Goals Setting Theory Business Essay

Since all members of this group have work experience in various fields and industries we all know about the importance of having a clear goal – for the company itself as for the attitude of the individual at his or her working place.

To put it in a simple sentence, a goal describes what should be done. The goal is the foundation on which every employee sees his purpose in coming to work every day. Goal setting is important to ensure that expectations are on the same level, for the employee as for the supervisor or manager. Everything that is planned and operated in the business is determined by the goal.

Objectives

Based on the article, describe the importance of goals settings

Describe theories connected to goal setting

Describe and compare theory and reality based on three case studies of our own working experience

Summary of the Article

The article deals with the importance of goal setting for a company. It points out the extreme value a clear vision adds to a company. Based on a survey of Staples National Small Business Survey most business owners don’t keep track of their business goals or yet have to come up with a vision for their company. Since most companies are not able to invest the amount of time to do so, Inc.com provides a road map of how to set and achieve business goals.

The author suggests as a first step in the goal-finding process to distinguish long-term goals from short-term objectives. As for long term goals four areas shall be analyzed based on the original vision of the company and why it was founded: Service, social, profit and growth. How long a long-term goal shall be defined is depending on the current situation of the company in the economic environment.

To break down a long term goal into smaller units of short term objectives it is suggested to work with the S.M.A.R.T. test. It will help to turn goals that seem to be abstract at first into real objects that can be achieved on a daily working basis. The impact of this on employee satisfaction is mentioned.

To keep employees focused on and satisfied with goal termination the author points out the importance of involvement and participation of workers in creating goals.

In order to keep track of all the goals and objectives it is proposed to stay organized and focused. Data analysis programmes like Excel can be used as a tool for managers.

While having numerous goals and objectives it is significant to make sure that goals among each other are not contrary or conflicting. This may lead to employees being unable to accomplish their goals and objectives.

Last but not least the article points out the significance that the manager appreciates employees working on goal formulation and indicates to thank them in order to keep them motivated for future assignments.

Theory

Goals are essential part of successfully conducting business and living a rewarding life. Well defined goals allow you to choose, design and implement important targets to achieve overall desired results.

Goal provides the motivation and direction necessary for growth and success in many important areas.

Elements of a Goal

An accomplishment to be achieved: In most cases you will want to express this accomplishment with an action verb. I want to reduce operating expenses from 2% to 1.5 %

A measurable outcome: The situation surrounding the accomplishment has to include things you can use to determine you have reached the goal, identifiable signs of success.

A specific date and time of the accomplishment: When do I want to have the goal completed?

Maximum cost (money, time and resources): What are the maximum costs that I will allow to achieve this goal?

Set Expectations

In order to define goals to employees, you need to be clear about the purpose of the organisation, what you want to accomplish, and when you want to achieve the overall goals of the company. Here are some simple steps to guide the goal setting of the employees:

Determine what your organization wants to achieve,

Identify what part of goals are dependent on your team,

Determine what part of the team results to be accountable for individually,

Identify who should write the employees goals,

Use S.M.A.R.T. to define responsibility of each employee with goals that are specific, measurable, achievable, realistic and time – bound,

Create a checklist to set the expectations.

Benefits of Letting Your Employees Write Their Own Objectives

Traditionally, managers write the objectives of the employees. However there are several good reasons for considering having your employees writing their own goals:

They will buy into them more strongly: The employees are more eager to accept goals that are defined by themselves,

The burden is off of you: The bulk of their work is over their shoulders,

They learn new skills: Yours employees will learn techniques of planning, organization, analysis, measurement, reporting and documentation to name a few,

They better appreciate your role in holding them accountable for their results: When they are forced to consider by themselves what needs to be done, when and how, there will be fewer surprises by the road.

They better understand their roles by putting them into words: They struggle to identify how to make their goals measurable helps them see even better what they need to accomplish.

Feedback

For goals to be effective, people need feedback to reveal their progress in relation to their goals. Therefore when people notice that they are below their planned goals, they normally increase their effort. Thus, if they don’t know how they are doing, it is difficult or impossible for them to adjust the level of direction or their effort to match the goal requirement.

Case Study

In the following goal setting is described in the environment of three real companies. We chose to analyze three companies that students have work experience in.

