The Importance of Performance Targets

Performance standards motivate employees and management to use their time efficiently by setting achievable objectives.


LEARNING OBJECTIVES

Explain the importance of performance targets in the business framework and the approaches to communicating and achieving them


KEY TAKEAWAYS


Key Points
  • A key performance indicator ( KPI ) sets a performance standard for an organization, a business unit, or an employee.
  • Goal setting means establishing what a person or an organization wants to achieve. Goals should be specific, measurable, achievable, realistic, and time-targeted ( SMART ).
  • Motivation is the key component to effective goal setting. Organizations must consider performance targets within the context of creating motivated employees, who will in turn perform more effectively.
  • Performance targets are particularly useful due to their quantitative nature, which allows the measurement of outcomes and assessment of operations.


Key Terms
  • KPI: Key Performance Indicator; a tool to measure performance.
  • motivation: Willingness to perform an action, especially a behavior; an incentive or reason for doing something.

Managerial effectiveness is often assessed on the ability to achieve performance targets. Three basic concepts are involved in communicating and achieving targets: key performance indicators, goal setting, and motivation.


Performance Indicators

A key performance indicator is a tool for performance measurement used by organizations. It is used to set a performance standard for an organization, a business unit, or an employee. It is also used to evaluate the overall success of the organization and the success of a specific activity in the organization.

Success can be defined as progress towards strategic or operational goals such as zero defects, percentage of customer satisfaction (or retention), profitability margins, etc. KPIs are usually understandable, meaningful, and measurable. For the employee to achieve them, objectives should be clear and simple to understand.


Goal Setting

Goal setting is an effective tool for progressive organizations, because it provides a sense of direction and purpose. Employees benefit greatly from understanding what is expected of them and how they can measure this success (or lack thereof). A clear concept of achievement leads to independent personal development, and goal setting can improve the organization's performance. Challenging goals tend to result in higher performance than easy or no goals.

Goal setting means establishing what a person or an organization wants to achieve. In setting these objectives, managers must ensure the goals are both understandable and achievable to meet performance targets. The SMART model is a good framework to keep in mind when generating goals and objectives. It aims to design goals that are specific, measurable, achievable, realistic, and time-targeted (SMART).

SMART criteria: Each component of the SMART model describes an effective attribute of a performance objective. Objectives should be Specific, Measurable, Achievable, Relevant, and Time-bound.

The SMARTER framework expands upon this model by noting that objectives should be evaluated and reviewed consistently as well.


Motivation

Motivation elicits, controls, and sustains certain goal-directed behaviors. There are a number of approaches to motivation: physiological, behavioral, cognitive, and social. Motivated employees are also more quality oriented and more productive.