Objective Setting
& Managing
Performance
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Learning Objectives
• Discuss what is Locke and Latham's goal-setting theory
• Explain different methods used for objective setting
• Define organizational control and explain why it is a key management function.
• Describe the benefits of using a balanced scorecard to track the performance and control of the
organization.
• Contrast the hierarchical and decentralized methods of control.
• Explain the benefits of open-book management.
• Discuss the use of financial statements, financial analysis, and budgeting as management
controls.
• Identify current trends in quality and financial control, including ISO 9000 and corporate
governance, and their impact on organizations.
• Explain how organizations maintain a workforce through the administration of wages and
salaries, benefits, and terminations.
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Objective Setting (Locke and
Latham)
• Setting goals is a popular way to plan career success and achieve long-term
ambitions.
• Goals inspire individuals to work towards a defined target and help businesses
achieve a common goal.
• Knowing the objective can motivate you to work harder, but if you don't set
achievable and specific goals, you may not reach them. Businesses achieve
greater success with specific and measurable employee goals.
• Provides employees with a better sense of direction. Increases productivity and
performance. More challenging goals lead to higher performance levels.
• Edwin A. Locke & Gary P. Latham established the relationship between conscious
goals and achievement
• Jointly published "A Theory of Goal Setting and Task Performance" in 1989.
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Objective Setting (Locke and
Latham)
Clarity
• A clear goal can be measured; no room for misunderstandings;
• Explicit goals with regard to which result is desired and how it will be measured;
• Comparable to the SMART principles that help to understand the task, measuring
the results and achieving success.
Challenge
• Setting challenging goals demands an accurate balance to guarantee the right
level of challenge;
• Goals that are too easy or too difficult negatively impact motivation and may
reduce the performance;
• The highest level of motivation is achieved upon the right balance between easy
and difficult. 5
Objective Setting (Locke and
Latham)
Effort/ Commitment
• Fully understanding and coordinating the set goals;
• Motivation due to own input when setting goals;
• People have the tendency to work harder for a goal when they were involved in
setting it, particularly in a team;
• Staying motivated as long as the goal is actually achievable and is in accordance
with the aspirations of all those involved.
Feedback
• Listening to feedback to check whether you’re headed in the right direction;
• If necessary, adjusting the goal and approach to achieve the goal;
• Feedback both from others and yourself.
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Objective Setting (Locke and
Latham)
Task complexity
• Takes into account the complexity of the goals, given the fact that complexity can
influence morale, productivity and motivation;
• Complex goals can be overwhelming to people;
• Make sure allowing everyone enough time to work towards the goal and improve
the performances
• If necessary, adjusting the complexity and level of difficulty of the goal.
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Common Methods of Goal Setting
• Management by Objectives (MBO): MBO is a popular goal-setting framework where managers and employees
collaboratively set specific and measurable objectives. This method fosters alignment between individual goals and
organizational goals.
• SMART Goals: This method emphasizes that goals should be Specific, Measurable, Achievable, Relevant, and Time-
bound. This framework provides a clear structure for setting effective goals.
• OKR (Objectives and Key Results): Widely used in tech companies, OKRs focus on setting overarching objectives
and defining measurable key results to monitor progress. This method encourages transparency and alignment
across all levels.
• Individual Development Plans (IDPs): IDPs are used mainly in personal development contexts, where individuals
outline their career goals, the skills they need to develop, and actionable steps to achieve those goals.
• Balanced Scorecard: This strategic planning and management tool allows organizations to translate vision and
strategy into operational objectives across various perspectives (financial, customer, internal processes, and 9
learning and growth).
The Meaning of Control
• Organizational Control is the systematic process through which managers
regulate organizational activities to meet planned goals and standards of
performance
• Quality and behavioral control are crucial responsibilities for managers.
• Control measures include regulating work processes, maintaining quality
standards, and analyzing financial performance.
Managers control:
• Work processes
• Employee behavior
• Financial resources
• Profitability 10
Feedback Control Model
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Four Steps of Feedback Control
• The importance of establishing clear and precise performance standards within
the organization's overall strategic plan.
• The need for managers to track and measure actual performance against the
established standards, using formal reports and quantitative measurements.
• Comparing actual performance to standards is crucial to identify variances and
understand deviations from the set standards.
• Managers should take an inquiring approach to deviations to gain a
comprehensive understanding of factors influencing performance.
• The final step involves taking corrective action based on the analysis of
deviations and identifying necessary changes for improvement in organizational
performance.