Company A

Background of Company A: It is a family owned Scandinavian based company, which has approximately 8,000 employees globally, founded in 1930’s, account for one of the largest manufacturer of play materials. 5 years before the financial crisis, company A had experienced the biggest loss in the company’s history in 2003: SEK 2.4 billion in annum. The company set business plan, new strategies, and action plans to make the business first for survival and then profitable. Since 2007, the company was the only one company among all other competitors had double digit net profit growth from 2007 to present.

Company Culture: The corporate management of the company developed the brand framework in 2008 and updated in 2009 as per the figure 3-1. The main purpose is to make sure all employees are clear about what is required to fulfil these expectations, and it is important to have the framework widely understood, strongly believed and lived and turns into a company culture.

Where the goals come from: Apart from that, the corporate management team set the overall strategic direction, development of new business ideas by means of road map for 5 to 10 years.

Implementation of Strategies in 8 Steps (see figure 3-2):

Step 1: Every end of the year, the corporate management conducts strategy review. The performance in previous year are reviewed and compared with the target results. Also, the external factors like market trends and the change of customers’ and consumers’ expectations should be taken into account. The output will be the strategy for the new year. The strategy is identified in SMART way (e.g. increase the annual return on sale before tax by 10 million, reduce the customers complain ratio to less than 2%, increase the customers’ order fulfilment to at least 98%, reduce overall expenses by 100 million SEK.). For the specific strategy that needs high focus and support from top management, the management representatives (owners) would be appointed as steering committee for the close monitoring.

Step 2: The corporate management and middle management conduct the strategy review with key initiatives proposals. The middle management comments and proposes the key initiatives that can be improved by each department (e.g. the H.R. department propose they would like to focus on the overall expenses reduction by 10 million SEK in the year of 2011). The middle management discusses that with stakeholders like the staffs, suppliers, business partners and customers who involves in the day-to-day operations for obtaining more ideas. Corporate management gathers all the inputs of key initiatives with measureable units and compare it with the proposed strategy of the year. There would be the adjustment to the proposed strategy of the year in order to make it ‘achievable’. The external consultants would be considered as value-added input in the process.

Step 3: The representatives of corporate management conduct the strategy kick off at the beginning of the year, present the strategy for the new financial year and last year performance to all staffs face-to-face in all geographical office locations. At the same time, the top management can listen to the feedback and comments (positive and negative) from the employees directly, and make sure employees understand and support the strategy as a part of day-to-day work.

Step 4: At the beginning of the year, middle management and HR set KPIs with people. With the strategy and key initiatives that each department have proposed, workshops with people for assigning owners of different key initiatives and what level each staff or team should achieve. People can come up with more key initiatives as long as they are supporting the same goal and be measureable in the same units within the timeframe of 1 year, middle management ensures every key initiative is realistic and not deviating the quality policy. Each key initiative turns into the KPIs, with defined the grading of from A to E. HR sets up the standard procedure annual appraisal review, bonus scheme and annual salary adjustment according to the results of KPI.

Step 5: Middle management evaluates if their people need extra resource or competence trainings for achieving the KPIs. If so, they will send the requisition to the HR for approval.

Step 6: Middle management and their people conducts regular update and follow up of progress of KPIs weekly (between people and middle management), monthly (department level using newsletter, intranet, company’s meeting, visual factory, etc.) and quarterly (corporate management level).

Step 7: By the end of the year, corporate management and middle management review and finalise the KPI results with measurable figures and grades. They also conduct the lesson learned session to see what had been done right and what should be improved and avoided in future.

Step 8: Corporate management and HR rewards to the ‘heroes’ with bonus, promotion and newsletters. The bonus is released according to the KPI results. Middle management provides their people with appraisal review, performance comments, suggestions, salary adjustment, promotion and so on with the aid of the KPIs result – That make the employees live with the KPIs as day-to-day operation.

Company B

Company B is a manufacturer and distributor of medical technology products. It is one of the leading players on its domestic country market; during the few recent years the company has established its presence on the global market as well and its presence there has been gradually increasing. The company has over 100 employees.

Company’s product line is based on a commercialized scientific research and has been constantly extending by inclusion of newly developed products, which are launched on the market every year.

