Performance of Staff and Achieving Business Objectives (VCE SSCE Business Management): Revision Notes
Performance of Staff and Achieving Business Objectives
The importance of employees to business success
Most businesses, regardless of size, understand that their success depends heavily on how well they manage their staff. Employees are not just workers—they are a critical resource that can determine whether a business thrives or struggles. When a business effectively balances its own objectives with the goals and aspirations of its employees, both parties benefit.
Key Definitions:
Staff refers to the group of people employed by a business who carry out its work. An employee is an individual who works for a business in exchange for wages or a salary.
Staff fulfill several essential functions within a business:
- They are a vital input in the production process, whether manufacturing goods or delivering services
- They handle the day-to-day management of business operations
- They contribute knowledge, skills, and innovative ideas
- When properly managed, they actively contribute to business growth and success
The relationship between management and employees is fundamental. When this relationship is positive, employees become more willing to support the business's growth objectives and contribute to its success.
Understanding business objectives
Business objectives are the specific outcomes that a business aims to achieve. These objectives guide decision-making and provide direction for all business activities. Once objectives are established, the business develops plans, determines strategies, and takes actions to reach these targets.
Common business objectives include:
- Ensuring survival in competitive markets
- Gaining market share
- Growing market share over time
- Achieving profitability
- Improving productivity
Understanding Stakeholders:
When setting business objectives, managers must consider the needs and interests of various stakeholders—individuals or groups who are affected by how the business operates and what it achieves. Stakeholders include owners, customers, suppliers, the community, and importantly, employees.
Because employees play such a crucial role in achieving business objectives, their needs and perspectives must be incorporated into business planning.
Employees as both assets and expenses
There is an important paradox when it comes to employees: they represent the largest line-item expense for most businesses, yet they are also the business's most valuable asset. This dual nature means that businesses must carefully manage their workforce to maximize the return on this significant investment.
For a business to achieve objectives related to productivity and profitability, it is essential that staff perform to their full potential. Research consistently demonstrates that when individual employee goals are closely aligned with business objectives, performance improves at both the individual and organizational levels.
Achieving Alignment:
This alignment doesn't happen by accident. It requires deliberate effort from management to:
- Communicate business objectives clearly to all staff
- Help employees understand how their work contributes to larger goals
- Set individual objectives that support business objectives
- Monitor progress and provide regular feedback
- Recognize and reward strong performance
Setting SMART objectives for employees
When establishing individual objectives for staff members, managers should use the SMART principle. This framework ensures that objectives are well-designed and have the best chance of being achieved.
The SMART criteria
Specific (S): Objectives must be clear and directly related to the tasks the employee performs in their role. Vague objectives like "improve performance" are unhelpful. Instead, objectives should specify exactly what needs to be accomplished, such as "reduce customer complaint response time by 50%."
Measurable (M): There must be a way to track progress and determine whether the objective has been achieved. Measurable objectives include quantifiable elements, such as percentages, numbers, or specific milestones that can be objectively assessed.
Achievable/Attainable (A): While objectives should be challenging enough to motivate employees and stretch their capabilities, they must also be realistic. Setting impossible goals leads to frustration and disengagement. Managers need to consider the employee's current skill level, available resources, and time constraints when setting objectives.
Relevant (R): Employees must understand why the objective matters and how it connects to their role and the broader business goals. When employees see the relevance of their objectives, they are more likely to accept them and commit to achieving them. This criterion also ensures that effort is not wasted on tasks that don't support business priorities.
Time-bound (T): Every objective needs a deadline or time frame for completion. Time-bound objectives create urgency, help with prioritization, and allow for progress tracking. Without a timeframe, objectives can be indefinitely postponed.
Worked Example: Creating a SMART Objective
Let's transform a vague objective into a SMART one:
Vague objective: "Improve customer service"
SMART objective: "Reduce average customer complaint response time from 48 hours to 24 hours within the next quarter by implementing a new ticketing system and training all customer service staff."
