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Goal Setting for Performance Management and the way we do @SAP

24 August 2015

Goal setting uses a notion that individuals have a drive to reach a clearly defined end state, that is often a reward in itself. Its efficiency is affected by three features; proximity, difficulty and specificity. For an ideal goal, the initiation of action and achievement is close in time. This will increase execution focus. For the same reason, often annual targets are divided into monthly or quarterly steps so that individuals would refresh their focus and drive. A goal should be moderate, not too hard or too easy to complete. In both cases, most people are not optimally motivated. As many want a challenge - which assumes some kind of fear of failure – and, at the same, they need to feel that there is a substantial probability that they will succeed if they give it their best! Specificity concerns the description of the goal, that the goal should be objectively defined and understood by the individual.

For goals to increase performance, it is imperative that they are difficult and specific. A goal can be made specific if well quantified and measureable by a key performance indicator, or if defined as a list of clear deliverables. For any sales function, revenue target can be a clear measure of the goal. This works for both ways, for managers to make their bets for the fiscal year to grow their business hence they allocate resources to their best of their priorities, and sales teams have a clear focus and target defined with all the levers given to achieve those.


Performance Effect:

Goals can affect performance in three ways. First, goals narrow attention and direct efforts to goal relevant activities, and away from undesirable, and goal irrelevant actions. Second, goals can lead to more effort; as individuals are likely to work more intensely then they typically would to reach the goal, which they believed in the beginning. Third, goals influence persistence. Individuals are more prone to work through setbacks, if they are pursuing a goal.
At an organization level, total impact on the team performance would be even higher as every individual works towards their goals which are defined with a holistic approach to ensure no inefficiencies or unnecessary inertia is left between various functions of the organization.


Two Intrinsic Attributes of the Individuals to drive Performance:

Commitment is the most influential driver, that is especially important with challenging goals. In order for employees to be committed to a goal, they must believe it is important and visible as it contributes to the overall objectives of the organization. Self-efficacy is a second driver to performance by goals. The higher someone’s self-efficacy regarding a certain task, the more likely the person will be to set a higher goal, and the more persistent he/she will be in achieving it. This creates the self-sustaining dynamics of strategic performance management. Our CEO, Bill McDermott once summarized this “When you get things done in SAP, you rise!”


Visibility & Feedback

In order for goals to enhance performance, there needs to be visibility of the progress, by individual and also by management. Given the commitment of the individual, this is more of a fuel for self-drive rather than a means of micromanagement. Examples of this can be given as reporting current consumption level of energy to the individual via his/her mobile phone and drive energy conservation awareness, or reporting the number of steps taken during the day and calorie spent to incentivize them to take stairs rather than escalators!
In addition, for individual to know where they stand with respect to their targets, making sure that this is visible to their management and how their success contributes to overall targets of the organization also gets individuals to show a higher persistence. This satisfies the sense of contribution and sense of competition, irrespective of the personal traits of the individual.


Things to Watch Out!

Individual and Department level goals should be defined in a way to create an alignment between various functions to lead to common highest goals that is driven by the strategy of the company. Reducing per unit cost if defined as an objective for a Manufacturing Manager may not be fully aligned with a Sales Manager who wants to increase revenue by having a large product portfolio. Or even for the same function, ie. Sales, if go-to-market strategy is designed in a way which introduce conflicting sales incentives for different sales channels, you may end up with a situation that is worse than just having some opportunity cost in sales! Therefore, a holistic view on goals across the whole organization functions is important.


A, B, C of Goal Setting: SMART!

One best practice of defining goals in line with above considerations is called SMART: Goals should be Specific, Measurable, Achievable, Relevant, Time-bound.

Specific: Specific in the context of developing objectives means that an observable action, behavior or achievement is described which is also linked to a rate, number, percentage or frequency that is going to be used to measure.
Measurable: A system, method or procedure has to exist which allows the tracking and recording of the behavior or action upon which the objective is focused. Having a measure defined as part of Specific definition is not sufficient. The actions must actually be measured by some system and reported.
Achievable: The objectives need to be stretching and agreed by the parties involved. Setting targets that are plainly ridiculous does not motivate people; it merely confirms their opinion of you as an idiot. They will apply no energy or enthusiasm to a task that is futile. Consider sending a group of footballers out to play a game having told them the final score already, and they've lost! What's the point?
Relevant: This means two things; that the goal or target being set with the individual is something they can actually impact upon or change and secondly it is also important to the organization. This is not only important for the sense of contribution satisfaction of the employee, but also important for the alignment with the overall organization goals.
Time Bound: In the objective somewhere there has to be a date (Day/Month/Year) for when the task has to be started (if it's ongoing) and/or completed (if it's short term or project related). Simply: No date = No good

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