Managers need to do many things, but clarifying business objectives, and deciding key performance indicators (KPI) to measure against those objectives, is crucial to helping businesses operate more effectively and profitably. It may, or may not, come as a surprise to you that many businesses don’t document either of these. A company’s vision has to be supported by a clear set of objectives. Managers need to know how and why they reached some objectives, but failed to reach others.
How many businesses have their objectives clearly defined?
Most businesses don’t have any objectives, because they don’t realize the importance of it. There is a phrase ‘what gets measured gets managed.’ Sometimes people are taken up with the enormity of their tasks and they don’t realize that by focusing on 5 or 6 key things they can have a lot more impact on their business. Objectives are the 5 or 6 key things that they need to address in a given time period. That time period could be 6 months or a year, whatever the right time frame is for that particular business. But without that reference point you find that people are fire-fighting a lot, or business becomes very reactive. When they have an objective in place they have a target, and it helps them act in a more disciplined way. It also helps them measure how they’re doing as they go along so they know if they are on the right course or not.
We ask people ‘what’s your vision for the business?’ If that’s your vision what’s your strategy for getting there? The objectives need to be linked to the strategy. So your strategy might be for a 5 year period. So let’s take the first year as a time frame. In order to achieve the vision, and thereby the strategy, what do you need to have achieved in that first time frame. And then the next time frame, and then the next. So the objectives should be seen as a set of milestones towards achieving the vision. But many businesses don’t have a vision, don’t have a strategy and don’t have objectives.
If they don’t have a set of objectives, what are they actually doing on a daily basis?
It depends. This is one of the big issues in business. They are essentially managing what’s in front of them. Some are managing their current customers, others are managing their current work rate, or they’re managing current staff but they don’t have an eye on the future. They might have an idea of where they want to get to but they’re not actively managing towards it. They’re almost hoping it will happen without actually steering themselves towards it.
How are objectives measured in terms of Key Performance Indicators (KPI)?
If you have five or six key objectives you will have a measure for each one that makes sense to that particular objective. You generally have two financial based objectives, so you’ll have two financial KPIs. So for turnover you’re measurement will be a sales report. For a profit objective the measure would be your monthly managed accounts, the actual profit or loss figure.
For non-financial objectives you need to come up with a measure that makes more sense to that objective. Once you have developed the objectives the next thing you do is develop the measures for each one. For a customer service type of objective you may look at doing customer surveys, or mystery shoppers or you might do some kind of audit, where you score for a particular performance, and monitor that over a period of time to see that the action you are taking is making an improvement. It’s about picking a method that will measure the effect of an objective.
An example of a poorly thought out objective.
A poorly thought out objective would be ‘I’d like to increase sales.’ It doesn’t have any reference to how much you want to increase sales by, where you’re starting from or the time period where you want it to increase. So a better objective, when you’re looking at sales, would be to increase sales by 10% by a specific date. What you’re trying to do is establish a measure that will hit every element of the SMART acronym - specific, measurable, achievable, realistic and time bound. Until the objective can tick each one of those then you don’t have a good objective.