Goal setting is old hat. Why do we need KPIs?

KPIs coordinate the behaviour of people toward a common goal.

I know I am getting old, some from the creaks and odd anonymous rumblings from inner me, but more from the fact of memory that too often reaches back beyond the age of people I chat to.

I remember when the goal setting theory of management was the big thing. Edwin A Locke was the innovative thinker behind goal setting theory. His first paper appeared late 1960s, and followed up by papers and books. It was the big thing in management in the 1970s into the 1990s.

Goal setting had a sound rationale, then as good a psychological rationale in business as was available. The original idea dates back to Aristotle, no, I hasten to add, my memory does not reach back that far. Aristotle argued that purpose could cause actions. One of our earliest psychological theories. It was Locke who took up the implications and began research into the impact of goal setting in business.

Essentially the idea is that in setting the goal people become implicitly more likely or perhaps more susceptible to identify and relate to those actions needed to achieve the goal. A second factor is most people have integrity, therefore in setting the goal and then not trying can result in a conflict of conscience.

Fundamentally the idea has merit. It works, but as experienced managers know it only works to a point, and not with everyone. Also, if people do not get the goal they can become sort of immune to the process, they can agree goals and not be fazed by failure to achieve them. Goal setting theory can encourage a relaxed attitude to accuracy and commitment, supported by development of a culture of excuses.

The ideas of Aristotle as developed through Locke launched goal setting theory, which lead to the goal setting meeting still common today. So if you are subject to your team leader sitting with you to set your goals then it arises from a theory of motivation from the last quarter of last century, the theory itself derived from ideas from around 350 BCE.

In essays and books noted on my profile, I discuss a theory of psychology and of organizations that reflects the near 2500 years that separate my thinking from that of Aristotle (he lived around 384-322 BCE). Aristotle was a remarkable and profound thinker given his ideas were being considered as the basis of motivation theory only 30 years ago.

In three essays I introduce the core of the OPD theory of organizations: Achieving the perfect game to double profits, Making HR the proactive driver of strategic success, Okay, strategy is agreed. Now what? I will not recap the theory here, or at least will only do so in regard the topic of this essay. What is the purpose of KPIs?

From the earliest days of reflective consideration (350 BCE) there have been theories of psychology. Why people do what they do has been a question of interest for at least 3000 years. Almost all theories of management, organisations, and motivation, there has been background rationale in one theory of psychology or another. Motivation and organization is about people, and any theory of either must sit within a general theory of psychology.

I recall my first job in Shell Oil in New Zealand, 1971 to 1974. Several courses I attended involved various popular psychology theories. T-groups, role stripping, unstructured workshops all intended get to the ‘real person’. Eventually empirical research caught up with these approaches and discredited them.

OPD-HCD is the theory of organizations arising from what it the only scientific theory of psychology. It is written up in the book The Origin of Consciousness available free in pdf from profile.

I encourage reading of the fundamental intellectual work. Yes, it is theory. Put your feet up, reflect quiet, and ask, am I comfortable with this scientific description of me? I will be somewhat surprised if you determine ‘no’. But if you do say no, I am interested to hear from you.

Second, and appropriate to this essay the theory offers an approach to organisations, motivation, management and leadership. The OPD theory involves a significant if not total shift in the way of designing work, engaging people with work, the role of work in the community, and the management and leadership enabling success in work for people and the business.

OPD theory is significantly proved in that I have been applying it in organizations in Auckland for near a decade. It is established in clients, and initially validated in a Masters of Business Thesis from Unitec. Books on OPD and papers on theory available at my profile or from my Social Science Research Network author page: https://ssrn.com/author=2572745.

With this broader background I will now briefly summarise OPD theory as it applies to the topic, then address the key question and describe the importance of KPIs, why they are essential, and how to best manage them...and it has nothing to do with ‘goal setting theory’.

