A rather esoteric topic, perhaps, however, the kind of target that you set for measuring a strategic objective is important. People in the organization especially can be engaged – or disengaged – in trying to understand the point of it all. This affects performance, big time.
The good news is the range of possibilities is quite wide and can be quite flexible.
For example, strategically, it may make sense to measure something in percentage terms to demonstrate how well you’re doing against some kind of perfection. For example, if you’re at “75%” of something, it sends a message about what has been achieved and how much of a gap is still left.
Competitively, this can also be powerful to show that you’ve achieved a market share of, say, 33% or more. Or, perhaps you’ve gained a 50% share of the available new customers for a certain product or service.
The downside can be that you don’t know what the percentage actually relates to in real-life terms that may affect your internal capacity. For example, if you indeed have won 50% of the available customers for a certain product, that looks terrific but if the number of transactions that that corresponds to is higher than your front-line can handle, look out!
I have to admit my bias: I’m a bit of a fan of the old-fashioned integer. When you’re setting a target for something, whether it be in financial or non-financial areas, the number itself is very clear and typically represents clear thinking, as well, as to what success looks like.
If you want to generate five million dollars in additional revenue, then everyone in the organization understands what five million dollars means. They don’t need to think of it in context to what percentage that means.
It may not be as strategically useful as would a percentage target than includes an important numerator and denominator, but it likely sends a message of the internal productivity that will be required – and was likely thought through by the target-setters – to be able to handle the new customer requests which will themselves turn into the five million dollars.
However, the corollary is that a pure number without any context can be good, bad or indifferent. Is five million dollars enough? Is it showing a true stretch or is it a slam-dunk?
The mechanism for setting the right targets in the first place is key.
It often comes up that something is too difficult to measure. Or, it may be argued that some track-record is required before a real target can be set.
That doesn’t have to be the end of the story. Sometimes a simple yes/no – or, if you will, an on/off – target is sufficient. You either did, or did not, achieve some kind of milestone which was deemed to be strategically important for your organizational success.
For example: yes or no, did we get that new client from that strategically growing market segment? Yes or no, did we win that litigation that was important from a regulatory perspective? Yes or no, has everyone in the organization signed off on their training and testing in some government information privacy requirement?
This kind of yes/no target isn’t the best when you’re using the balanced scorecard for performance bonus purposes. It’s a bit like rolling the dice with a winner take all. However, if something is so important to you that it is put on the scorecard, then go for it. Also, it makes it an easy target to rally people around to achieve, which may make them smile at bonus time.
In addition to the above, there are certainly other forms of targets. But, they tend to be sub-flavours.
For example, surveys of customers or employees may provide some kind of average number on a scale out of, say, 5 (e.g., customer satisfaction is sitting at 3.5 whereas the target is 3.8).
Or, an index is created based on the weighted scores of a few underlying metrics. For example, the new-customer growth of a few different products comes to an index value of .87 (where 1.00 would have been a full achievement of targets on all of the targetted products, and where 1.25 would have represented targets exceeded).
Ultimately, the cleverness of the metrics and targets is of less importance in many ways than the ability to communicate the targets and the strategic imperatives to all those who play a role in achieving them. And, really, isn’t this the point of the whole organization?
Use targets – and simple, meaningful ones that make sense to everyone – to instil collaboration and collective drive.
Of the many managerial and leadership activities, the ability to set and communicate targets is right up there at the top. So, not such an esoteric topic after all…