Performance by Objectives

Different types of objectives or goal-oriented performance models are analyzed in this article. From this perspective, the organization emphasizes outcomes rather than processes. It is viewed as a logical setup of indicators designed to achieve goals. The organization’s ultimate objective is divided into multiple team and individual performance indicators.

Generalities

The typical way to progress with the objectives-based model is to identify the most powerful stakeholders and ask them to express their goals. Once the objectives are negotiated, criteria to measure the achievement of these goals must be defined in operational terms, with the validity of the criteria possibly needing to be established.

By analogy, the way to measure an organization’s performance is by establishing a catalog of organizational objectives that meet three criteria: (1) they must be concrete and observable actions that the organization takes, (2) the conditions under which the organization must achieve them must be specified, and (3) the degree to which each objective can be achieved must be clearly specified.

Different models can relate to performance based on objectives. The five models discussed below mostly differ in their level of focus: some are about reaching a future state, while others concentrate on immediate operational goals. The performance by objective typically relates to the first option for providing guidance for the organization. After the orientation and objectives are established, performance can be assessed by developing criteria to measure how well the objectives are achieved, first at the overall level, then at the level of departments and teams, and finally at each position.

The Cost-Benefit Analysis Model

This method measures the relative performance of multiple actions or programs against a specific goal. It involves evaluating several options and using expert judgment to establish a standard of achievement, which allows for comparison of the cost/benefit ratio. Two principles are implicit in this model: (1) the numerator and denominator components can be combined into a single composite score for each, and (2) the ratio itself possesses the properties of interval scales.

Management by objectives

The primary performance criterion is whether the organization has actually completed the work it previously identified as necessary. Performance consists of measurable, concrete, and specific achievements or failures. This definition of performance is unique to each organization. Achievements are detailed for each organization and for a specific time period. The performance report indicates whether objectives have been met. Incorporating this view of performance also establishes a comprehensive system of planning and control.

The Individual Criteria Model

In this approach, performance is determined by a set of individual criteria established through systematic job descriptions. Decisions about hiring, promotion, end of contract, etc., are made by an expert based on measurements of these criteria.

The criteria measured are directly controlled by the individual, and differences in results between people or over time reflect personal performance rather than external factors. Performance refers to tangible and observable actions people can take.

This performance can be evaluated by each person's contribution to their position's objectives within the organization. Performance criteria can be developed in various ways, including the critical incident technique or other methods.

The Behavioral Goals Model

In this model, behavioral goals are set based on performance evaluations and are used to guide behavioral development. The term "behavioral goals" is used individually. All the changes that the program intends to produce are listed and described in clearly observable terms. "Terminal behaviors" refers to the specific skills the person should be able to demonstrate when the program ends.

A similar model called the Behavioral Expectations Scaling (BES) identifies a dozen performance factors based on a list of critical incident examples and expert judgments for a specific position.

Criteria Legitimacy

The criteria that are used as legitimate performance indicators often remain unknown, as do the criteria that are not legitimate performance indicators. The legitimacy or illegitimacy of efficiency and performance criteria cannot clearly be established. For instance, “employee satisfaction” is sometimes used as a performance predictor, indicator, or result. The nature of performance indicators between individuals varies. As a result, performance indicators are generally difficult to compare and integrate for personal needs, team cohesion, economic performance, or even social justice.

Nature of Criteria

Operational units function differently and have different objectives. Setting objectives that the organization and its operations need to pursue simultaneously creates inconsistencies and ambiguities.

Achieving the various objectives concomitantly requires arbitration under internal and external pressures. The arbitration will challenge the objectives, and the model of performance by objectives itself.

The set of criteria that defines performance can hardly account for a single, general meaning. The lists of propositions and variables that have been established to determine performance are disparate and vary in their level of specificity, analysis, and independence. Overall, it is unclear which of these variables can serve as valid performance criteria.

Additionally, the nature of performance criteria changes over time. As knowledge spreads, the factors that distinguish successful organizations from those that are not tend to fade. The institutionalization of best practices gradually eliminates the organizational factors that give a performance advantage or disadvantage. In practical terms, the objectives will need to be continually discussed and reset.

The research on performance by objective has evidenced that performance has different meanings depending on the individuals and contexts. It can focus on various levels of analysis, such as a unit's results versus resource acquisition. In fine management and other stakeholders who evaluate performance often select models and criteria arbitrarily for their assessments, primarily relying on suitable criteria.

The organization’s output, in terms of profitability or productivity, often ends up being the primary criterion for evaluating performance. However, the effects of what is produced on the environment, health, morale, and other factors are more frequently used. The complex and diverse nature of these effects makes their evaluation difficult.

Ends or Means

Attributing causality to organizational actions is extremely difficult because many components interact simultaneously. In practice, what is produced, the tangible element, is more naturally considered than how it was produced and its effects. Indicators, performance determinants, and means can easily be confused. For example, group cohesion could serve as both an indicator and a predictor of performance.

The question of which performance criterion comes first—cause or effect—is not straightforward. For instance, is a lack of empathy and attention, or a drop in engagement, the cause of a decline in production, or is it the other way around?

The above highlights the necessity to differentiate between the ends and means, what needs to be done, and how it needs to be done.

Objectives' Coherence

Identifying the most appropriate performance objectives can be complex. Some criteria and methods may be easily available, but with little relation to the overall company’s objectives. Indicators such as engagement, satisfaction, morale, or turnover, which can be used to measure performance, may be readily accessible and relevant at team levels, although not sufficient at the company level.

As new techniques with the Internet and AI become available to gather and analyze information, new criteria may be considered for driving performance at different levels and within a larger frame of reference where the organization's goals are set in coherence with its vision, mission, and values.

Changing Environment

Change of management, new technology challenging the industry, reorganization, new competitor, new team member: organizations constantly face change. In a dynamic environment, performance measures based on objectives are inappropriate if they cannot capture the changing environmental conditions that the organization must face. Setting a direction for an organization or its units and assessing deviations from a target tends to reinforce the status quo. It complicates management efforts when it comes to changing the trajectory and objectives, inviting consideration of other ways to manage performance.

Other Models

The idea that a company should be organized by a set of objectives is widely accepted in theory. However, this idea is incompatible with the broader meaning of performance and insufficient in practice. Considerations of other models of performance are informative in this respect.

There is little agreement among different objective-based models and other models regarding the variables to be used. They often are dependent on the context and stakeholders' preferences and values. As can be evidenced with GRI’s adaptive profiles, some stakeholders are more sensitive to the factual and quantifiable nature of the targets than others to how those targets will be met and by whom.