Management Perspectives

Most leaders agree that performance targets are a critical part of effective leadership. Whether through a traditional, balanced scorecard of key performance indicators (KPIs), or the more recent OKR (objectives and key results) approach used by many startups, leaders typically devote many hours to setting goals, tracking results, and reviewing performance.

But is it time well spent? Do these performance management approaches really lead to world-class performance?
In my various CEO roles over the past two decades, I have observed several traps that leaders fall into when setting goals for their people:
Too many measures: If the scorecard is more than two pages long, it will be ignored.
Targets are too low: This can undermine performance, with mediocre performers falling into complacency, and high performers looking elsewhere for challenge and recognition.

Targets are too generic: In the interest of fairness, leaders sometimes set common sales, service, or productivity targets for all staff in a given role. If legitimate differences in opportunity exist (eg, in high-growth versus low-growth locations), this can lead to both of the previous two traps—since targets are too low for those in high-opportunity areas, and too high for others.
Targets conflict: A lack of coordination on goal setting among leaders can mean that teams or individuals fight for similar resources or fail to support each other where needed to achieve their respective goals.

Few leaders have been trained in how to set goals effectively; so most of them spend too much time doing it. Having struggled with this myself over two decades, here are five suggestions that can turn a bureaucratic process into a lever for world-class performance.

• Explain why the goal is important
  The most engaging leaders communicate a clear sense of purpose to their employees about how the organisation contributes in some way to the greater good—for example, by serving customers, colleagues, or the community at large.
  
  Goal setting is a critical opportunity to demonstrate the link between this broader purpose and what people do all day. Why do safety targets matter so much to a mining business? Why are detailed quality checks so important to auto parts manufacturer? If this link is not spelt out clearly, then there is a risk that employees will not take it seriously. Or worse, if the goals conflict with the organisation’s stated purpose, people will rapidly become cynical about your actual commitment to the organisation’s mission.
  
  For example, if the purpose is about providing great service but the goals are all about sales numbers, employees will rapidly draw their own conclusions about what the organisation’s purpose really is.
  
  
• Distinguish between good and great performance
  One of the best ways to create a high-performance culture is to set goals that distinguish between good and great performance. Good performance is about meeting the expectations of your role, ie, what are the specific things that the individual should have accomplished in order to be seen by their boss to have a done a good job?
  
  ‘Good’ performance should still require significant effort and effectiveness—it is not a low bar. It should be pegged around the level that means that the individual achieves their contractual compensation expectations and enjoys continued career growth.
  
  Great performance is more subjective, but it’s equally important to clarify. The idea is to tap into the psychological magic of ‘stretch’ thinking.
  
  A properly stretching goal is one that, on the day it is set, no-one in the team— including the leader—is sure it can actually be accomplished. Great performance requires you to come up with a different way of doing things to achieve it: a new product or customer angle, a new process, new people in key seats, or the application of new technology.
  
  US President Kennedy’s speech to Congress in May of 1961 is a classic example of stretch thinking: “I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the Earth.”
  
  But how do you determine the right amount of stretch? One question that I have found to be extremely helpful is, “What stretching goal, if we achieved it, would make you immensely proud?”
  
  This formulation triggers the subconscious mind to generate an initial answer that often hits the mark. It connects both the head and the heart. And while some people are reluctant to over-promise, my experience is that individuals generally do step up.
• Realise that not everything is a target
  As Jim Collins, author of Good to Great: Why some companies make the leap while others don’t, said, ‘If you have more than three priorities, then you don’t have any.’ One of the classic mistakes in performance measurement systems is to translate every aspect of the job description into a performance target, leading to dozens of pages of measures and goals.
  
  If there are too many measures, the employee simply can’t keep them in their head. Plus, each specific measure has very little weight—so people tend to spread themselves very thin across each item, thereby limiting their impact. And in reality, not everything is assessable. Many of the aspects of roles are binary: you either do it, or you don’t. In these cases, the opportunity for any sort of stretch performance (or poor performance for that matter) can be quite limited.
  
  Rather, assume that people have been screened for their role and understand their job description: Any gaps in the basic performance of their role can be dealt with when they emerge.
  
  
• Clarify lead versus lag indicators
  Performance management KPIs often focus on ‘lag’ output measures, such as profitability, market share, customer service scores, and the like. But to drive high performance, it is important to give people control over their destiny—and many output measures may not be totally within the control of individual employees (for example, where competitive moves affect market share).
  
  Explicitly using ‘lead’ indicators is therefore part of an effective performance management process. Lead indicators measure activities that are within the control of the individual or team: the number of sales calls made, files that are processed, or lines of code that are written. These measures can generally be tracked, reported, and discussed with the team at least weekly
  
  I have seen this process work very well to align efforts within a team and move the performance dial. But it also helps to increase engagement, both by giving people a sense of control and by giving them the positive reinforcement of frequent wins (rather than waiting till the end of a long performance period for the lag indicator to come through).
  
  
• Reinforce a growth mindset
  Involving people in setting their own goals helps encourage a ‘growth mindset’—the belief that one’s intelligence and talents can be developed through dedication and hard work, rather than being ‘fixed’—which helps sustain high performance.
  People with a growth mindset:
  - see challenges as opportunities to be creative
  - accept failure as the precursor to learning and improvement
  - see criticism as a gift that gives them alternate perspectives
  - find value in the process as well as the result.
  
  Moving to a growth mindset requires leaders to think differently around how they motivate people—moving from judgement and criticism to challenging and supporting, which puts the employee in charge of their performance.
  
  Highly engaging leaders demonstrate that they are committed to helping their people to achieve their goals and to grow as people. They take an active interest in their team’s learning and development. They set and articulate high standards, demonstrate confidence that their people can get there (with the leader’s help where necessary), and hold people to account when they fall short.
  
  There is more to world-class performance than an effective goal-setting process. But leaders who take the process seriously—rather than viewing it as an annoying, bureaucratic process run by HR—will find they are well on the way to engaging their people emotionally, and inspiring them to deliver more than they ever thought possible.