Optimize Guide to Goal Setting

According to a recent poll in Inc. Magazine, only about 20% of business owners actively track business goals.

23% of businesses achieve their business vision. One would wonder if these two numbers are correlated. There is inherent value in tracking progress of a business vs. its strategic objectives. Yet, best practices for goal setting have been debated, maligned and argued. The reality is that goal setting is part art, and part science, and approaches will differ from one management team to the next. Below are answers to frequently asked questions about goal setting:

Why bother to set goals?

Goals can unify a team behind a common vision. Achieving goals can be quite exhilarating for people. Companywide goals can also set a foundation for the budget process and performance management.

What are SMART goals?

While widely accepted as a standard for goal setting, the definition of the SMART acronym varies based on interpretation. One widely accepted definition is:

  • Specific
  • Measurable
  • Attainable
  • Relevant
  • Time Bound

SMART goal setting

The reason that SMART has been so widely accepted (in addition to the clever play on words) is that many goals set by managers and employees are softballs. For example, a common soft goal is to “improve communication.” While perhaps improving communication is highly relevant and achievable, this goal does not provide any specific measurable that can be quantified over time. A SMART goal interpretation

would be to complete 3 communication training courses by March 1st, or to institute a monthly staff meeting with sales and engineering by June 15th. These goals can be checked off on a list as complete or quantified as above or below standard.

Should my goals be realistic or stretch?

The aggressiveness of an organization’s goals is highly dependent on your answer to the first question (why are we setting goals in the first place). Some companies set aggressive growth targets that are the foundation for an incentive plan, etc. where growth is necessary and expected, and there is a need to stretch the capabilities and people. Goals set for the purpose of setting a budget need to be highly realistic. For this reason, many companies set stretch goals in order to motivate people, and lower targets in their budgets. Repeated failure to meet goals can be very de-motivating, so it is important to set goals that are somewhat realistic.

What is a BHAG?

The term BHAG stands for Big Hairy Audacious Goal, and was first made popular by Jim Collins in his #1 bestselling book, Good to Great. A BHAG is the ultimate stretch goal because it is meant to unify a management team and organization around a hyper-aggressive long-term goal, often with a 10-year time frame or more.

What is the right time horizon?

Again, the appropriate time horizon depends on the purpose of goal setting. Over the last few years, companies have become more short-term focused as a result of greater perceived market volatility. Goals are most  typically set for 5 years or 3 years (long term) and 1 year (short term).

What happens when my team fails to achieve our goals?

It is important to note the roadblocks to achieving a goal do not necessarily constitute failure. It may be that market conditions have changed or that new resources will be necessary to achieve success. One of the reasons for setting goals is to bring focus to some value driver within a business. By measuring goals, you can bring additional focus to a problem area and seek out solutions such as retraining or bringing in outside expertise to assist. The only time a goal should be recast is if there has been a shift in an uncontrollable external factor (such as an unexpected increase in raw material cost).

How do I know if my people are sandbagging?

Sandbagging is the art of purposefully underestimating performance. With new people you can ask for justification of a goal, based on some quantifiable proof. Managers are often fooled in this way. Fool me once shame on you, fool me twice, shame on me. Don’t let them get away with it the second time.

How do I get buy-in?

It is far more effective to have a team take part in setting a goal than imposing goals on them after the fact. It is very important to get strong confirmation that a goal has been accepted (not a subject of false agreement).

How does my company set financial goals if we do not practice open book management?

A common condition is an unwillingness of owners of private companies to share their business results with their employees. Goal setting can provide an intermediate step, so that employees can be held accountable without the need of sharing specific revenue or EBITDA (earnings before interest, taxes, depreciation and amortization) numbers. For example, a company could publicize the increase in revenue or profit as a percentage (Revenue YTD +7%) or focus on gross margin numbers.

What are some other tips for making goals meaningful?

  • LIMIT THE NUMBER OF GOALS TO THE VITAL FEW (3-4)

There is an inverse relationship between the number of goals the ability to implement them (the more goals the harder it is).

  • WRITE THEM DOWN AND DISTRIBUTE THE LIST

It is common to set one set of goals for the management team and another list for a wider distribution.

  • CREATE A SYSTEM FOR REVIEWING YOUR PROGRESS (SCORECARD)

It is critical to constantly score progress vs. goals.

  • BE PATIENT

Achieving goals takes time.

What are some common goals that companies use?

Goals should measure your strategic intent. While there are a multitude of options for setting goals, some commonly used goals are:

  • Revenue
  • Margin
  • Labor
  • EBITDA/Net Profit
  • Growth in targeted business segments
  • Revenue Per Employee

What is the difference between a goal and an objective?

While such terms are often interchangeable, goals are typically the quantifiable outcome of a broader objective. For example, a company may have an objective of diversifying into new markets, and a goal of growing by 20% in Europe. Some organizations use the reverse and set a broad goal such as Diversify our Business by 20% and a narrower objective of “Build a network of European Distributors.”