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The
Appraisal
Process
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The Balanced Scorecard
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Characteristics of the Balanced
Scorecard BSC
• Learning and Growth are analyzed through the investigation of training and
knowledge resources. This first leg handles how well information is captured and
how effectively employees use that information to convert it to a competitive
advantage within the industry.
• Business Processes are evaluated by investigating how well products are
manufactured. Operational management is analyzed to track any gaps, delays,
bottlenecks, shortages, or waste.
• Customer Perspectives are collected to gauge customer satisfaction with the
quality, price, and availability of products or services. Customers provide
feedback about their satisfaction with current products.
• Financial Data, such as sales, expenditures, and income are used to understand
financial performance. These financial metrics may include financial ratios,
budget variances, or income targets. 16
The Balanced Scorecard
• Recognition of the relevance of integrating financial and nonfinancial measures
for a balanced perspective on company performance.
• Understanding the four major perspectives of the balanced scorecard: financial
performance, customer service, internal business processes, and potential for
learning and growth, and the key performance metrics associated with each
perspective.
• The need for effective recording, analysis, and discussion of performance metrics
to assess the organization's achievement of strategic goals.
• The importance of linking the balanced scorecard to a well-defined organizational
strategy and involving everyone in thinking about and discussing strategy.
• Understanding that while the balanced scorecard can be an effective tool for
managing and improving performance, its successful implementation requires a
performance management approach linked to corporate strategy. 17
The Changing Philosophy
of Control
Hierarchical Versus Decentralized Approaches
Open-Book Management
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Centralized vs Decentralized
• Hierarchical control relies on explicit rules, formal hierarchy, and close supervision, while
decentralized control places emphasis on shared values, employee empowerment, and internal
standards.
• Technology is utilized differently in these control methods, with hierarchical methods more
focused on monitoring and measuring work activities, while decentralized methods empower
employees with information and tools for effective decision-making.
• Cultural influence plays a significant role in control methods, as seen in the Japanese culture's
preference for rules and bureaucracy in hierarchical control, and the emphasis on organizational
culture and employee involvement in decentralized control.
• Managers implementing decentralized control rely on empowerment, effective socialization, and
training to foster internal standards and self-control among employees, whereas managers in
hierarchical control models utilize structured reward systems and close supervision.
• Decentralized control fosters an adaptive culture, with a flat organizational structure, flexible
authority, and an emphasis on equity and teamwork, while hierarchical control results in a
somewhat rigid organizational culture with a reliance on formal control mechanisms.
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Centralized vs Decentralized
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Open Book Management
• Open-book management promotes information sharing and teamwork, allowing employees to
understand the company's financial condition and their job's impact on the organization's
success.
• It ties employee rewards to the company's overall success, encouraging employees to take
responsibility for their team or function, rather than just individual jobs.
• The goal is to get employees to think and act like business owners by providing them with the
same financial information as owners, emphasizing the interdependence of each function and the
importance of efficiency.
• Practical examples from Ginger Bay Salon and Spa demonstrate how open-book management can
increase employee motivation and performance by aligning individual and company goals.
• Implementing open-book management may face challenges in countries where prevailing
attitudes and standards encourage financial confidentiality, impacting multinational companies
operating in those regions.
• At Ginger Bay Salon and Spa, open-book management led to increased motivation and
performance among hairstylists and massage therapists by training them to understand the 21
company's financial goals and displaying individual and company goals prominently.
Total Quality Management TQM
• Total Quality Management (TQM) is a decentralized control philosophy that
Infuse quality into every activity in a company through continuous improvement
• The TQM philosophy focuses on teamwork, increasing customer satisfaction, and
lowering costs
• Toyota is a good example of the results of TQM
• TQM became attractive in the 1980s because of its success in Japan
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Total Quality Management
Techniques
• Quality circles
• Benchmarking
• Six Sigma
• Quality Partnering
• Continuous Improvement
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Budgetary Controls
• Budgetary control, one of the most commonly used forms of managerial control,
is the process of setting targets for an organization’s expenditures, monitoring
results and comparing them to the budget, and making changes as needed.
• An Expense Budget outlines the anticipated and actual expenses for a
responsibility center.
• A Revenue Budget lists forecasted and actual revenues of the organization.
• The Cash Budget estimates receipts and expenditures of money on a daily or
weekly basis to ensure that an organization has sufficient cash to meet its
obligations.
