Productivity Improvement

Management Planning and Control Systems

Step 1: Setting Performance Standards

Performance standards may be set by staff or managers, by managers and staff, or by managers with input from employees whose performance is being measured. The last method is the best because employees believe that line and staff do not have enough information about the conditions of various jobs to set realistic standards.

Managers should see that objectives and standards are measurable and that individuals are held accountable for their accomplishment. The level of difficulty should be challenging but within the capabilities of the employee. Standards set too low are usually accomplished but not exceeded, while standards set too high usually do not motivate the employee to expend much effort to reach the goal.

It is important that standards be complete; however, it is difficult to develop a single standard or goal that will indicate the effective overall performance. For example, consider the automobile dealer who decided to measure sales peoples performance on the basis of the number of automobiles sold. Sales increased impressively, but it was later learned that many sales had been made to poor credit risks, and too high prices had been allowed on trade-ins.

Too many managers are looking for that one magic number that will tell them how well the company is doing or how their employees are performing. Standards for the automobile salespeople might have included number of sales, losses from poor credit risks, and profit on resale's. Standards should also be expressed in terms that relate to the job and are meaningful to the employees.

For example, the foremen in one plant were assigned standards based on break-even analysis, although none of them had any knowledge of this analytical technique. From a behavioral standpoint, it is extremely important that the employee be able to significantly influence or affect the standard assigned.

In the early 1970's, the performance of a hotel manager in Florida was based on profit and room occupancy rates. During this period, OPEC caused a fuel crisis and relatively few tourists could travel to Florida. The hotel manager was penalized for failing to accomplish a standard over which, in this case, he had no influence.

Finally managers should see that the number of standards assigned, like planning objectives, are limited and placed in priority order for the employee. If there are too many controls assigned, the employee will not be able to give enough attention to any of them and will become frustrated and confused.