Mis-handling the target-setting process can be the cause major issues for an organisation. Here is a new ten-step target-setting process to help organisations set their targets in a better way.
We are all involved in setting targets from time to time, but do we really give the process the thought that it deserves?
Why set targets?
Targets are goals to strive for and the idea is that striving increases performance. The problem then comes when we use them inappropriately for other purposes, such as paying bonuses. However, there is a further complication.
Setting targets as ‘high but achievable', is the prescription that comes out of the last fifty years of motivation research. This applies well to the individual, but in an organisational setting, the ‘high but achievable' mantra can cause issues.
It 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 practitioners look at organisational performance as a process, and if the process isn't improved, improvements in performance cannot be sustained.
How can this dilemma be resolved?
Our ten-step process takes you through each of the steps that need to be taken, from understanding the stakeholders' wants and needs, through to rolling out and communicating targets and the associated implementation plan.
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Review stakeholder expectations - The first step should be a review of stakeholder expectations, asking questions such as: "who are the organisation's stakeholders?" and "what do they expect from this organisation?". This exercise will determine the critical areas that your organisation needs to address in order to be perceived as successful.
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Clarify and select strategic objectives - The next step is to articulate these expectations into strategic objectives which are clear statements of what the organisation aims to achieve. They must be few in number and they should address what the key stakeholders, including customers, investors and employees, require.
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Define a success map - A success map is a very simple tool which links the objectives together, so that higher-level objectives are delivered through the attainment of lower-level objectives. Expressing goals in this way will provide you with a powerful communication tool. You will be able to explain the goals to the whole organisation, as well as be able to show how each part of the organisation will contribute.
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Prioritise objectives - You need to remember that not everything can be achieved at once. Most companies try to achieve too much, launching multiple initiatives that don't get completed. It is much better to prioritise and deliver fewer objectives.
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Operationalise strategic objectives - This is the stage when you have to design the appropriate performance measures to assess performance. The way in which you define the measure will drive behaviour. Measures have to be defined in a way that reflect both the goals the organisation needs to achieve, but also encourages the right behaviour from those who have been charged with delivering the goal.
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Collect data - You will need to collect timely and relatively accurate information. The data doesn't have to be perfect, but it does have to be consistent and reliable enough to be fit-for-purpose. This step is often overlooked.
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Analyse data - This is one of the most fundamental stages in the process. Here you will need to do two things. Firstly, you will have to use your knowledge of the past (through data collection and analysis) and your knowledge of the future to forecast what is going to happen.
This may require an assessment of the impact of outside influences, such as the credit crunch. But secondly, you will have to analyse the capability of the process. Is the process capable of delivering the forecast? If it isn't, you will have to change the process.
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Set targets - Based on the previous seven steps, this is the point at which you should set targets. Judgement will be required and you will need to assess the risk of getting the targets wrong. This is also where many of the organisations we studied stopped, though it is not the end of the process.
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Design an action plan - After you have set the targets, you need an action plan. This should cover all the projects and changes to the organisation that are going to be delivered in support of reaching the target. It may include training and development, new processes, new products or ways of working with your customers. They are all the assumptions on which you based your target. It is therefore important to plan and schedule their delivery.
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Discuss and agree on an action plan - Finally, you need to communicate the whole plan to all your staff. Most organisations that we studied thought that they already did this. When we checked by asking their staff, most were not aware of the plans.
Communicating with staff should be done regularly through appropriate channels and with an opportunity for dialogue. A regular staff meeting where the objectives are restated, goals outlined and progress discussed is a good format. Sending the annual targets by email is not!
Start with the organisational goals
The process we have described sets the targets from an organisational perspective and this is the approach that should be taken. You have to know what the organisation wants to achieve before you can make any steps towards setting individual targets. If you don't, you will invariably find that the individual targets don't align with the organisational ones. This will lead to mis-allocation of resources and effort which will ultimately lead to poorer performance.
The outcome of this process is that many of the top level organisational targets have to be shared between senior managers. Some see this as a dilution of accountability, but most of an organisation's higher-level goals simply can't be allocated to an individual.
We take the view that targets which can only be achieved if managers work together, are far better than individual targets that cause dysfunctional behaviour. Target-setting is part art and part science. It is a difficult process and the probabilities of getting something wrong are high.
Today, however, organisations have the capabilities required to improve their target-setting process. By taking a more structured process approach, they can benefit from a well-designed system that links organisational and individual performance targets.
Most organisational performance is delivered through team effort, so the targets should reflect this. If you only do one thing, then communicate more. Explain to everyone what you are trying to achieve and why; and then discuss and debate how you are all going to deliver the goals. All the effort will be worth it - our recent research and that of others has shown that organisations that deliver direction and purpose to their employees perform better than those that don't.