Setting objectives and performance standards

Strategic business goals tend to inform individual and team objectives (see figure 3.1 ). Typically, corporate objectives cascade down throughout the business to ensure the whole organisation is marching to the beat of the same drum. Integration of corporate and individual objectives is often difficult to achieve in practice, however, especially for staff lower down the command chain. Management Review's earlier study of performance management found that several organisations, including American Express Services Europe and the Building Research Establishment, admitted problems successfully translating business plans into individual goals.¹ Armstrong and Baron's research for the CIPD (1998) also found examples of poor alignment between overall business goals and individual objectives.² One participant, a senior manager, explained: "The theory of cascading objectives is great… But we are not yet very good at it. We're still learning."

The current business environment is not making it any easier to achieve the assimilation of objectives from top to bottom. Goal-, or objective-, setting is more difficult in a business environment that is rapidly shifting; objectives constantly need to be redefined to suit changing business circumstances. Yet, the timeframe for the achievement of individual objectives in most organisations tends to be over the medium rather than the short term.³ Winstanley and Stuart-Smith's examination of performance management confirmed that it is difficult to set performance objectives that are flexible and can be adapted in response to change.⁴ Although many companies have adjusted their systems to enable individual or team objectives to be revised during the performance period, this is usually to overcome personal problems with the original aim - the goal is unachievable within the timeframe, there is a lack of proper resources or there has been a misunderstanding of what is required, for example - rather than to accommodate wider changes to business strategy.

Studies have identified other potential difficulties with objective setting. Personal objectives, such as development goals, can quickly fall foul of business demands. This is illustrated by research into performance management in three organisations by Philip Stiles and colleagues. They found management rhetoric in support of development and the concept of employability was not converted into reality because of business pressures.⁵ This problem is likely to be exacerbated in a rapidly changing environment.

In addition to the problems of adapting objectives to changing circumstances, Winstanley and Stuart-Smith also concluded that it is difficult to set performance objectives that cover intangible aspects of performance, such as knowledge, or that cover the whole job - meaning objectives tend to focus on only a small part of a person's day-to-day activity.⁴ A further problem is one related to reward: where performance dictates pay levels, individuals tend to pursue objectives that secure immediate rewards to the detriment of longer-term goals. This was also highlighted by a participant to the 1998 CIPD research: "It is important to make people think about the long term. If you don't build this in, they will focus on the short term, on this year's pay rise and bonus."²

The potential difficulties with objectives have led some employers to use other performance requirements. Accountabilities, competencies, key results areas, output levels, responsibilities, standards of performance and whole-job performance have all been adopted by firms to assess and categorise performance (see figure 3.2 for a summary of the pros and cons of the various performance expectations). Competency frameworks are particularly popular. Performance expectations based on competencies are discussed in more depth below.

Figure 3.2: Pros and cons associated with performance expectations based on objectives, performance standards and competencies

OBJECTIVES

Objectives remain a central feature of most performance management arrangements despite the problems of integration, the lack of flexibility and a tendency for employees to focus on short-term goals, among others, coupled with the increasing use of other performance standards, most notably competencies (below). This was the finding of Armstrong and Baron's examination of performance management. They commented that the increasing focus on inputs, such as competencies, has "not lessened the importance of objective-setting for many organisations". Specifically, their research found that 75% of participants understood performance management in terms of setting objectives.² In addition, the achievement of objectives was considered the most important measure of individual performance. This was the most popular performance metric from a list of 12 assessment criteria.

Other studies confirm this picture. The Industrial Society's 1998 survey of performance management reported that 96% of the 480 respondents said the main purpose of their system was to set objectives/targets for individuals. This was a 21% increase on the figure for 1994.³ The Industrial Society study also found that objectives were used to measure performance in the majority of organisations (88%). This figure compares with the 61% using targets, the 57% using standards of performance and the 41% using competencies.

The Industrial Society's findings were in line with the results of MR2.¹ This earlier Management Review examination of performance management found that, while objectives were used to express performance requirements in the majority of organisations, many also included other factors and weighted each element according to their importance. Several companies asked about performance management for this issue of MR also weight performance expectations. Examples include: Normanton-based Miller Mining, which attaches the same degree of importance to both objectives and whole-job performance (45%), with the remainder (10%) attributed to responsibilities; childcare charity The Children's Society also weights both objectives and whole-job performance the same (35%), and a lesser proportion (15%) is attached to both responsibilities and accountabilities; and H&S Aviation, the Portsmouth-based aero-engine maintenance business, gives both objectives and competencies the same 50% weighting each.

