Performance Management: Mike Bourne and Monica Franco-Santos Relate the Key Findings of Their CIMA-Backed Research into Setting Effective Targets for Sales Teams
Bourne, Mike, Franco-Santos, Monica, Financial Management (UK)
Target-setting is one of the most important tasks we perform in management, but how often do we take the time to get it right--and do we understand the consequences of getting it wrong?
Consider the case of a building materials company that managed to set its annual sales target in isolation-ie, without consulting any manufacturing units. It was an ambitious goal, but the sales force was highly motivated and performed well at the start of the year. Then they started to hit problems because, with the capital investment programme having a short-term detrimental effect, the combined output of all the manufacturing plants couldn't deliver sufficient volumes to meet demand. Deliveries started to slip, relationships became strained and, for the second half of the year, the sales force spent most of its time having to placate customers. It proved a simple, but very costly, mistake.
A second case of flawed target-setting comes from a pharmaceutical company that we worked with recently. The UK sales director for one of its big-selling products had suggested to her boss that she could increase its annual sales by 50 per cent. Unfortunately, her boss accepted this hugely ambitious goal. When we arrived on the scene after a cracking year's performance, the sales director had achieved a 45 per cent increase in sales, just missing her bonus. She was suggesting a two per cent increase for the following year's target, while her boss was trying to increase this to five per cent. But by then the trust in their negotiations had been destroyed.
So what is the best way to set targets? Unfortunately, there are two schools of thought on the subject: some academics think target-setting is good while others believe that targets are divisive and counterproductive. For those schooled in the classical management literature, setting targets as "high but achievable" is the prescription from the past 50 years of research into motivation. Having a clear and quantified target is more motivational than simply "doing your best" and has been shown to lead to better performance. But those who follow the quality management literature disagree. They contend that targets create fear, undermine teamwork and destroy performance improvement.
The problem is that what applies well to the individual does not work well in an organisational setting. The "high but achievable" mantra is valid if the individual can perform their role with minimal interaction with the rest of the organisation. But, if the individual forms part of a bigger process, that system may well fail to deliver. The quality movement treats organisational performance as a process: if the process isn't improved, improvements in performance cannot be sustainable.
During our two-year CIMA-sponsored research project we investigated target-setting practice in four different sales environments in an effort to solve the dilemma. Our analysis of their successes and failures has led us to believe that a more complete process is required that combines aspects of motivation theory with elements from that of quality management. From our findings we have developed the following ten-step process for effective target-setting, which can also be presented in the form of a wheel (see diagram, page 30):
* Review of stakeholder expectations. The first step is to work out who your organisation's stakeholders are and ask "what do they expect from us?" This will determine the critical areas that your organisation needs to address in order to be perceived as successful.
Clarification and/or selection of strategic objectives. Once the stakeholders' expectations are identified, the next stage is to express them as strategic objectives-ie, clear statements of what the organisation needs to achieve. They must be few in number and they should address the "requirements" of different stakeholders--eg, customers, investors and employees. …