In this video, we'll talk about some good practices in formulating objectives and measures. A good objective has these characteristics. It should be measurable, or quantifiable. It should include a deadline for when it should be completed. And it also should be clear who's responsible for that objective. But if we're talking about for example, personal OKRs, that is obvious. Consider these examples for a moment. Are these good examples of objectives? And if not, how can you improve them? You may want to put this video on pause for a few moments and think about this. Well, these objectives are neither measurable, nor include a deadline. Here's how we could improve. Increased profits by 10% in a third quarter. 10% is the measurable part and the third quarter is the deadline. Decrease employee attrition rate. Here to we can do more specific. By November 1, prepare 5 recommendations to reduce attrition rate by 10% within 6 months. Become more efficient, this is also not good. Here a couple of improvements. Reduce the time to serve a customer by five minutes by December 1st. Reduce administrative costs by 5% by December 1st. Which measures can be put in our objectives? Which targets should be specified for these measures? Here's some suggestions for where to get inspiration. First, inside your organization. Talk to people who will be affected by the objective. These can be customers, employees, or managers. Talk to experts in that area. They may suggest first of all, measures. And mainly see which targets in these measures they think are reasonable. Past performance. See how your organization has done similar things in the past. You can also look beyond your organization. Sometimes customers or market trends more or less force specific objectives and measures. Or we can benchmark against your competitors. And if you do that don't benchmark against just any competitor. Pick one or two competitors that are truly best in class and benchmark against them. When you formulate measures based on past performance, one question is should I do more of the same, or should I strive to repeat what the organization has done in the past? Well, this is where you may consider stretch objectives. Stretch objectives mean setting targets that are more ambitious than what the organization has done before, targets that seem impossible. And then challenge the organization to go for them. This way the organization stretched to realize its potential. For example, a General Electric in 1960s to 1980s, the average operating margin was around 10%. And the inventory turns around 5 a year. Inventory turns is how many times the companies inventory is sold throughout the year. Generally, a company want to increase that number. Greater numbers compared to an industry average of course, means that sales are strong. In 1991 Jack Welsh, then the CEO of GE set the target for 1995 of 16% margin, and 10 terms. In the end, they achieved 14.4% margin and 7 terms. So they seemingly underperformed according to the target that they set for themselves. But in achieving even those supposedly underwhelming results, they learnt how to operate more efficiently, and could create the increased target for the next situation. There's a saying if you set an average goal, you will get an extraordinary result. Now once in a while we'll might want to have a tall vanilla latte non-fat milk extra cream. And it takes a long time to say an order like that at a coffee shop. But if you were a barista, it would also take you a long time to prepare that order, because it's customized, and it has many ingredients. So if you're a coffee shop manager, you would like to speed things up a little. And this is what the manager at one Australian coffee shop did. She announced a competition, if a barista can prepare the coffee in less time than it takes the customer to save that order, the manager takes the team out to dinner. So metrics can also be used to motivate people. Especially when they are tied to compensation. One more aspect of objectives is measurability. Sometimes it's easy to create a measure for an objective, but sometimes you hear, we cannot measure this. For example, things like quality, or customer experience, or company image, or the impact of installing a new IT system. Somebody, somewhere, at some point, said that these things could not be measured. To measure intangibles like these, it's often useful to ask yourself, why do I want to measure that? The thing is, you would typically want to measure it because it supports some objective or some decision. So your first step should be to identify what objective, or decision should your measure support. If that intangible thing has an impact on your objective that impact could be somehow observed, and if it can be observed, you can observe a small amount of it, a large amount, somewhere in between, and so on. So it can be measured. For example, here's how we can measure an intangible like restaurant image. We want to do it because the overall objective for our restaurant is to start targeting customers in the upper segment. Suppose we know that one of the things such customer's care about is products that are sourced from local farms. So we can use a measure like share of local ingredients in our menu items. Get more local ingredients, and will boost the image of our restaurant in the eyes of those upper segment customers.