Given the importance organisations still attach to objectives it is crucial to the success of a performance management system to get the objective-setting process right.

Aims

Objectives are defined by the Victoria and Albert Museum as a "task to be completed by a specific date".² The Public Record Office, which selects and preserves public records and provides access to them, operates SMART objectives (see figure 3.3) enabling "people to recognise their contribution to their organisation's strategic aims" and ensuring "everyone works together to achieve those aims."¹ SMART means:

Heathrow Express also adopts the SMART acronym, and according to one manager all objectives come under the broad aim of "meeting customer needs profitably".⁶ Lewisham Council believes that individual objectives "provide clarity on expectations".⁷

One commentator has described the significance of objectives in the following way:

"The setting of objectives is the management process which ensures that every individual employee knows what role they need to play and what results they need to achieve to maximise their contribution to the overall business. In essence, it enables employees to know what is required of them and on what basis their performance and contribution will be assessed."⁸

Types of objectives

Objectives differ from some other performance expectations because they tend to be finite and are applied to individuals and teams, whereas accountabilities or performance standards, for example, are specific to a position or function, so it is irrelevant who is performing the job. Objectives can be applied at every level of the business - corporate, senior management, business unit, functional, departmental, team and individual (see integration below).

Objectives should aim to bring about change and so cover every aspect of the job. It is important that one area does not become the main focus of attention to the detriment of others. Objectives are usually expressed as targets or as tasks with defined results that can be assessed. These may include sales, output and throughput. They can be work-related or personal. Work-related objectives tend to refer to the results to be achieved by the individual or group or the contribution made towards wider organisational, functional or team goals. Personal objectives are commonly developmental and designed to improve performance in defined areas.²

A major food manufacturer provides a good illustration of how these different types of objectives can be applied to one individual. Personal objectives at the company are set in four areas:

Figure 3.3 contains information on what constitutes a good objective.

Agreeing objectives

Armstrong and Baron say the following three steps are necessary to identify and agree objectives:

1.       Define the overall purpose of the job - what the job is designed to do.

2.       Define performance areas - the main accountabilities, key results of principal tasks of each job. This provides a picture of all aspects of the job, outlining what has to be done and why, and how performance will be assessed.

3.       Define tasks/targets - objectives that relate to each of the main performance areas. These should be quantified wherever possible. For example, increase sales by 8% in real terms over the next 12 months.²

Agreeing objectives does not seem to be a problem in most firms. A large proportion (78%) of line managers participating in the 1998 CIPD survey of performance management said they had no difficulty in agreeing objectives.²

Organisations achieve the task of defining and agreeing objectives in different ways. The previous chapter outlined the approach taken at Xerox (p.13). Another example is the one taken by Hasbro's UK and Nordic business units. Sue Jenkins, the toy company's personnel director for northern Europe, describes the objective-setting process, which has recently been broadened to involve input from colleagues, in the following way:

"If I were your line manager, we would first identify your four or five key customers within the business. You would go away and fill in a self-assessment form, and I would gather feedback from those internal customers, which I would consolidate with my own views. Then we would exchange forms and have a discussion about objectives and competencies in the light of what we knew about your role in the business. We would put together an action plan and agree your objectives for the following year."⁹

A further example comes from one of our case study companies, HSBC Bank (see case study 1, Case studies). The bank, formerly known in the UK as the Midland and which featured as a case study in MR's previous look at performance management, has developed a clear guide for setting employees' objectives (see figure 7.1, Case studies).

The first step involves checking the accuracy of current job descriptions, which the bank describes as "the first fundamental building block of performance management". Part of the process involves establishing key business and personal accountabilities: objectives set under business accountability relate directly to achievement of the employee's branch or department operating plan. At least one objective must relate to the employee's personal development, with the aim of "enhancing a strength or developing an area for improvement". The Key Result Areas (KRAs) are aspects of a job which require extra focus to help the bank become "truly customer driven and deliver results". Not all activities within a job require a KRA and the number is determined by the breadth and complexity of an individual's role. Examples of KRAs include customer satisfaction and leadership. Objective setting at HSBC is intended to be a flexible and not "a rigid set of procedures". As with the earlier PRO and Heathrow Express examples, an HSBC employee's annual objectives need to be SMART. They are always written as action statements. For example, under the KRA "customer satisfaction", the accompanying objective could read "achieve strongly positive trends in the personal satisfaction surveys, supported by clear systematic plans to achieve or maintain a leading position".

