Setting targets is one of the most important actions we take in management, but how often do we take the time to get this right and do we understand the consequences of getting our targets wrong? In this article we will outline the results of a two year research project sponsored by CIMA into target setting in practice and a ten step process to help you conduct target setting more effectively.
Reconciling two opposing schools on targets
Unfortunately there are two opposing schools on targets, those who think target setting is good and those who think targets are divisive and counter productive. For those schooled in the classical management literature, setting targets as ‘high but achievable’ is the prescription from the last 50 years of motivation research. The ‘high but achievable’ mantra works if the whole of the individual’s performance is delivered personally with minimal interaction with the rest of the organisation, but if the individual forms part of a process, the system may well fail to deliver. Herein lies the dilemma. Fifty years of motivation research suggests targets are useful, whilst a similar period of well-documented practice from the quality movement suggests that targets don’t work in this way. The quality movement looks at organisational performance as a process, and if the process isn’t improved, improvements in performance can’t be sustainable.
So how do we resolve this dilemma? During our two year project, we investigated in detail the target setting practices in four different sales environments. Our analysis of their successes and failures led us to believe that a more complete process was required that combined aspects of motivation theory with elements from quality management. This ten-step process is presented in the form of a wheel.
The ten-step target setting process
Figure: The target setting wheel
- Review stakeholder expectations: The first step is a review of the organisation’s stakeholder expectations. This will determine the critical areas your organisation needs to address in order to be perceived as successful.
- Strategic objectives clarification/selection: Once the stakeholders’ expectations are identified, the next step is to express these expectations as strategic objectives. Strategic objectives are clear statements of what the organisation needs to achieve.
- Success map: A success map is a very simple visual tool. It links the objectives together, so that higher level objectives are represented as being delivered through the attainment of lower level objectives. By developing a success map you will be able to explain the goals to the whole organisation, as well as being able to show where each part of the organisation contributes to achieving these goals.
- Objectives prioritisation; Most companies we investigated tried to achieve too much, so prioritisation is essential.
- Operationalisation: This requires designing appropriate performance measures. How you define the measure will drive behaviour. So you have to define the measures so that they i) reflect the goals the organisation needs to achieve and ii) encourage the right behaviour from those responsible for delivering the goals.
- Data collection: This step is often overlooked. Data is never perfect, but it does have to be consistent and reliable enough to be fit for purpose.
- Data analysis: This is fundamental. Are the processes capable of delivering the forecast? Most companies forecast, but few companies reassess their capabilities, a common reason for targets not being delivered.
- Set targets: Based on the previous seven steps, this is the point you set the target.
- Action plan design: An action plan is required specifying all the projects and activities that are needed to ensure the target is reached. Therefore, implementing the plan has a direct impact on meeting the targets.
- Action plan discussion and agreement: Finally, you must communicate the whole plan to all your staff. Most managers we met thought they did this. Most staff we spoke with though they didn’t. Regular staff meetings where the objectives are restated, goals outlined, plans and progress discussed is a good format. Sending out the annual targets by email is not!
Target setting is part art and part science. It is a difficult process and the risk of getting something wrong is high. Organisations now have the capabilities to improve their target-setting process. However, few management teams seem to recognise the complexity inherent in any well-designed system and the care needed in setting and applying individual and team performance targets. You must make certain that targets are:
- allocated appropriately across individuals and teams;
- based on rigorous data analysis that takes into consideration more than just past performance;
- periodically reviewed;
- supported by a specific action plan.
If you don’t, then performance targets will not serve as an effective management process.
Finally, you may be thinking that this is a lot of work to set a target. This is true, but the consequences of setting poor targets will adversely affect the performance of individuals and the business for years to come.
Mike Bourne is Professor of Business Performance in The Centre for Business Performance at Cranfield School of Management. He is currently researching corporate performance measurement and management, including the interface with planning, budgeting and people performance.
Monica Franco is a Senior Research Fellow in The Centre for Business Performance at Cranfield School of Management.
Watch the video relating to this article on the Cranfield Knowledge Interchange or download the transcript of the interview Setting Targets.