Customer Service Drives 360-Degree Goal Setting

June 1, 1995
We've heard a lot about 360-degree performance appraisals. But that's not the only practice revolving around the office these days. More and more, companies such as Federal Express and Digital Equipment Corp. are beginning to apply 360-degree goal setting as a natural companion to the appraisal process. This participative method offers a new way for organizations to tie employee goals to customer expectations. Moreover, it holds employees accountable for meeting those performance standards.

The 360-degree goal-setting process differs from the traditional management by objectives used by most companies today. With MBOs, supervisors obtain the subordinate's input about his or her goals. But in reality, the subordinate's feedback is limited because supervisors still assume the primary responsibility for setting goals in the organization. Even when applied correctly, the MBO process sets the employee's and manager's goals apart from the customer's expectations. How do managers and employees really know what the customer wants? In this type of traditional system, an employee is accountable to the manager, rather than the customer. Despite these limitations, most companies still use traditional goal-setting methods even though the competitive pressure to set customer-driven performance standards has increased. But if you take the circular route—as some companies are doing—you're less likely to land back at square one.

External and internal customers drive goals.
Similar to the performance appraisal, the 360-degree goal-setting process involves an employee or department and all of one's various internal and external customers. Internal customers may include supervisors, top managers, subordinates, co-workers and representatives from other departments who interact with the employees. External customers may include clients, suppliers, community officials and consultants.

Human resources representatives at Memphis, Tennessee-based Federal Express provide a good example of how this goal-setting system can work with internal customers. At Federal Express, HR has pilot-tested the participative goal-setting process by writing the goals of their customers (the manufacturing department, a supervisor or peer) into an internal customer-service guarantee. The guarantee specifically states what services HR (the supplier) will provide in the next year to a given department (the customer). It includes items such as timely response, 24-hour turnaround for feedback and semi-annual training sessions.

The 360-degree goal-setting process can help break down barriers between departments. In many organizations, departments don't have an in-depth understanding of other departments' roles and objectives. For example, many departments frequently set unrealistic expectations for the HR department. Says Sally Wiggins, a senior human resources representative at Federal Express: "If employees don't see personnel employees doing something, they wonder what you're doing. Clarifying expectations is the key. The employees and managers want to know what you do. What can you do for them?" Similarly, Jay Kirksey, former HR director of Colorado Springs-based Hamilton Standard, adds: "We found there were [differences] in perceptions of what a person should be doing. Joint goal setting provided a much greater understanding of the roles that people play. Involving peers and teams aligned people and established role clarification."

The process also allows for greater input and "two-way communication" between employees and their customers. Service quality experts argue that it's important for companies and their employees to have a precise and in-depth understanding of customer expectations. That's where 360-degree goal setting comes in. The process helps to explicitly state goals in terms of the customer's (rather than the employee's) words and language.

Employees also develop more rapidly after a 360-degree goal-setting process. A group of peers can suggest more insightful feedback on work objectives than a single supervisor. Karen Ripely, a materials manager at Maynard, Massachusetts-based Digital Equipment Corp., says: "This type of goal setting potentially identifies multiple skills of the employee, not just what the manager can identify."

Another benefit of 360-degree goal setting is that an employee's performance can be specifically evaluated by customers in the employee's performance appraisal. This practice has worked particularly well in 360-degree performance appraisals that have recently been implemented in a number of companies. However, the effectiveness of 360-degree appraisal systems may be limited if employees don't have a clear understanding of their customers' expectations at the beginning of the year. Without clear goals up front, employees may feel the customers' appraisals at the end of the year are unfair. Providing 360-degree goals helps to ensure clear and fair performance ratings. By linking 360-degree goals to appraisals, employees will be more accountable to their customers. Likewise, the customers who set the goals and expectations at the beginning of the year can provide employee-performance feedback at the end of the year.

HR at Federal Express has linked its goals to performance feedback by identifying six items for a customer-satisfaction survey. The appraisal can be scored on a one-to-five scale—from strongly disagree to strongly agree. These issues are then evaluated by a sampling of the customer's employees at year end. This tight connection between customer-developed goals and customer-driven performance appraisals make employees explicitly accountable for their performance and can strongly motivate them to work toward the company's desired behavior.

No pain, no gain.
Companies, however, must iron out a variety of problems in order to create effective 360-degree goal-setting systems. Although 360-degree systems are valuable, they have a number of potential disadvantages. First of all, 360-degree goal setting requires more time to administer than traditional goal-setting programs. Obtaining input from various customers inside and outside the company takes a lot of effort. Employees also may set overly detailed and complicated goals out of fear that they won't live up to the expectations of their peers and those in other departments.

Kirksey recalls his previous experience with 360-degree systems at Hamilton Standard: "Simplicity is important. Before, we were too customer oriented and interactive with a lot of involvement. We tried to define goals that exceeded, met and didn't meet our expectations. But there was too much detail—like putting exact dates on goal achievements. Put more general dates such as meeting a goal in the third quarter of the year instead of an exact date," he says.

Keep the process simple.
Companies considering 360-degree goal setting should weigh the trade-offs between the time and effort involved and the actual benefit added to the goal-setting process. One suggestion is to limit the bureaucracy. "The key question is how much time is involved? What's the worse-case scenario? You must look at the time involved to assess the value added," says Kirksey. Adds Karry L. Jerman, a human resources manager at Aurora, Colorado-based XEL Communications: "The blindness you walk into is how much you have to give to it versus how much time you need to give to [conducting] your business."

Although multiple customer feedback illuminates a greater role definition, it takes a great deal of effort and communication skills. Managers often still have to resolve the conflicts and develop the final performance plans.

Another important tip is to develop a flexible 360-degree goal-setting process. As customer goals and needs evolve, an employee's work objectives also change. One point to consider is when a customer's goals should be incorporated into an employee's annual performance plan. Changing the employee's plan can be time consuming—not to mention the time it takes for him or her to adapt.

To overcome these potential disadvantages, companies should proceed by securing the full support and commitment of top management for the 360-degree system. The process will inevitably create extensive changes in the status quo. Employees and managers must be clear on the intent of the system, and they should be trained on the specifics of the 360-degree process. "Training is vital. It took an extensive amount of time to explain the program, such as who's the customer, peer and manager so that everyone understands their role," says Jerman.

Organizations should also pilot test the system before implementing it throughout the organization. In most cases, the 360-degree process should be implemented incrementally as Federal Express is doing for its HR department. In doing so, organizations can better involve employees in the planning process to obtain their early input. Employee participation not only provides new ideas that improve the program, but it also helps to ensure employee buy-in.

Hence, 360-degree goal setting can enable organizations to obtain greater customer input into goals which, in turn, can be translated into written customer-service agreements with explicit performance expectations. Linking these goals to 360-degree performance appraisals can provide an effective mechanism for directing employees toward their desired performance goals. The 360-degree system may be more complex than traditional supervisor-subordinate practices, but when developed properly, it can provide more customer-driven input at both the front and back end of the performance time period. If you use it as a powerful lever in motivating employees, you're bound to end up with superior performance.

Personnel Journal, June 1995, Vol. 74, No. 6, pp. 136-142.