Number of objectives

Mike Walters, editor of the Performance management handbook, has stated that it is "unrealistic" for organisations to pursue more than three or four major objectives, and only one or two should involve significant development.¹⁰ The key is priority. Resources and capability are limited, so the focus needs to be on those areas that will produce the largest benefit. The same is true of individual objectives.

HSBC has changed its performance management process. Part of the revision has been a reduction in the number of individual objectives being set. Under the old system, as Peter Knight, senior manager, HR development, explains: "Far too many objectives were set for an employee, which included the more obvious aspects of a person's job on a day-to-day basis and failed to focus on the more important aspects of the role" (see case study 1, Case studies). Now staff, with their line managers, set no more than between eight and 12 objectives under the "Personal Performance Factor" (PPF), which influences an individual's incentive award.

Other companies stipulate an even lower maximum number of objectives. For example, at Nortel, the Canadian telecommunications group with several facilities in the UK, staff typically are covered by six objectives. Depending on the role, objectives are generally concerned with: operating (linked to business plan, budget and departmental plans), people development and strengthening the business.³ Transco, the pipeline business of BG plc, which operates a performance management system entitled the "Performance Assessment and Development Scheme" (PADS), also uses only a small number of objectives for staff. Under the PADS arrangement employees have no more than five key objectives.³

Firms questioned about performance management for this issue of Management Review tend also to make use of a smaller number of objectives for individual members of staff. Examples include: Armstrong World Industries, which reports a minimum of two, with a maximum of six for senior managers, managers and staff; the Children's Society, which operates a bigger number, ranging from five to 10 for all employees; and Padleys, the Grantham-based food manufacturer, which has a minimum of four and a maximum of eight for all staff, including manual workers.

Team objectives

Most work is achieved through cooperation and many employees now work in formal teams. However, the majority of performance management arrangements, including the objective-setting process, do not reflect the importance of teamwork. According to the Industrial Society in 1998, team objectives were of less importance in many firms' performance arrangements than they were in 1994.³ Where 75% of employers responding to its earlier survey of performance management said the main purpose of its system was to set team targets or objectives, this figure fell to 37% in 1998.

Armstrong and Baron's research for the CIPD confirmed the picture presented by the Industrial Society's findings, and led them to comment: "This apparent lack of interest in performance management for teams is remarkable because of the attention given in most organisations to improving the quality of teamwork."²

Organisations that do set team objectives tend to adopt a similar approach to the one they use for the establishment of individual goals. Team objectives are derived from the group's purpose and its accountabilities. Usually the whole team discusses and agrees the objectives. They also tend to identify how the group should operate.

One firm that has adopted team objectives as part of its performance management system is Xerox. The top-down objective-setting process described in chapter two works for both teams and individuals. Most teams will have their own roles, responsibilities and objectives (RROs). These are what teams need to do to achieve their vital few objectives for the coming year (vital few objectives are defined as the "few actions that will have the greatest impact" and which will "deliver our desired objectives"). RROs will be drawn up by team members and will also include group responsibilities.¹¹ Kent County Council is another organisation that makes use of team objectives. According to the council, team objectives must not only meet the needs and priorities of the group but also fit with the overall goals of the organisation and be agreed by all team members. They need to be "challenging, yet realistic and their achievement needs to be measurable", says the council.¹²

Integrating individual, team and corporate objectives

Organisational effectiveness is optimised if, as we noted above, the entire organisation marches to the beat of the same drum. This involves the integration of all aspects of the organisation's performance into the core values and visions expressed by the organisation, generally in its corporate strategy. But this is often hard to accomplish.

Integration needs to take place up, down and across the organisation. While the assimilation of corporate goals with individual and departmental objectives is often a process that involves the former cascading down to lower levels of the organisation to provide a framework in which the latter can be defined, performance management is more effective if the system also works in a cyclical way (see figure 3.1). Performance feedback should act as a mechanism for employee input into the definition of corporate goals. Just as importantly, there needs to be horizontal integration.

