How to measure organizational performance: The secret to effective goal setting
Setting organizational goals can sometimes feel like making New Year’s resolutions. The idea seems promising at first, and you have no trouble getting everyone on board, but a few weeks later, those goals are forgotten.
You’re not the first person to struggle with establishing goals that can improve your organization. It’s actually something that Michelle Abraham, a leadership development consultant who works closely with University of Massachusetts Global, has seen time and time again. She recently addressed this very topic in her recent webinar, “The secret to setting goals for organizational success.” In it she says:
Goals can give you and your work a sense of purpose and a reason for doing what you're doing.
In this article, we’ll examine her insights and determine how to measure organizational performance using smart goals. But before jumping in, you might want to revisit why identifying your objectives is important in the first place.
5 benefits of setting goals for organizational success
Abraham describes motivation, vision, accountability, success and fulfillment as outcomes for goal-setting. We’ll help define each so you can begin to establish these benefits for yourself.
1. Setting goals can help motivate employees
Imagine signing up for a race just to learn there was no finish line — it would probably seem pretty pointless. A professional environment that’s lacking clear goals can feel the same way. But with something to work toward, employees tend to be more engaged. Researchers have found that setting goals can help employees feel a greater connection to their organization. Not only does this contribute to increased optimism in the office, but it also encourages better employee performance.
2. Setting goals ensures employees are working toward a shared vision
It can be frustrating to find out that individual employees have been devoting time to projects that work toward seemingly different objectives. How can you avoid this issue? By setting goals at both the macro and micro levels. This can help ensure everyone is aligned and help you understand when it may be necessary to give feedback that can get workers back on track.
3. Setting goals can help keep everyone accountable
Once you set a goal, the next step is to start evaluating whether you’re making progress. Instead of gauging general effort, you can start asking employees specific questions about meeting milestones. This can help ensure that they aren’t just working, but are moving toward a specific outcome.
4. Setting goals can help you quantify success
Without setting goals, there’s no real way to identify when a project is complete. To avoid needlessly prolonging something and risking burnout, you can use goals that will clearly define success—as well as indicate how far you’ve come and how far you have to go to achieve them.
5. Meeting goals can help employees feel more fulfilled
It’s hard to beat the satisfaction you feel by meeting goals — even small ones. This sense of fulfillment can make the work you do seem more meaningful. It can also bolster your overall employee satisfaction and retention rate, because tracking goal progress can help employees better understand how their efforts impact the entire organization. They’ll likely feel more valued. That could mean you’ll experience fewer hiring-related costs in the future.
How to set effective goals for organizational success
Think back to goals you've set in the past. Which ones were successful? There’s a good chance they included a few key ingredients. You’ve likely heard of the acronym S.M.A.R.T. before. Abraham further breaks down the meaning in UMass Global’s webinar, but here are the basics of what all goals should be using this framework:
- Specific —Simply wanting to improve your organization is too general. Do you want to bring on more clients? Are you looking to expand locations? Whatever the case may be, making your goal as specific as possible can ensure better execution planning.
- Measurable — If you can't measure your progress, you'll have no idea where you are in relation to your goal. Wanting to attract new clients is specific, but it's not yet measurable. The difference between landing three and 300 clients can drastically affect your approach.
- Achievable — It’s essential to stay grounded in reality. Setting a goal that’s too lofty will only result in getting discouraged and potentially wasting time. In other words, if you only have the recourses to serve 20 clients, don’t aim for 30.
- Relevant — Your goals should align with your organization’s mission and benefit your team. Don’t bring on new employees when you need to focus on client acquisition first.
- Time-bound — Without a timeline, you and your team will likely push off achieving your goal. But if you decide to attract 2 clients per week for 10 weeks, you are much more likely to achieve it.
In short, effective goals are intentional. They aim to do more than just hope and dream. They should help you think ahead, anticipate roadblocks, capitalize on momentum and achieve your intended outcome.
Using goals to improve organizational success
Now that we’ve covered the importance of establishing goals and how to set effective ones, it’s time to get into the specifics of performance measurement. Using key performance indicators (KPIs) can help. But it can be difficult to narrow down which ones are right for your organization.
Once you’ve created a concrete goal, it’s much easier to identify those that are relevant to your intended target. Consider these common KPIs:
KPIs for financial goals
- Profit = revenue – total costs
This may seem obvious, but it’s always important to remember the bottom line when measuring performance. After all, you may be the best employer around but if you can’t sustain your workforce, it won’t matter very much.
- Total costs = total fixed costs + total variable costs
Not only is this metric key for determining profit, but it can also help pinpoint inefficiencies in your organization. By identifying both the obvious costs such as wages and those less evident such as market research, you can identify where your organization needs to prioritize spending.
- Day sales outstanding (DSO) ratio = (accounts receivable ÷ total credit sales) x 365
This metric indicates the average number of days it takes your organization to collect money due from customers each year. Tracking it and working to better it can help you improve your financial cycle and avoid default.
KPIs for staffing-related goals
- Employee turnover rate (ETR) = (employees who’ve left the company ÷ average number of employees) x 100
Tracking this percentage over time can indicate whether you need to invest more in employee retention strategies and whether those strategies are actually making an impact.
- Internal promotions vs. external hires
There is no universal ratio for how many employees you should promote from within versus those you should hire externally. Yet, understanding how you typically hire can help you recognize whether you could be more efficient in the recruiting process. Ultimately, you want to balance introducing new diversity in your organization and promoting professional development among existing employees.
- Salary competitiveness ratio (SCR) = average salary your company is currently offering ÷ average salary paid by one of your competitors.
This metric can help you determine how you compare to other employers when it comes to compensation and whether you may need to increase wages for employee retention.
KPIs for customer-related goals
- Customer support tickets
Measuring the number of new tickets, the number of resolved tickets and their resolution time can help you determine if you have an adequate customer service department and whether their complaints have to do with product or service quality.
- Customer churn rate = customers who don’t repeat a purchase or service ÷ total number of customers
Use this metric to illustrate the percentage of customers who don’t make a repeat purchase or discontinue their service in a certain period of time. It can be used to help measure how satisfied and loyal your customers are.
- Number of new vs. repeat website visits
You can track where website traffic comes from to help measure goals related to reaching new markets and gaining online visibility. If you don’t have a lot of new website visits, you may need to invest more in your marketing efforts.
Establish your finish line
Goals give people something to work toward and challenges them to improve. In determining how to measure organizational performance, know that setting smart goals can help you and your team define where you want to be and help you keep track of your progress.
If you want to learn more about how to establish effective goals, you may want to hear even more insight from Abraham. Learn about prioritizing tasks, how to follow through, and much more in University of Massachusetts Global’s webinar, “The secret to setting goals for organizational success.” Interested in bringing this training to your organization? Find out more about UMass Global’s Corporate Training and Business Services.