- Specific: Focuses on response time for customer complaints
- Measurable: Clear metric (48 hours to 24 hours)
- Achievable: Realistic target with defined method (new system + training)
- Relevant: Directly improves customer service
- Time-bound: Within the next quarter
The importance of regular feedback
Once SMART objectives are established, managers should meet periodically with staff members to review progress. These regular check-ins serve multiple purposes:
- Clarifying expectations if there is any confusion
- Adjusting the difficulty level if objectives prove too easy or too challenging
- Providing recognition for progress made
- Identifying obstacles that might prevent achievement
- Maintaining employee motivation through ongoing support
Management by Objectives (MBO)
Management by Objectives (MBO) is a comprehensive management system developed by Peter Drucker in 1954. Under this approach, individual staff objectives are explicitly linked to team objectives, which connect to department objectives, which ultimately support overall business objectives. This creates a cascading system of aligned goals throughout the organization.
The MBO Cascading System:
In an MBO system:
- Managers and their subordinates at every level set objectives relevant to their area of responsibility
- Performance is measured against these pre-established objectives
- Everyone understands how their work contributes to business success
- The entire organization works in a coordinated fashion toward common goals
MBO creates a very close relationship between how staff are managed and the achievement of business objectives. Rather than employees working in isolation without understanding the bigger picture, MBO ensures that everyone is pulling in the same direction.
Benefits of MBO for businesses
When properly implemented, MBO delivers several important advantages:
Improved focus: By clearly defining what needs to be achieved at every level, MBO helps direct the efforts of all staff members toward common business objectives. This reduces wasted effort on tasks that don't support strategic priorities.
Enhanced coordination: When objectives are aligned vertically (from top management down to front-line employees) and horizontally (across departments), the business operates more efficiently. Different parts of the organization support rather than contradict each other.
Better performance measurement: MBO provides objective criteria for assessing employee performance. Instead of subjective judgments, performance can be evaluated based on whether specific, measurable objectives were achieved.
Increased accountability: When employees have clear objectives, they take greater ownership of outcomes. This accountability often leads to improved performance as staff members feel responsible for results.
Employee engagement and business performance
When staff members have a clear understanding of their individual objectives and how these relate to the business's overall goals, they become more engaged with their work. This engagement is crucial for business performance.
Engaged employees:
- Feel they are making a direct contribution to business success
- Develop a sense of ownership in what the business is trying to achieve
- Take greater initiative in identifying problems and opportunities
- Often suggest improvements to processes and procedures
- Look for ways to increase productivity and efficiency
This proactive behavior doesn't emerge when employees simply follow instructions without understanding the purpose behind their work. It develops when employees understand the "why" behind their tasks and see themselves as partners in achieving business objectives rather than just workers following orders.
Worked Example: Engagement Leading to Improvement
An employee who understands that the business objective is to improve customer satisfaction might proactively identify a bottleneck in the order fulfillment process and suggest a solution.
Without understanding: The employee accepts the slow process as "the way things are done" and doesn't question it.
With understanding: The same employee recognizes that the slow process contradicts the customer satisfaction objective and takes initiative to propose improvements.
This demonstrates how objective alignment transforms passive workers into active problem-solvers.
The productivity gains that result from employee engagement can be substantial. When staff members actively look for improvements, businesses benefit from:
- More efficient processes that reduce waste and costs
- Better quality output due to increased attention to detail
- Innovation from employees who are closest to operational challenges
- Reduced need for close supervision as employees self-manage
- Lower turnover as engaged employees are more satisfied with their work
Key Points to Remember:
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Employees are crucial assets: Staff represent both the biggest expense and the most valuable asset for a business. Proper management of employees directly impacts whether business objectives are achieved.
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Alignment is essential: When individual employee objectives align with business objectives, both employee performance and overall business performance improve. This alignment must be deliberate and carefully managed.
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Use SMART objectives: All employee objectives should be Specific, Measurable, Achievable, Relevant, and Time-bound. This framework increases the likelihood of objectives being successfully achieved.
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Management by Objectives (MBO) creates systemic alignment: MBO is a comprehensive system where objectives at every level of the business link together to support overall business objectives. This approach focuses organizational effort and improves coordination.
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Engagement drives productivity: When employees understand how their work contributes to business success, they become more engaged, take greater ownership, and often contribute ideas that lead to productivity gains. Clear objectives and regular feedback are key to building this engagement.