The strategic planning process and business plans, and corporate mission statements and values all determine organisational objectives. These goals should aim to be as precise about what the business needs to deliver as is practicable. Clear corporate goals will lead to departmental, team and individual objectives that are better integrated with business needs. Being clear about what the business is trying to achieve will identify priorities - the short-term goals that make longer-term objectives a reality. For example, an organisational objective to launch a range of new products will have several important implications for employees, not least whether the business currently possesses the necessary skills to deliver the goal. Under such circumstances, the first priority will be to establish an organisational structure to develop and market the new product. Medium-term objectives will be the development of the products, while the longer-term goal will be successfully (in terms of defined performance criteria) bringing several new products to market. Establishing exactly what the strategy requires of each division in the business will prevent objectives in one part being pursued to the detriment of the achievement of goals elsewhere in the company.

New Forest District Council provides an example of how to achieve a common approach to translating corporate goals into objectives for different parts of the business, as well as for the workforce.² The council's performance management process has three core elements, one of which is corporate planning. This identifies its short- and long-term business needs, enabling the organisation to plan ahead and develop the skills needed in the future. Training and development, and performance and development interviews are the two other core features of the process. The three core elements provide a framework for each of the council's directorates. Although the system is flexible, in the sense that directorates can incorporate their own priorities and objectives, the overriding aim is to ensure individual and team objectives are linked to corporate aims.

Timing of objective setting is important if the goals are going to meet the needs of the business plan. In theory, individual objectives should be set as close as is practicable to the formulation of the business plan if they are to be salient. In large organisations, line managers often stagger the number of performance reviews they perform, which clearly undermines the link between the business plan and individual goals.

Communicate, communicate, communicate

Communication is vital to successful integration. Ron Collard, CIPD vice-president, in his foreword to Armstrong and Baron's book, Performance management: the new realities, states that: "Performance management is ultimately about communication".² Regular feedback provides a channel for communication, up, down and across the organisation. Importantly, regular feedback also encourages employee input into the whole objective-setting process, rather than confining it simply to joint agreement of individual goals, which is the approach favoured most by employers (see below).

Part of the explanation for the failure of integration between corporate and individual goals in some organisations is that objectives derived from business goals often feel imposed rather than agreed. One comment from the 1998 CIPD research clearly illustrates this problem. A manager commented: "We sit down and think what, in the context of what we want, is best for the person to do. There is no opportunity for that person to contribute. It's top down."²

However, most companies ensure a degree of employee involvement. MR2 found that, in the main, objectives were jointly agreed between line managers and staff, although lower-level employees had less control over the process than staff in senior positions. The 1998 Industrial Society survey of performance management confirmed that jointly agreed objective setting was the norm, with 88% of respondents reporting that targets were set by the manager and agreed with the individual.³ By contrast, only 35% of participants said that targets were set by individuals in some circumstances.

The Natural History Museum (see case study 2, Case studies) provides an example of how objectives are jointly agreed. Objective setting at the museum is viewed as a joint process between the individual and his or her line manager and, as David Williams, senior personnel executive, explains, "nothing is written until fully discussed and agreed with the employee". This openness is considered vital to the success of performance management; improving the communication flow between managers and employees was a key influence in the scheme's design. In common with many organisations, objectives at the museum are cascaded down to individual members of staff from the business plan, via departmental goals. Their content and number are tailored to each job.

PERFORMANCE STANDARDS

Objectives tend to be time-based quantitative targets. Performance standards are more appropriate for longer-term expectations and aspects of the job that have no time limit - that is standards that are essential and which staff are expected to meet on a daily basis. For this reason, performance standards are often referred to as standing or continuing objectives. Generally, performance standards do not alter greatly between performance reviews, only changing occasionally to accommodate modifications to the job. For example, a common performance standard for customer-service staff that is unlikely to alter significantly might be the following: "Answer the telephone within 10 seconds."

HSBC provides an example of how performance standards form part of the performance management process.¹ HSBC's original performance management system centred on job profiles that defined the main activities and requirements for each job within the bank. The job profile contained four elements: the job purpose statement; the main activities of the job; performance standards; and the levels of skills needed. Performance standards describe what must be achieved in each of the main job activities. They are targets of achievement and depict the measurable/observable outputs of the main activities of the job. The type of outputs measured related to the following: accuracy; business development; customer service; procedures; quality standards; quantity; teamwork; and timeliness.