• A budget that plans and reports investments in major assets to be depreciated
over several years is called a Capital Budget.
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Budgetary Controls
• Zero-based Budgeting is an approach to planning and decision making that starts
at zero and requires a complete justification for every line item in a budget,
instead of carrying forward a prior budget and applying a percentage change.
• Many companies use Top-down Budgeting, which means that the budgeted
amounts for the coming year are literally imposed on middle- and lower-level
managers.
• On the other hand, Bottom-up Budgeting involves lower-level managers
anticipating their department’s budget needs and passing them up to top
management for approval.
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Financial Controls
• Financial statements provide the basic information used for financial control of an
organization.
• The balance sheet shows the firm’s financial position with respect to assets and
liabilities at a specific point in time.
• The income statement summarizes the firm’s financial performance for a given
time interval.
• The most common financial analysis focuses on the use of ratios—statistics that
express the relationships between performance indicators such as profits and
assets, sales, and inventory.
• The liquidity ratio indicates the organization’s ability to meet its current debt
obligations.
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Financial Controls
• The activity ratio measures the organization’s internal performance with respect
to key activities defined by management.
• The profitability ratio describes the firm’s profits relative to a source of profits,
such as sales or assets.
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McKinsey 7S Model
• The McKinsey 7S Model refers to a tool that analyzes a company’s “organizational
design.”
• The goal of the model is to depict how effectiveness can be achieved in an
organization through the interactions of seven key elements:
Hard Elements Soft Element
Structure Shared Values
Strategy Skill
System Style
Staff
-Hard elements are those which can be easily identified and directly influenced by management
-Soft elements are less tangible & more influenced by culture 28
McKinsey 7S Model
• The model can be used to identify
the prerequisites for improved
performance & to maintain
alignment during change such as
restructuring, or organizational
merger.
• It can be used to understand how the
organizational elements are
interrelated and to ensure that the
wider impact of change in one area is
taken into consideration.
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McKinsey 7S Model
What is the organizational structure? What are our corporate systems?
Where is control centralized?
What is the management style of How many employees are valued?
the company?
Are there any technical gaps? How do we achieve our goals?
What are the core values & culture?
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McKinsey 7S Model
• Structure is the way in which a company is organized – the chain of command and
accountability relationships that form its organizational chart.
• Strategy refers to a well-curated business plan that allows the company to formulate a plan of
action to achieve a sustainable competitive advantage, reinforced by the company’s mission
and values.
• Systems entail the business and technical infrastructure of the company that establishes
workflows and the chain of decision-making.
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McKinsey 7S Model
• Skills form the capabilities and competencies of a company that enables its employees to
achieve its objectives.
• Style refers to the attitude of senior employees in a company that establishes a code of
conduct through their ways of interactions and symbolic decision-making, which forms the
management style of its leaders.
• Staff involves talent management and all human resources related to company decisions, such
as training, recruiting, and rewards systems
• Shared Values are the mission, objectives, and values that form the foundation of every
organization and play an important role in aligning all key elements to maintain an effective
organizational design.
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Application of McKinsey 7S Model
Step 1: Identify the areas that are not effectively aligned
• Is there consistency in the values, strategy, structure, and systems? Look for gaps and inconsistencies in
the relationship of elements. What needs to change?
Step 2: Determine the optimal organization design
• It is important to consolidate the opinions of top management and create a generic optimal organizational
design that will allow the company to set realistic goals and achievable objectives. The step requires a
tremendous amount of research and analysis since there are no “organizational industry templates” to
follow.
Step 3: Decide where and what changes should be made
• Once the outliers are identified, the plan of action can be created, which will involve making concrete
changes to the chain of hierarchy, the flow of communication, and reporting relationships. It will allow the
company to achieve an efficient organizational design.
Step 4: Make the necessary changes
• Implementation of the decision strategy is a make-or-break situation for the company in realistically
achieving what it set out to do. Several hurdles in the process of implementation arise, which are best
dealt with in a well-thought-out implementation plan. 33
Advantages VS Disadvantages
Advantages of the Model
• It enables different parts of a company to act in a coherent and “synced” manner.
• It allows for the effective tracking of the impact of the changes in key elements.
• It examines the likely effect of future changes within a Company
Disadvantages of the Model
• It is considered a long-term model.
• With the changing nature of businesses, it remains to be seen how the model will adapt.
• It seems to rely on internal factors and processes and may be disadvantageous in situations
where external circumstances influence an organization.
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