Articles

Setting the right standards

A new financial year presents a great opportunity for considering what you can do to get the best performance from your team in the next year. According to John Haylock, BankLink's Practice Performance Manager, one key consideration is what expectations you agree on with your team. But are you better setting specific measureable targets or instead setting general performance guidelines?

Many accountants passionately believe that "if you can't measure it, you can't manage it.‟ That's why you frequently get performance management solely based on setting specific team targets and then monitoring performance against those targets.

But focusing so strongly on what can be measured holds back many businesses.

Business managers need to make decisions based on the information available. Sometimes that information will be measurable, but often what really matters cannot be measured – requiring you to use your judgement. The ability to manage the unmeasurable truly reveals your management skill.

A UK research study confirms this.

The Chartered Institute of Management Accountants supported a long running Lancaster University study* which investigated the management and control systems in a regional branch of a large UK accounting firm.

The study's authors found that "the excessive reliance on meeting targets in performance appraisals is inextricably linked to dysfunctional employee behaviour." It did not matter if the targets were financial or non-financial. The impact on employee behaviour was almost identical and persistently negative.

The study also noted that excessive reliance on targets was a key reason for high employee turnover in parts of the practice being investigated. It was suggested that targets work better when team members are involved in setting the targets and are happy that they are realistic.

The survey did not conclude that setting targets and managing performance against them was completely inappropriate. Rather it was excessive reliance on them that was the problem.

Targets do have a role to play, but so do performance guidelines.

For example, you might have a performance guideline that says "ensure you understand your clients' goals for their business." Understanding your clients' goals is undoubtedly important and should be encouraged, but is not a specific and measurable target. It can nevertheless be encouraged by systems that you develop and the behaviour that you display.

When considering performance expectations, I encourage you to develop a mixture of specific targets and general performance guidelines in consultation with your team. During the year you need to regularly discuss with your team their performance against these targets and guidelines.

As you do this it is best to focus on outcomes of relevance to your client not inputs. That's why measuring the percentage of work delivered on time is a better guide to performance than the percentage of hours charged to clients.

Remember it is your clients who ultimately determine the success of your business. Your clients are only interested in outcomes that affect them.

Happy clients pay quicker. Happy clients refer more. And happy clients are more enjoyable to work with.

*"The use and consequences of performance management and control systems: a study of a professional services firm" by Wendy Beekes, David Otley and Valentine Ururuka, 2010.