturing) this is not the case – thermometers used in equal measure for learning and ensuring compliance. In business administration it is as if we have forgotten about the learning aspects of target setting… Reward and recognition driven target setting is the norm.

The implications at cultural level are important. Targets for control in many instances result in a dangerous combination of human greed and mechanistic behavior. This combination, coupled with ineffective risk management is one of the factors that contributed to the demise of many organizations in recent history. Having a good steak is generally easier and more appealing than monitoring health and learning about ourselves.

Fortunately, the body has the ability to self regulate temperature. Organizations, on the other hand don’t have a mature self-regulation system, again mainly due to the relatively low level of sophistication of organizational culture today. As a result rewards and recognition target setting seems to be a relic of 19th century management prehistory, a reflection of our inability to find the right balance in human organizations. After all, it took hundreds of years to evolve the thermometer to its current form. Scientific management has been around for less than 100. Maybe it is just a question of time.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect,
www.smartKPIs.com

smartKPIs.com Performance Architect update 5/2010

On the importance of theory in performance management

Performance management is one of those disciplines that seem to be intuitively easy. It is closely related to everyone’s life. We all hear about setting goals here, achieving targets there, implementing strategies, writing vision statements, living values and so on.

It is not the same for disciplines such as risk management and enterprise architecture – ask someone on the street a question in these fields and there is a good chance the person will be much quieter than expected. Ask the same person a question about performance management and the chances of obtaining a response are much higher.

All of us have been exposed to performance management in some form through our lives, starting with childhood. Performance management is about doing well in sports, doing well in school, playing an instrument, doing well at work and contributing to the organization we are a part of.

So intuitively we know what it is about, why it is needed and how it works. But how many times did westop to think about these aspects? Or think about the way we think about performance management? Why does it work? What happens?

Such questions have been asked mainly by researchers (as oftentimes consultants are too busy consulting and experts too busy giving advice to ponder on such esoteric questions). As a result, responses to such questions remained mostly in the realm of the academia. And one of the all time favorite terms in academic literature, almost unknown (in the academic sense) to business practitioners is: theory.

The Merriam-Webster online dictionary states the following about theory:

  • Etymology: Latin (theoria) and Greek (theoria, from theorein)
  • Date: 1592. (Note: There must have been some other term used before that time, as theories are as old as Greek philosophy.)

Of all the uses of the term mentioned by this dictionary, the ones that I prefer are:

  • 1 : the analysis of a set of facts in their relation to one another
  • 3 : the general or abstract principles of a body of fact, a science, or an art <music theory>
  • 4 a : a belief, policy, or procedure proposed or followed as the basis of action <her method is based on the theory that all children want to learn>
  • 5 : a plausible or scientifically acceptable general principle or body of principles offered to explain phenomena <the wave theory of light> (Merriam-Webster, 2010)

So why is theory important in performance management? I propose three reasons why learning and thinking about the theory behind practice is important:

1. As performance management is such an embedded discipline in our life, it impacts us more than many others. It would be beneficial to know the logic behind many of the processes and tools used for performance management initiatives. A driver with a few skills in mechanics is a better driver than the one that doesn’t have a clue that there is an engine behind the bonnet and it requires fuel.

2. Understanding the theory behind practice puts us in a better position make informed decisions and to question solutions proposed to us. Too many performance management products and ideas and promoted and taken for granted. A more informed buyer is a smarter buyer and a happier customer.

3. Critically reviewing the theory behind practice enables us to question its validity and try improving it. How can we improve and advance performance management if we keep focusing on solutions without thinking why and how these solutions work?

Perhaps theory is another item on the already heavy list of elements the Balanced Scorecard should balance. Or perhaps we’ll forget give the Balanced Scorecard a break and start balancing things ourselves… Smartly…

Either way, next time you are offered a solution don’t forget to ask the question: So, what is the theory behind this? You might get lucky and the response will put a smile on your face for the rest of the day.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect,
www.smartKPIs.com

References

Merriam-Webster Online dictionary (2010) Retrieved online on 6 February 2010 at: http://www.merriam-webster.com/netdict/theory

smartKPIs.com Performance Architect update 2/2010

Be smart about SMART goals, SMART objectives, SMART KPIs and smartKPIs

Oftentimes we take things for granted, without asking questions such as:

  • Where did this idea came from?
  • When did it originally emerge?
  • What were the conditions that lead to it?
  • Who contributed to its development?
  • How should it be used properly?
  • Why is it relevant today?

Terms such as SMART goals, SMART objectives and SMART KPIs are today part of the vocabulary in most offices from around the world. smartKPIs is a new term introduced through this website that can be useful in clarifying these concepts. Today’s post will partly address the above questions in terms of the use of the SMART acronym. It will hopefully raise further questions about the slow process of maturing of Performance Management as a discipline.