Goal-action: For every goal there are (ideal) actions that must be acted out for the goal to be achieved

I think this sufficiently self-evident as to require no discussion. There may be more than one way to getting the goal, I accept it is possible. I have found in real life, especially in business, there is never more than one way once internal business processes, market positioning, cultural standards or manufacturing philosophy bought to account. Multiple demands rapidly reduce options to the extent in eight years I have never experienced a situation with more than one option as regards ideal actions relative to a specific business goal.

1. Actions are called ‘ideal actions’, ideal in sense they offer the greatest chance of greatest success.

2. Ideal actions are of the quality that doing them does not guarantee success, but not doing them guarantees failure.

3. Goals in business are referred to as key performance indicators (KPIs). This essay is to show that they are essential, the reason they are essential, and to repeat, the answer has nothing to do with ‘goal setting theory’ referred to above.

Managing groups of goals. Due goal-action, groups of goals imply a set of ideal actions that have to be identified and delivered if the group of goals is to be achieved.

For any group of KPIs: Where the KPI/ideal action sets are not separated, then the group of KPIs may be collectively referred to, say KPI Group A. It is then understood that KPI Group A, has underlying it a set of ideal actions referred to as the behavioral structure of KPI Group A. It is also understood that the behavioral structure of KPI Group A implicitly consists of multiple game plans that have not yet been identified.Where KPI/ideal action sets are separated and identified into game plans, then the behavioral structure of KPI Group A consists of identified multiple game plans.

The implication is clear, namely strategy is a group of goals therefore this analysis applies to the roll out of strategy.

1. The first step is to tease out the sub-goals that is identify the individual KPIs.

2. Then grouping like goal with like goal to form the organization structure so that the whole group of goals is achieved. This is building the organization structure via the goal cascade.

3. There is always more than one way to structure the organization. For example regional based, or product based. Then within either, does customer service report to sales, admin or operations? The overriding measure is how well the organization structure adopted maps the strategy to the target market. Bearing in mind, markets always emerge in a manner not always seen clearly at the start. What looked like the best way to do it at the beginning may not still appear so after two or three years. None of this alters the purpose of KPIs in the structure.

4. It is the fundamental relationship between individual KPI and the group of KPIs (strategy) that gives great strength to OPD theory. The organisation structure can be changed without disruption provided KPIs not changed, merely shifted from division A to B, and provided the same people retain the same KPIs. The organizational rearrangement is then the re-aligning of KPIs into teams where the increased synergy of closer working arrangement enables more effective delivery of the strategy.

5. Within OPD-HCD, which the practical system HR processes for applying OPD theory, a KPI with the derived ideal actions needed to achieve accepted in mind, it is defined as a game plan. This is exactly analogous to sport. The better the game plan and the better it delivered the better the result.

OPD theory follows immediately: A strategy is a group of goals implying a behavioral structure there when accepted in the mind of those seeking to achieve the common goal, becomes their game plan, coordinated such each person makes their appropriate contribution to the whole.

Manage the processes not the result.

The goal-action principle is not new, but the thorough application to the design and operation of organizations is new, hence the theory is new, and integrated with a new general theory of psychology.

Strategy is conceived as a ‘whole’, but implementation demands it be broken into manageable components. To deliver strategy requires identification and delivery of game plans to standard. The extent strategy is planned to be achieved in any accounting period is the ‘business plan’ for that period.

OPD theory alters every aspect of organization design and operations (for more reading see the books on redesigning the organization at my profile.

OPD-SHRM is then the practical set of HR processes implemented by the key players in the organisation that implements OPD theory within the organisation (www.opdcoach.com)

I do not wish to go any deeper into OPD theory. For now, I restrict discussion to the precise questions: What exactly is the purposes of the KPI within OPD theory? And how do we need manage it to better effect?

The KPI is derived from the strategy. Ideal actions are derived from the KPI. Identifying ideal actions judged as offering the greatest chance of greatest success of achieving the KPI is the game plan. Staff performance is then measured in their success with delivery of the game plan.

Two crucial definitions that arise immediately from OPD theory.

Management is defined as the task of drawing from strategy the KPIs, and from the KPIs the ideal actions. Hence management is building game plans, and the activity of building better game plans. The second part of management is having staff adopt the game plans and building frames in mind as what they do at work. (Refer Management is more important than leadership.)