Company B has its own manufacturing facilities, as well as R&D department, the aim of which is the development of potentially new products as well as technological improvement of the existing product portfolio in order to maintain the company’s competitive edge in the constantly changing market place.

The performance of the company has been acceptable during the past few years, with stable revenue growth on its domestic market; however its growth on the global market has been reducing.

The reason of this situation was that the company fell behind the new trends that appeared on the international market and which had not yet reached the domestic market. This meant not very flourishing perspective for the company, as soon as the international trends reach the company’s domestic market within about five years after they have been adopted globally and if the problem would not be solved the company risked missing its main revenue stream from the domestic customers in the future.

The problem was obviously connected to company’s inability to improve the existing products to keep up with global market requirements, which, in its turn, meant that the product line has not been upgraded to the degree it was planned, customers’ expectations were not met on a number of key company’s assortment positions.

Company B’s quality management system is certified to ISO 9001:2000 which means, among other things, that the company’s goals are communicated from CEO downwards to its functional units and every department has its own goal statement that specifies what this unit is supposed to deliver, in measurable form, in order to make it possible for the company to achieve its goals.

The internal investigation was performed to find out the factors hampering the planned upgrade.

Surprisingly it showed that the personnel employed at R&D department, although having clear goal statements, did not take it literally, assuming that the goals were just showing the directions, not real requirements. According to R&D employees, it went without saying that the scientist could not work according to the plan, as the nature of scientific work itself assumes that the results cannot not be planned and the creativity that is the main tool in their work cannot not be used deliberately, as soon one cannot predict when exactly the ideas come to human mind. It was also assumed that the rest of the company approves the same reasoning and does not expect them deliver strictly according to the plan.

Company C

Company C is a global market and technology leader in the field of plant engineering. Its market environment is a bilateral oligopoly, a market with few provider’s and few big consumers, which are classified into government owned monopolies, multinational companies and independent customers. Using a Sales force of 85 Sales Manager this company visited and sold to around 700 factories all around the world.

Until the year 2010 the travel activities of the Sales Manager were reported and monitored in the following way: The SAP-System in which the travels had to be planned reported the number of travel days for each Sales Department for each month. Therefore, the board was not able to see if the Sales Manager were visiting different customers or just one customer for a very long time neither the quantity of visits to important customers. As the current travel day monitoring system was not very meaningful the board decided to implement a KPI for measuring the customer contacts. The requirements for the implementation of the KPI were the following:

The KPI has to measure the Customer Contacts for the individual customers (meeting one factory equals one Customer Contact) and not the Travel days

The KPI should be calculated for the individual Sales Departments

The calculation of the KPI requires a comparison between “planned contacts per customer” and “actual contacts per customers”

The KPI shall be calculated automatically and the individual contacts for all customers must be concentrated on one sheet

The customer contacts shall be reported in an easy way by the Sales Manager

The whole KPI-implementation must be ready by autumn 2010 as a required KPI for the year 2010 will be included in the personal aims of each Head of Sales Department

Considering these requirements the responsible project manager communicated the aim and the benefits of the new KPI towards the Sales Manager and requested a classification for the planned contacts for each individual factory, via the classification steps: A: >14 contacts/ year; B: 8-14 contacts/ year, C: 3-7 contacts/ year, D: 1-2 contacts/ year, E: no contact planned. The PM decided on a calculation method of the KPI using the deviation of “planned contacts” to “actual contacts” weighting this result with the importance of the customer (A-E customer). It was decided to report the actual customer contacts with a tool of the new SAP-CRM system which would be implemented in the company in spring 2010. This enabled the PM to link the number of customer contacts with the individual customers and to generate the required sheet which showed all customer contact information. The classifications for the individual customers were integrated into the new SAP-CRM system. This information was downloaded into the sheet showing all customer information in order to calculate the KPI automatically. This KPI-calculation method was shared with the Head of Sales Departments and the project for the implementation of this KPI was finished by June 2010.

Discussion

Company A

Even though the share of traditional physical toys market is shrinking due to the continual growth of the video games, together with the fears of safety of toys produced in China in recent years, global financial crisis in 2007-2008, and the big loss in business of company A back to 2003, company A is now being a very profitable company by demonstrating the power of goals setting stated in the theory model. One of the essential factors is that the company developed an organisation culture that all employees ‘injected’ with the company DNA for implementing the initiatives of the strategies in the same direction. Another success is that the company creates an open communication culture that allows direct feedback between corporate management and the people. The corporate management sets strategy at high level, allowing inputs interactively from stakeholders that involve in day-to-day operations for determining and identifying initiatives, and possible outcomes at planning phase, this practice makes the goals setting more realistic.

