Setting Stretch Targets and How They Can Backfire

When the U.S. decid­ed to put a man on the moon, they didn’t stretch their ambi­tious tar­get by say­ing they were going to shoot for the stars. No-one would believe it was possible.

They aimed for the moon and went to the moon. It was ambi­tious but clear and pos­si­ble – and one that peo­ple ral­lied behind for years.

Set­ting stretch tar­gets can be great — like a Jim Collins’ BHAG – for 25 plus years in the future, and use­ful to moti­vate peo­ple to think big­ger. But in the short term they can be unre­al­is­tic and blow up in your face. They can over­sell ideas, dis­ap­point and demo­ti­vate peo­ple when you don’t hit those tar­gets, and take the wind off the organization’s sails.

You can still be ambi­tious, but you want to hit your num­bers and achieve what you com­mit­ted to do. If you don’t, you cre­ate prob­lems with your banks, share­hold­ers, employ­ees and cus­tomers, because you’re not pro­duc­ing as you said.

For exam­ple, if you’ve grown by 17% a year for the last five years, and noth­ing major has changed, set­ting a tar­get for 50% growth is like­ly going to backfire.

Set­ting Stretch Tar­gets the Right Way

Here’s how to set the right target:

1. Work to become bet­ter at pre­dict­ing accurately

Man­age­men­t’s job is to accu­rate­ly pre­dict performance.

One very suc­cess­ful chair­man I know who owned sev­er­al dif­fer­ent busi­ness­es, would get just as upset when some­one over­achieved a prof­it tar­get as when they under-achieved a prof­it target.

If peo­ple under­achieved, he would have to give them cash, or it would­n’t pro­duce the cash for the moth­er ship. And that affect­ed invest­ment strate­gies for oth­er parts of the busi­ness. If peo­ple over­achieved, he thought they could be under-set­ting a tar­get to achieve their bonus more easily.

His belief was that, either way, it was mis­man­age­ment. They didn’t bud­get prop­er­ly, con­sid­er risks and oppor­tu­ni­ties or run their busi­ness well.

2. Com­mit: Set one goal, one number.

Keep one set of books – as in goals and bud­gets. You don’t want dif­fer­ent fin­ish lines for the lead­er­ship team, for share­hold­ers and for the bank. You want to be aligned and give peo­ple a real clear sense of their tar­gets and of winning.

Two sets of books are con­fus­ing and can set up all kinds of weird psychology.

3. Build con­fi­dence with successes.

You don’t take a kid learn­ing how to ride the bike to the top of a hill and let them go to see what hap­pens. First­ly, you have train­ing wheels, then you hold the seat and run behind them before you let them go.

Adults are no dif­fer­ent. Momen­tum from con­stant­ly achiev­ing builds con­fi­dence. With­out it, you have peo­ple who doubt them­selves which often leads to low­er performance.

4. Find val­ue in failure.

Suc­cess, said Bill Gates, is a lousy teacher.

It’s okay if the team fails to reach a tan­gi­ble goal if they learn and grow from the expe­ri­ence. But when tar­gets are ambigu­ous or you’re not ful­ly com­mit­ted, peo­ple don’t tru­ly feel like they have failed, and they won’t real­ly learn from it.

5. Take time to plan and debate.

Before you land on a sol­id tar­get, do the in-depth work to assess risks and oppor­tu­ni­ties, time and mon­ey. And get the bud­get right.

For many com­pa­nies, prop­er bud­get­ing starts six months before the start of the finan­cial new year. This requires a very coor­di­nat­ed process to set expec­ta­tions and para­me­ters, ask peo­ple to come up with the first ver­sion, many dis­cus­sions and debates, and some­times three or four more ver­sions before you final­ly land. The key is to start ear­ly, for your busi­ness, and ded­i­cate the time to think this through properly.

6. Fol­low Jim Collins 20-Mile March rule.

Research – in Collins’ book Great by Choice – shows that endur­ing com­pa­nies have steady, con­sis­tent growth. This is about con­sis­ten­cy and find­ing a min­i­mum and a max­i­mum amount that you’re going to grow. Not 20 miles one day and 35 the next, when con­di­tions are bet­ter — not the ups and downs of insane­ly explo­sive growth fol­lowed by peri­ods of time when things don’t go well.

Set­ting the right tar­gets in a busi­ness is excep­tion­al­ly hard. As a result, one of the most impor­tant skills man­agers can learn is how to pre­dict what’s going to hap­pen, to the best of their abil­i­ties, and to set a tar­get with an appro­pri­ate amount of stretch that is achiev­able with hard work and creativity.

The Chal­lenge

• On a scale of 0 to 10, how good are you at set­ting the right tar­gets for your com­pa­ny or team?
• If you are a 9 or 10, con­grat­u­la­tions. On the oth­er hand, if you are less than 9, what can you and your team do to be more effec­tive at pre­dict­ing what you can achieve?

Want to hear more? Lis­ten to Episode 105 of The Growth Whisperers.

In addi­tion, you may also want to read this arti­cle: Key Per­for­mance Indi­ca­tors – What’s More Important

Lawrence & Co’s work focus­es on sus­tain­able and enhanced growth for you and your busi­ness. Our diverse and expe­ri­enced group of advi­sors can help your lead­ers and exec­u­tive teams stay com­pet­i­tive through the use of var­i­ous learn­ing tools includ­ing work­shops, webi­na­rs, exec­u­tive retreats, or one-to-one coaching.

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