Performance standards remain a fairly common way of assessing performance. The 1998 Industrial Society survey of performance management reported that 57% of respondents used standards of performance.³

COMPETENCIES

Chapter two outlined the growing use by employers of competencies and how competency frameworks are becoming an increasingly common feature of many performance management systems. Competencies have been defined as the personal characteristics that make an individual effective in a role. Competencies include generic behavioural attributes, such as whether an individual is a skilful decision maker, a reliable team member or exhibits a capacity for creative and innovative thought, together with specific job-related skills, including knowledge, customer awareness and quality of output. Competencies may also be developed for the whole organisation. These are often called core competencies and refer to what the organisation has to be good at in order to succeed (examples of different competencies can be found in figure 3.4). Organisations usually identify between five and 10 competencies that tend to reflect its corporate objectives. Essentially competencies describe what organisations and people need to do to perform well.

Whereas objectives are suited to jobs with easily quantifiable outputs, competencies provide a qualitative assessment of performance. Objectives and performance standards are concerned with what should be done and competencies with how it should be done. Hence, competencies tend to look at the behavioural aspects of an individual's performance, such as how a person acts at work and how they tackle a task, although technical competencies that focus on "hard" job-related skills are becoming more popular. The annual Competency & Emotional Intelligence benchmarking survey in 1999 found that behavioural competency - that is, the behaviour that determines competent performance - is the most common form of competency.¹³ Around 87% of the 145 organisations surveyed use behavioural competencies on their own or alongside other forms, while 66% of respondents have developed their own technical/functional competencies, outlining some of the job-related, non-behavioural skills that are required of employees. Almost 32% of organisations use externally-developed technical competencies, such as National Vocational Qualifications.

Aims

The RAC says that competencies for its call centre staff "capture the essence of what we require in a role, and provide a language to communicate that".¹⁴ Competencies are seen as a useful extension to total quality management at Xerox, allowing the company to assess existing skills and those it needs for the future, and how to achieve them.¹⁵ Business Link Tees Valley, a company offering business support in Teesside, originally perceived competencies as a way to give "depth" to the existing staff appraisal process and to update job descriptions so they reflect better the skills that staff are expected to develop as part of their roles.¹⁶

Competency frameworks are popular because they enable job requirements to be better defined. This helps firms to match skills and potential to posts better, as well as enabling managers and individuals to identify areas of deficiency. Rosemary Harrison, author of the CIPD's core text on employee development, says that organisations adopt competency frameworks when "there is a need to develop clearly defined standards of performance relating to one or more occupational groups".¹⁷ Generally, the inclusion of competencies in performance management arrangements reflects an organisational desire to place greater emphasis on employee inputs, rather than just outputs. This is particularly the case among companies making employee development the overriding focus of performance management. Employee development tends to be the most common aim behind employers' decisions to use competencies. This was the finding of the 1999/00 Competency & Emotional Intelligence annual survey referred to above. The survey found that the most popular non-pay reason for using competencies was training and development (88%), closely followed by assessment/performance management (85%).¹³ Original research for an earlier issue of Management Review found that 68% of respondents used competencies as part of their approach to employee learning.¹⁸

Establishing competencies

Best practice indicates that competencies cannot simply be taken down from a shelf and applied to a job. They need to be tailored to fit the job and the culture of the organisation. Carol Whitesmith, training controller at Avon Insurance, affirms this view: "We looked at some of the generic programmes that were available in areas like sales awareness and financial reinsurance and got our providers to tailor them to make sure they were addressing the competencies we are interested in."¹³ Competencies also need to be expressed in terms that people can easily understand.

The annual Competency & Emotional Intelligence benchmarking survey found behavioural competencies were usually developed in-house. More than 79% of firms responding to the 1999/00 survey said this was the case.¹³ Almost all of the remainder (20%) adopted a ready-made framework, such as a consultancy's proprietary model, and amended it to suit their own needs. Less than 1% of participants used an off-the-shelf framework without any amendments.

Many organisations begin the task of developing a competency framework by drawing up job profiles or by placing a range of jobs into a series of job families. Repertory grid, critical-incident technique and work profiling are among the competency research techniques often used to identify appropriate behavioural characteristics required in a job.

Halifax Group and Volkswagen UK provide two examples of how competencies fit into performance management arrangements. Halifax Group, the building society turned bank, operates two competency frameworks: one for its 37,000 staff, introduced in 1995; the other for executive-level managers, and established in 1994.¹⁹ The frameworks form part of the company's performance management processes, and aim to provide a common language to describe competencies and performance. In addition, they help in career development by highlighting strengths and weaknesses, and in determining personal training needs.