Theory base

The SMART acronym is one of the most used in business. It has its origins in the Goal Setting Theory school of thought (Locke and Latham, 2002, Locke, 2004). One of the early articles that outlined the benefits of identifying clear goals was published by Edwin Locke, considered along with Gary Latham, one of the fathers of the theory. The article cited studies demonstrating that:

  1. “hard goals produce a higher level of performance (output) than easy goals;
  2. specific hard goals produce a higher level of output than a goal of “do your best”;
  3. behavioral intentions regulate choice behavior.”

(Locke, E. A. ,1968)

Original version of the S.M.A.R.T. acronym

The popularization of the S.M.A.R.T. acronym itself started with an article published in 1981 by George T. Doran, a consultant and former Director of Corporate Planning for Washington Water Power Company, Spokane. In this article, with the title “There’s a S.M.A.R.T. way to write management’s goals and objectives”, he proposed the following criteria a S.M.A.R.T. objective should meet:

  • Specific – target a specific area for improvement
  • Measurable – quantify or at least suggest an indicator of progress
  • Assignable – specify who will do it
  • Realistic – state what results can realistically be achieved, given available resources
  • Time-related – specify when the result(s) can be achieved.

(Doran, 1981)

In addition, Doran made two important notes. First not all objectives must be measured across all levels of management, as in some instances the focus should rather be on the action plan for achieving the objective. Secondly, not every objective written will meet all five criteria. They should be rather seen as guidelines. (Doran, 1981)

SMART goals or SMART objectives

Almost 30 years on, the SMART acronym is widely popular and used. Google searches using the most common keyword combinations returned on 15 January 2010 about:

  • 138,000 results for “SMART goals”
  • 46,100 results for “SMART objectives”
  • 3,970 results for “SMART KPIs”

However, in terms of the initial intent of using the acronym, Doran (1981) inclined towards using the SMART criteria mainly for defining objectives. He acknowledges the following distinction between goals and objectives:

  • Goals represent unique beliefs and philosophies, are usually continuous and long term.
  • Objectives are seen as providing quantitative support and expression to management’s beliefs.

Considering this proposed distinction, the SMART criteria should only be applied to objectives. In practice, however the two terms are used interchangeably by organizations. Doran’s advice regarding this terminology issue is as relevant today as it was 30 years ago:

“Although it may be fashionable to debate the differences between goals and objectives in our graduate business schools, from a practical point of view the label doesn’t make any difference provided officers / managers agree on the meaning of these words. In some cases, goals are short-term and objectives are long-term. In others, the opposite is true. To other organizations, goals and objectives are synonymous. Time should not be wasted in debate over these terms. The important consideration is not to have the label get in the way of effective communication.” (Doran, 1981).

On SMART Key Performance Indicators (KPIs)

While there are many examples of objectives that are incompletely defined and don’t meet the SMART criteria, in the case of KPIs things are different. By its own nature and definition, a KPI is an indicator of performance with the following inherent characteristics:

  • Specific – it has to be specific to an area as it is linked to a process, functional area or preferably an objective, making it a SMART Objective
  • Measurable – it has to be measurable, otherwise it won’t indicate anything
  • Assignable – unless is assigned, it will not me measured
  • Realistic – setting targets is inherent in the documentation and use of KPIs.
  • Time – it is implied in the measurement process

So a KPI shouldn’t even be called KPI if the smart criteria are not met. For this reason, the term SMART KPI is in a way doubling up on the SMART criteria.

smartKPIs

smartKPIs is a term introduced by www.smartKPIs.com to describe the most relevant KPIs in use by organizations, KPIs that are truly “Key” for improving business performance. The term “KPI” has been used with largesse over time and it almost replaced the term “performance measure”. Every KPI is a performance measure, but not all performance measures are KPIs. There are hundreds of measures monitored by organizations, but only a few can be considered “Key”.

Out of these few, there is an even smaller number that is widely used across businesses, for good reasons. They are the “usual suspects” such as:

  • % Customer satisfaction
  • % Employee engagement
  • $ Total revenue
  • $ Net profit
  • % Projects delivered on time, on budget and according to scope

The criteria for smartKPIs are:

  • Being recommended for their usefulness in academic and practitioner publications
  • Frequency of use across Functional areas and Industries
  • Fulfillment of the criteria of how good KPIs should be defined and used.

Considering the “inflation” of KPIs in today’s business environment, identifying these smartKPIs will simplify the selection of relevant KPIs. It will also improve communication by enriching and clarifying a rather confusing glossary of terms that Performance Management as a discipline inherited over time.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect,
www.smartKPIs.com

References

Doran, G. T. (1981) “There’s a S.M.A.R.T. way to write management’s goals and objectives”, Management Review, Vol. 70, Issue 11, p35-36, 2p.

Locke, E. A. (1968) Toward a Theory of Task Motivation and Incentives., Organizational Behavior & Human Performance, Vol. 3, Issue 2, p157-189, 33p

Locke, E. A. (2004). “Goal setting theory and its applications to the world of business”, Academy of Management Executive, Vol. 18, No. 4.

Locke, E. A. & Latham G. P., (2002). “Building a Practically Useful Theory of Goal Setting and Task Motivation”, American Psychologist, Vol. 57, No. 9, 705–717.