Many companies including company A experienced that developing or changing the organisation culture can take year or even years for making it happen. When the company cultures are not ready for the strategy, company may face more obstacles in the implementations as such. The case like company A uses strategy kicky off meeting in face-to-face approach between the representatives of corporate management and the people for speeding up change of culture. Face-to-face meeting allows instant feedback and discussion between people and corporate management, and the words, encouragements and answers from corporate management in person are more powerful than having them said by middle management.

In regard to ‘measurable’ goals, company A used KPI (Key performance indicator) as the tool with rating scales for measuring the results with target. Numeric results like ROI (return on investment) and order quantity can be presented by hard numbers. However, it is a challenge for middle management in setting the KPI scales for functions that delivers qualitative results, a typical example is product design, there are initiatives that can improve the product design, but the results can hardly be measured precisely, the qualitative results would be claimed as being too objective by the middle management.

Speaking of having ‘attractive’ goals, for company A, it is not difficult to set a positive goals that gaining the understanding, believe from people of the organisation. People are encouraged to implement the goals by linking the individual KPI results with their individual bonus. The advantage is that people are really focusing on the KPI tasks for more bonus money. On country, when KPIs are set for each staff individually, it may develop the tendency of people work on their individually assigned ‘goals’ and ignore the ‘goals’ owned by the other teammates. And people might only work on achieving the hard number targets (e.g. amount of sales or how much cost is saved) without a holistic thinking, for example, consequence of achieving the hard figures in alternative ways (e.g. increase number of customer complains due to the lowered quality of good produced by a lower cost supplier).

Company B

Unlike Company A where the goals are discussed and negotiated with employees on all levels and possible deviations from the plan, if any, are spotted and handled beforehand, Company B has not taken the advantage of that approach to a full extent.

First of all, analyzing the problem that affected the performance of Company B, one could conclude that it has to do not only with scientist’s special view on life and work, but rather the fact that not all the employees accepted and supported (if understood) the company’s strategic goals: the performance overall kept good (company earned money and grew) but good performance on the global market required increased efforts from all departments and first of all, R&D. That part has not been well-communicated and negotiated. Secondly, the departments obviously have not been allowed to interpret the company’s strategy from their own viewpoint and set their own goals for themselves. This has lead to misunderstanding and underperformance, which could have been otherwise avoided.

Company C

In the following the written theory will be used in order to analyse the implementation of the KPI of company C.

Company C followed the described elements steps of a goal to a high extent. The accomplishment which needed to be achieved was a more meaningful overview over the travel activities of the Sales Manager. The outcome was a specific KPI which clearly shows if the required travel activities were reached or not. It was decided that the KPI is part of the personal goals of the Head of Sales Departments for 2010 in order to encourage every Sales Team to reach this goal and that the implementation of this KPI needed to be finished by autumn 2010. A budget for the implementation of the KPI was not established but travel costs are budgeted separately within the different sales departments.

The KPI was defined using the SMART technique and the aim of the implementation was communicated towards the involved parties. This company decided on a top-down method for setting a required KPI and will therefore not achieve the benefits of “letting your employees write their own objectives”. Nevertheless, every month from the beginning of June 2010 the KPI is shared with the Head of Sales Departments to make them aware of their actual status.

In conclusion, the implementation of this KPI aligned nearly in all cases with the written theory. The only thing which might have been improved is a bottom-up strategy in setting the goal/ KPI in order to increase the motivation of the employees to reach the set target.

Conclusions

Throughout the case study and analysis, success and failure could occur as a result in different ways of goals setting. These findings are consistent to the theory as investigated. Here we conclude the results and findings of this report as follow:

Goal setting is an important managerial task which has impact on every kind of organization all over the world

Theory shows that goal setting consists of different elements on strategic and implementation levels

Our working experience shows there are very different ways of approaching goal setting, and how different organisations get meaningful overview from a strategic breakdown of company vision to KPI implementation