The Halifax began the development of its competency frameworks by looking at what was important in various job functions and the behaviours that were commonly found as contributors to successful performance. The staff framework consists of 10 competencies, subdivided into five levels. The competencies are arranged in the following three broad clusters:

There are descriptive statements for each competency and the five levels, which are arranged to correspond with different grades of staff. Employees working in administration teams would typically be on level one, for example. In 1998, the Halifax reviewed its competency frameworks to see if they were still relevant using repertory grids, critical incidence technique and job analysis interviews. Some minor adjustments, reflecting business developments, followed.

Volkswagen UK uses a competence-based performance management system that was developed in-house and which began by grouping jobs into a series of job families. The company developed 10 competencies for each job family that can be performed at several different levels, giving 30 to 40 competency definitions overall. Individuals assess themselves against the relevant competencies and agree these with their line managers. Individual performance rating depends on the number of competencies attained, and this score determines progression through the pay scale.²

Involving staff in developing the competency framework is essential for establishing competencies that truly reflect people's jobs and roles. Tools such as job analysis interviews that help to identify appropriate competencies are based on involvement. Usually a sample of staff from the relevant area helps to develop the competencies. Bolton Council in Lancashire operates a competency-based performance management framework for its 700-strong senior group of staff.²⁰ Volunteer managers were involved in deciding what competencies would be needed in areas such as diversity, leadership and problem-solving, to meet the council's aim of "good people management". Volunteers also defined the descriptions for each of the competencies and performance levels.

At Reigate and Banstead Borough Council the competency framework was also largely developed by staff, as Kevin Rampling, head of personnel, explains: "The competencies really came from staff: we asked them what behaviours make a difference to the way we deliver service to our customers."²¹ The council employed a behavioural psychologist to carry out a series of focus groups, whose members first designed the competencies. Separate focus groups then tested employee understanding of the competencies and made final adjustments. The 14 competencies at the council are each described in terms of a general definition and five levels of behaviour.

Swallowfield Consumer Products is another company which involved staff in the development of competencies.²² The manufacturer of cosmetics and toiletries assembled a project team of eight people from all levels of the business to define the factors identified by senior managers as the basis of performance evaluation. A questionnaire was piloted across 20 benchmark job holders, whose roles were ranked according to the score generated. Next, every employee was sent a questionnaire asking them to assess the level of each factor required in their own roles. The competency framework that resulted consists of six "core" or generic competencies (including commercial awareness, cooperation and teamwork, and improving and innovating), plus 16 role-specific competencies from which a maximum of six is selected for each role. Each competency also carries a list of negative indicators to help describe poor performance.

Using competencies

Often competencies are used in conjunction with traditional performance management features, such as objectives. For example, William Wilson, the supplier of electrical, plumbing and heating equipment for the domestic and commercial market, which updated its performance management system to include a competency framework in 1999, assesses employees on their achievement of targets/attainments as well as competencies.²³

Because specific competencies tend to be attached to jobs, people know what behaviours, and at what level, they need to attain to make progress. As with objectives, strengths and weaknesses in specific areas of competence are discussed with line managers at performance reviews. Prior to a review at William Wilson, for instance, individuals complete a self-assessment of their performance. Line managers also complete their own evaluation. The two are compared at the review meeting and an agreement on grading reached. Development needs are also identified and a recommended training programme devised.

The system at Abbey Life Assurance, part of the Lloyds TSB Group, illustrates how individuals move through the different levels of competence.²⁴ The financial services company operates two competency frameworks, one for clerical and secretarial staff, and one for managerial and technical jobs as part of its performance management system. There are eight generic clerical and secretarial competencies, and 20 general managerial and technical competencies. The inputs of each job are divided into two categories: individual knowledge, skills and experience (KSE); and the characteristics and behaviours - measured in terms of competencies - that contribute to effective performance. A job ladder is linked to each job, with the number of rungs indicating its difficulty and the time it should take to reach the top. A salary level is attached to each rung. Individuals enter the job ladder at its most basic level and move upwards when they have acquired the relevant KSEs, demonstrated the appropriate competencies to the required standard and delivered the "outputs" (a mix of accountabilities, standards and objectives) for that review period. The review procedure is very thorough, with every manager required to document each appraisal: stating the competency level attained with evidence to back up the assessment. The document is then validated through peer group and senior divisional management reviews.

