A well-designed strategic plan requires establishing of targets that are designed to stretch and push the organization forward in meeting its strategic objectives. One common place to start in setting a target is to look at past performance and current baselines. Past trends can be extended for modest improvement. Also, strategic goals can give organization clues as to what targets should be in its strategic plan. Another good source for targets is benchmarking for best practices. The main purposes of setting targets are to:
Help an organization sets and communicates the expected level of performance. Most departments and individuals focus more clearly when given a quantifiable goal.
Serve as a link between the department/individual and the organizational strategy/goal. Most individuals in an organization don’t know the performance level necessary to ensure the success of the organization’s strategy.
Help focus the organization on improvement. Simply defining a measure tells staff how management will measure performance, but it does not communicate the expected level of improvement required to achieve the strategy.
Motivate the organization, not to control or constrain it. Although target setting is organizationally and culturally determined, it is recommended that targets are achievable.
Targets need to be realistic so that people feel comfortable about trying to execute. In most cases, targets should be mutually agreed upon between management and the person held responsible for hitting the target. When setting effective targets, managers must strike a balance between setting the bar high enough to encourage greater performance without prompting risky behavior; and leaving loopholes that allow people to game the system.
According to John Langwith, managing director of analysis, planning, and reporting in TD Ameritrade, the company has to be comfortable in setting growth targets. He added that “if you want people to reach 200, set the target at 300, not 205”. Furthermore, says Langwith, “If you create a difficult target, you force people to think outside the box - to make them think hard about their business model. Setting stretch targets make you continually challenge the way your base model is set.”Most used criteria for setting targets are described in the following list:
Set only one target per measure for a certain time. More than one target will cause confusion within the organization and may communicate an unfocused strategy, theme, and objective.
Ensure that targets are quantifiable. Targets that are not quantifiable can lead to subjective evaluation later on in the process. Based on the frequency of evaluation, it must be clear whether the target was met or not.
Ensure that the target clearly communicates expected performance. There must be no doubt as to what performance is expected of the organization.
Show the relationship between the target and the corresponding measure, objective, and strategy.
Common weaknesses in setting targets are listed next:
Targets do not represent a balance between being realistic and challenging.
It is not achievable within the approved resources.
Data can not be collected and reported against targets.
Is not expressed in a clear and simple way.
Stakeholders do not regard the targets as appropriate.
It is not aligned with strategic objectives.