The conventional approach [to performance management] is to set objectives as a single block, not categorized by key stakeholders. This doesn't work because you need to write separate strategies for customers, for employees, for suppliers, for owners, and so on. How can a link be established between strategy for employees, for example, and results on a set of objectives if that set isn't classified according to key stakeholder? The answer is, it can't. Obtaining results on objectives via particular strategy becomes, in the conventional approach, a guess at best, but more likely a leap of faith. In response to this nonsensical situation, faced by most organizations, I developed a fresh approach.

Means-End Sequence

If you've ever had the experience of sitting down with a planning team to develop objectives for a strategic plan, then you've probably had a nightmarish experience. Setting objectives without an effective framework is like asking the question: How long is a piece of string? Usually in these sessions, you'll receive objectives that range from changing the carpet in the reception area to achieving a return on shareholders' funds. You feel they can't all be "right," but the statements all seem plausible. No one apparently disagrees, but everyone feels we're not getting anywhere. We're just "spinning our wheels." What's going on here?

What's going on is the emergence of a means-end sequence that exists in all organizations and business units. An example is shown in exhibit 1, below. Via several other objectives, this example links the objective "to have good staff" to the objective "to show a return on investment." Each objective is an end in itself, but also a means to an end.

You can imagine a discussion regarding the establishment of objectives such as these. Someone might suggest that the objective is to have good staff. Who could disagree? Yet it could be stated that, rather than an end in itself, this objective is a means to an end, the end being to deliver effective customer service. Again, who could disagree with this statement? Except that it could be pointed out that delivering effective customer service is not an end, but a means to having satisfied customers. And so the discussion would continue, as one apparent end becomes a means to yet another end.

In a means-end sequence, the objectives are usually moving between different key stakeholders, as exhibit 1 clearly indicates. The first means-end -- to have good staff -- relates to the key stakeholder "employees." The second, third, and fourth means-ends are concerned with customers: effective customer service, satisfied customers, and increased sales. The next two, to produce a profit and show a return on investment, relate to another group of key stakeholders, the owners. In short, exhibit 1 is a mish-mash of objectives aligned with different key stakeholders.

Objectives by Key Stakeholder

The first point of departure [that I recommend] from the conventional approach to objective setting is that you set objectives by key stakeholder. What this means is that objectives are developed not as a single group for an organization or business unit (the conventional approach), but by key stakeholder. Objectives for customers, objectives for employees, objectives for suppliers, objectives for owners, objectives for any other relevant key stakeholder. This point of departure also establishes a position of clarity: The process is much clearer than when objectives are established as an undifferentiated set.

While an organization needs to build strategy around strategic factors [the decision criteria used by stakeholders to assess an organization's performance], it also needs to identify what it wants from its key stakeholders. Otherwise, strategic planning could become a one-way street, with an organization giving all and getting back little. What an organization gets back is results on its objectives.

In the case of customers, it wants funds, so objectives are based on this requirement. While organizations preach customer service and satisfaction, at the end of the day they want their customers' money. If, as in the case of a public library, the service is free, the library still wants something from its customers: goodwill, because this goodwill may lead to an increase in funds from the library's owner, the government. In the case of suppliers, an organization or business unit wants the supply of goods or services, in full and on time. Objectives are set around this requirement. In the case of employees, an organization or business unit wants effort, and again, objectives are based on this requirement. So the organization or business unit will do its darnedest on the strategic factors for employees, expecting the latter, in turn, to meet its objectives. Finally, an organization will apply itself to the strategic factors for owners to ensure that the owners continue to provide funds.

There's a step between identifying key stakeholders and developing objectives. This is the establishment of behavioral outcomes -- what we want our key stakeholders to do. Ask a planning team what are its organization's objectives, and you'll get blank looks. Ask the team what it wants its key stakeholders to do, and you'll get lively discussion. Some typical behavioral outcomes [include getting customers to buy more high-margin products, getting suppliers to meet specifications, and getting employees to innovate].