Integrating competencies with corporate objectives

Competency programmes are increasingly being used as a "strategic tool to reinforce corporate goals and objectives", reported the 1996/97 annual Competency benchmarking survey.²⁵ The 1999/00 survey found that 82% of participants believed competencies supported their core values and business priorities, with many establishing a framework for this reason.¹³ Figure 3.5 illustrates the relationship between competencies and strategy.

Figure 3.5: The relationship between competencies and strategy

Source: Sara Lee Bakeries (UK)

Competency frameworks are able to do this because, although they are derived from an analysis of each job role, they take their lead from the business plan, corporate values and the vision of senior managers as to the future direction of the organisation. Individual performance expectations through competencies tend to unite basic operational considerations with strategic direction and future plans. Core competencies - which are becoming increasingly popular - are particularly good at integrating competencies with business priorities. Such frameworks, where they are carefully developed and piloted, involve employees and line managers, enabling them to understand corporate strategy better and what it means in terms of their own key behaviours. Customer care, concern for quality and effective working across departments and levels are typical examples.

KPMG is one company that links competencies to its corporate values. The professional services firm has used a framework of personal competencies to provide the focus for performance management for several years. Recently, it identified the behaviours needed to underpin its "global values" (people, knowledge and clients), and these are being incorporated into the appraisal process. Explaining the change, HR development adviser John Bailey says: "It's all very well to achieve your results, but the new value-based performance management process allows us to assess how you've achieved them. We need people to feel part of a team, to be motivated, to be enabled to work in the right environment. We really see this as a business imperative."²⁶ Anglia Housing Association Group has also aligned competencies with core corporate values. Executives and employees were asked to outline what they perceived as the existing organisational culture and how this should change.²⁷ According to corporate services director Jenny Manser: "We wanted to establish who we are, what we are and what we believe in." The result was six "core values" statements which feed into the organisation's competencies.

Competencies are also fairly easy to adapt to suit changing business needs. Successive Competency & Emotional Intelligence annual surveys have shown that organisations see competencies as a way of speeding up change by encouraging employees to behave differently. Forward-looking strategies can be built into the competency framework so individuals develop the behaviours perceived as necessary in the medium to longer term. Competencies aimed at encouraging staff to be flexible, such as change management, innovation, adaptability and strategic thinking are becoming more popular.²⁸

Rolls-Royce & Bentley Motor Cars, which developed its current performance management system on the back of the successful implementation of a competency framework, has followed this approach, as Paul Victor, director of change management, explains: "We sat down as a team in 1996 and looked ahead, asking ourselves what behaviours would be needed over the next four or five years to give us a sustainable competitive advantage. It was about the effective utilisation of resources through time. That gave us a 'future focus' on behaviours, getting the business as a whole to think about what, for example, a high-performer would be doing. The answers provided the details for the top level of the performance management structure. The opposite of those, in terms of behaviours, gave us the bottom level" (see case study 3, Case studies).

Competencies also support the integration of different HR practices. Competencies link a range of HR strategies, from recruitment and induction to appraisal and succession, so they all focus on the same key expectations and objectives and provide mutual reinforcement to each other. RAC, which has established a competency framework for its call centre staff, believes competencies provide a unifying theme for its recruitment, career development, performance management and training strategies.¹⁴ Sara Lee Bakeries (UK) takes a similar stance.²⁹ Following the acquisition of several new businesses, the company's HR director, Ruth Maxwell, decided that behavioural competencies would be the best way of establishing a single approach to staff development, selection, succession planning and reward throughout the newly enlarged business.

Figure 3.1: Integrating individual and corporate objectives

Integration corporate goals and individual objectives using a pyramid as a model at Westminster City Council

Examples of how companies do it

"The business planning sequence consists of a five-year strategic plan, a three-year tactical plan and a one-year budget. It is the objectives and critical success factors contained in the budget that initiate the performance-management process. These start with the director general's objectives and are cascaded down through the managing directors of the three AA businesses and function directors."

AA

"Cascading the process."

Armstrong World Industries

"We draw on corporate objectives in setting individual objectives."

The Children's Society

"Objectives have to be relevant to the job, fair and equitable, clear and agreed and contribute to the trust and directorate objectives. In reality, therefore, most objectives are set in a cascade-down approach emanating from the business plan. Objectives are intended to be open, with managers sharing their own objectives with staff and agreeing links."

