We seem to have numbers for just about everything.
So surely then, we should be able
to measure everything that needs to be
measured and end up with a positive outcome, right?
Unfortunately, things are rarely
ever that simple in business.
Numbers are useful to help explain trends and
performance but when it comes
to describing human behavior,
numbers can only tell us part of the story.
Recognizing your separate
stakeholder groups enables you to
identify different priorities and
goals that are likely to emerge.
At times, it's possible that the objectives of
your stakeholders will be in direct or indirect conflict.
This means that your organization will
have to make decisions to carefully
balanced an appropriate level of
performance that will be satisfactory to
all those stakeholders depending on
their relative importance to
the long-term sustainability of the organization itself.
One stakeholder group in
particular has dominated the focus of
theoretical literature in
accounting and corporate governance,
being the owners or shareholders of the firm.
The centrality of shareholders to
these focal areas stem from
the fact that without shareholders,
a private or public corporation simply would not exist.
Therefore, satisfying the owners being
the principal risk barriers
in the ongoing running of a firm,
will inevitably be an important goal
for you as a manager.
Of arguably more important to
a firm than its owners are its customers.
If the firm did not have a customer base to begin with,
then its owners would have nobody to sell
and therefore no opportunity to gain revenue from.
From that perspective, it's relatively easy to see that
customers are an incredibly
important stakeholder group in their own way.
As such, the organization should have
very clear objectives as to how to
satisfy and retain them in the long run.
While we can go a further into specific metrics
that help us delineate organizational goals,
we have to also be cognizant of
the objectives of individuals
who work for the organization.
That is, individually employees have
their own motivating factors
such as the opportunity to earn
a salary or a commission or some kind of
bonus potential that follows as
a reward for outstanding performance.
One problem facing any organization
stems from a situation where the goals or
objectives of an individual employee are not
in alignment with the organization that they work for.
This tends from a concept known as the agency problem,
where essentially a conflict of interest
arises in the performance of an employee's work
particularly noting that the achievement
of individual objectives will not
necessarily correlate to improve
performance for the organization overall.
At times, it's possible that
the organization suffers as a result of the
individual achieving inflated or synthetic levels of
performance that don't contribute
to the value of the organization.
In the long run, value can actually be
destroyed through actual financial loss,
reputational damage, or poor customer perceptions where
an organization has been deemed to fail it's customers.
In order to prevent this issue from
destroying value within the organization,
it's critical for managers to clearly
understand the objectives of their firm at a strategic,
tactical and operational level,
such that clear goals and
KPIs for the organization can be set.
From there, it's possible to consider metrics and
individual performance targets that
aligned with organizational objectives.
If crafted carefully,
the collective achievement of individual objectives
which ought to be motivated through
performance ratings and remuneration where appropriate,
will ultimately lead to the improvement of
performance for the organization as a whole.
This is easier said than done and it's
likely that the objectives of the organization
will be dynamic over time which
necessitates a commensurate approach to be
taken by you as a manager with
respect to individual employees in your team.
