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.
- 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
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