Great Ormond Street Hospital for Children NHS Trust*

"Reference to annual business goals, and using a downwards cascade."

H&S Aviation

"Identify business objectives first, then team, then individual."

Miller Mining

"Regular review of objectives, interim reviews etc."

Moscow Narodny Bank

"Objectives are cascaded down from the Museum's business plan, via departmental goals and should be SMART, that is, specific and stretching, measurable, achievable, realistic and have a target date."

Natural History Museum

"Corporate goals are reviewed, developed and communicated on an annual basis and these are the focal point to which department, team and individual goals are aligned. Managers communicate company and department expectations. Individuals should understand how their job contributes towards the achievement of business and company objectives."

Power company

"Pyramid model: council aims - chief officer's aims - management actions - staff actions and activities."

Westminster City Council

Figure 3.3: What's a good objective?

"A goal is what an individual is trying to accomplish; it is the object or aim of an action."³⁰

According to Latham and Locke, the success of objective setting will depend on the following features:

Employee participation in the objective-setting process legitimises the goals. Participation also provides clarity and understanding of what is expected. Objectives must be seen as fair and reasonable by employees. Support structures need to be in place that help, rather than hinder, goal attainment. For example, employees must be given the correct tools and any training they require to bring their skills up to the level needed to achieve their goals. Support from the line manager is seen as critical to the success of the process. Effective communication is vitally important in making objective setting successful. Feedback is a necessary condition for improved performance and relies on good performance measurement. Periodic and precise feedback should be given to each employee so that he or she is informed of how well, or how badly, they are performing in relation to their objectives. The process also helps to identify future objectives.

If objectives need to reinforce cooperation, then team targets are preferable, while individual goals promote greater accountability. Objectives assigned to individuals who perform interdependent tasks, may, however, pose problems if there is no cooperation, coordination or objective sharing. Some commentators suggest that objective setting is best suited to jobs that have very few interdependent tasks. Interdependence also makes measurement more difficult.

The following are seen as the necessary conditions for successful objective setting:

Michael Armstrong and Angela Baron have outlined the key characteristics of good objectives as being:

Organisations tend to define good objectives in terms of the acronym SMART, which translates as:

The Natural History Museum adopts the SMART approach to objective setting.³³ The museum also uses the following structure to help appraisees and appraisers agree objectives.

Verb? Result? Method? Measure

The museum's guidelines for staff provide the following example to distinguish between a "good" and a "bad" objective.

"Revise the filing system" is not a good objective. It does not say when this task is to be achieved, or how. It is also pretty ambitious - try to break tasks down. A better objective might be to say:

"To draft proposals for revising the filing system by consulting colleagues and Estate Management by the end of April 2001."

By applying the structure above, an objective aimed at getting the individual more familiar with the museum's public galleries would read:

To improve (Verb)

knowledge of the work of the museum (Result)

by visiting one gallery a week (Method)

until 30 November 2001 (Measure)

The museum points out in its guidelines on objective setting that they do not have to relate to the completion of a new task. Objectives can relate to improving standards in current performance, such as reducing errors or increasing the speed of performing tasks.

The HSBC's Let's Manage Performance document offers the following advice on setting good objectives.³⁴

"Remember, objective setting is not a set of rigid procedures - it is meant to be a flexible process.

Figure 3.4: Examples of competencies from The Royal Bank of Scotland

Format: core framework applying to whole workforce (22,000 employees).

The 40 competencies are grouped into seven clusters.

Communication

Formal presentation

Communication

Written communication

Decision-making

Analysis/problem assessment

Judgment/problem-solving

Safety awareness

Leadership/influence

Developing organisational talent

Individual leadership/influencing

Meeting facilitation/meeting leadership

Meeting participation

Negotiation

Persuasiveness/sales ability

Strategic leadership

Teamwork/collaboration

Visionary leadership

Empowering job design

Performance management

Delegation of authority and responsibility

Follow-up

Information monitoring

Maximising performance

Coaching

Personal qualities

Practical learning

Adaptability

Quality orientation/attention to detail

Quick thinking

Customer-service orientation

Energy

Impact

Initiative

Integrity

Resilience

Tenacity

Tolerance for stress

Work standards

Innovation

Risk-taking

Planning and organising

Planning and organising/management of work

Knowledge/skill

Technical/professional knowledge

Organisational awareness

Business awareness

Source: Competency & Emotional Intelligence annual benchmarking survey 1999/00.