Leadership is ensuring the frame retained top of mind by the person, and imbued with positive energy, flow, fun, recognition, self-respect and satisfaction. (Refer Understanding and managing motivation.)

The KPI defines the aim of the role. The game plan defines the actions needed to achieve the aim.

Decide the aim, then achieve it by managing the processes and identifying the actions and having them all done to standard. When the going gets tough, trust your processes and management of the actions.

Management is identifying and improving the aim and game plans in a role. Within OPD theory, people are not accountable for the aim, they are accountable for delivery of the game plan to standard. This set of responsibilities is quite different from that of goal setting theory. Within OPD theory people are asked to actively manage that which they can be held accountable for, their own behaviour at work, namely delivery of an agreed game plan to an agreed standard. Leadership is supporting consistent delivery of game plans to the highest standard.

The purpose of the KPI follows: The link between strategy and staff behaviour.

OPD theory is a comprehensive solution to the question Okay, strategy is agreed. Now what? Strategy is the core central purpose of the organization. Without strategy, there would be no organization. OPD theory is the implementation system that enables the precise roll out of strategy coordinating the activities of two people on opposite sides of the globe who do not know each other and who never communicate. Through effective roll out of strategy, game plans, management, frames, fun, and leadership, people are able to act in harmony and perfect synchronization. It is the KPI that enables and guides such coordination. Management refines effectiveness of coordination and leadership achieves the greatest level of success for both people and the organization.

I offer below a series of notes and observations on KPIs. These are guidelines on management of the KPI structure, some theoretical and some arising from experience with the OPD-SHRM system.

• Psychologically, the KPI provides a direct mental pipeline between the person and their contribution to strategic success. People can ‘see’ their contribution to success, and hence the KPI enables the first level of self-respect.

• The key to the KPI is the written definition, not the number. The definition defines the ideal actions. The number reflects the skill, drive, and commitment of people, and the judgement as to the number to be expected with delivery of ideal actions to standard. People learn, therefore the number should improve as they do.

• There should not be too many, nor to few. One KPI is too few, five is likely too many. This is in most part arrived at from experience, it is not a constraint from theory.

• PKI structure must not be too broad, otherwise the range of ideal actions moves beyond that practical, beyond the range anyone can be reasonably expected to deliver to standard.

• Corporate learning is the understanding of the link between strategy and the KPI and KPI and ideal actions. This learning needs captured in writing. Refining these crucial links is defined as management. For example, a good sales manager may have developed excellent ideal actions. When they leave then the incoming manager has this list as the start point.

• The number for any KPI is just the number for this budgeting period. People learn, good ideas are captured in the learning firm system. Given the overall economic conditions remain comparable, then the number of the KPI achieved should improve from budget period to budget period.

• If the KPI is changed, then the ideal actions change. Defining the ideal actions is the point of the KPI. In other writing I discuss motivation from within OPD theory showing the link between ideal actions and psychological frames in minds of people (Understanding and managing motivation). It is crucial to understand these links, and that changing the written definition of the KPI can force a detailed review of the mental frames held by people in relation to their job.

Once OPD-SHRM implemented, people ‘buy-in’ to managing their mind, actively working with team leaders to build frames that guide performance, and work with the team leader to find flow and enjoy the day delivering the ideal actions. Once the psychological structure achieved, then I strongly recommend is not altered without very careful review and consideration. Restructuring a mind from one set of psychological frames to another can be done, but needs done with great care and sensitivity.

Memory recalls many management theories, none have lasted, some no more than fads. The emergence and fall of theory after theory in management has resulted in a disregard for theory in management. Given we are all act based on the ideas we hold in mind, the foundation insight of the theory of psychology from The Origin of Consciousness, on which OPD theory is based, we have the proposition there is nothing more useful than the correct theory.

Above all... remember the basics...

Decide the aim, then achieve it by managing the processes and identifying the actions and guiding them done to standard. When the going gets tough, trust your processes and management of the actions.