Goal!!

There is almost as much rubbish talked about goal setting as there is about wine, and as with a bad wine the urge to spit inevitably follows many company planning sessions. Take this quote for instance.

Research in the August 2005 issue of Harvard Business Review revealed that businesses average only 63% of the results they target in their strategies.

The study, of 197 companies with sales over $500m, found that over most businesses failed to achieve over half of the planned strategies. HBR term this the The Strategy-to-Performance Gap. Each of these companies had focussed and dedicated planning groups that set the strategic agenda and then tried to drive the company growth in that direction. A common trend was that, average growth was forecast for the next year, followed by stellar growth in the years after. For the majority of companies the stellar period was elusive even though the process of planning invariably created a short term performance improvement. The study suggested that the reasons for this were:

• Companies rarely tracking performance against long-term plans.
• Multiyear results rarely meet projections.
• Performance bottlenecks are frequently invisible to top management.
• The strategy-to-performance gap fosters a culture of underperformance.

The lesson therefore appeared to be that goals and plans in isolation achieve very little. Eisenhower said that he “found planning indispensible but plans utterly worthless” and that seems to be reflected in the report’s findings. Interestingly, the findings apply well to smaller companies even if the sums involved are smaller. However it is important you adopt an approach that is grounded in common sense.

Driving performance therefore requires more than goal setting, especially if the goals are esoteric. HBR had a number of rules for ensuring that strategy delivered these were:

• Keep it simple, make it concrete.
  • Goals have to be easy to articulate, communicate and attached to time and measures. Something like achieve annual sales of £6m and sell the company in year 4 is a good goal; achieve total domination in the Swindon health club market is not.
• Debate assumptions, not forecasts, or goals for that matter.
  • The problem with plans and goals is that the businesses landscape constantly changes, consequently the progress towards a goal needs to be monitored, evaluated and adjusted. Planning assumptions need to be understood and frequently tested.
• Use a rigorous framework, speak a common language.
  • This is always an issue if the business owner comes from a specific discipline, e.g finance or marketing. The language they use may not be understood by your employees, suppliers or customers.
  • The framework used to derive strategies and document goals should be objective, identify assumptions and take out any personal preferences or politics. Incidentally I am giving a talk on a competitor evaluation framework soon. Contact me for details.
• Discuss resource deployments early.
  • Do you need some investment or new skills to achieve your targets? When do you need them, how much will they cost? Talk to suppliers, banks and other companies early.
• Clearly identify priorities.
  • Many small businesses make sales at any cost and can be chasing deals that barely cover their cost. Make sure that everyone involved understands what is important and where to focus.
• Continuously monitor performance.
  • Every business type has metrics which indicate how healthy the business is. There are ranges that these metrics operate in and these should drive behaviours. Examples include, debtor days (how fast you are paid), creditor days (how fast you pay others), stock turns (how long stock sits on the shelf), conversion rates, sales pipelines etc. There is a fine balance between using metrics to monitor how well your business is doing and spending all your business time collecting numbers. Identify the 6-8 key metrics that really matter, identify the values for ok and bad and then set a target to work towards. For example getting all invoices paid within 30 days is good for cash flow and generally requires system changes. For SME’s this is where goal setting fails.

The reality for most SME business is that goals can become limiting. A formalised goal setting technique will create a number of SMART (Specific, Measurable, Achievable, Realistic and  Time-bound) goals. This is good because it encourages the business owner to think about what they want to achieve and how they are going to achieve it. The downside is that there is a tendency to create too many goals that while achievable individually become unrealistic in a swarm. Consequently not reaching a goal becomes viewed as a failure and as a result all the goals fall by the wayside.

A more sensible approach is this.

1. Understand the key measures that show how well your business is doing. Most of the metrics SME organisations use are not sufficiently revealing.
2. Do the market and customer analysis. Who are you selling to, how will you reach them, who is your competition.
3. Establish a small number of highly focussed goals. Six is almost too many.
4. Understand how you are going to reach those goals in terms of activities and behaviours and how they relate to the metrics you have identified.
5. Monitor this on a regular basis. This is where engaging an outsider really adds value as you now have someone holding you accountable for realising your vision of the future.

If you have found this interesting and you would like to explore the implications of this approach in your business give me a call on 01420 588172, drop me an email here or try me on skype at chris.j.bryan.

Chris Bryan

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