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Setting business targets? You can do it better...




Some things never change.

To state the obvious, 2020 has been a challenging year for business. Different in so many ways to “normal” years, there’s still been a similarity – a rush of activity to try to meet this year’s financial targets and setting the sights on the year ahead.

It just goes to show that not even a global pandemic can shake loose the target setting methods that have existed in business probably since the Industrial Revolution.

While everyone is so looking forward to 2021 being a bit more like those pre-2020 there’s a risk that old planning habits might prevail. Those who resist that temptation and look to purpose-driven planning are more likely to thrive, not just survive, post 2020.

Groundhog Day anyone?

Over the entire length of my corporate life I struggle to recall one single new financial year when my team’s financial targets were not a) “cascaded” (sounds like such a pleasant experience…) from above and b) met with a short, sharp intake of breath as the scale of the task ahead sunk in.


Here’s what we see happen in businesses of pretty much any size. You can skip this part if you already know how it ends….


This is not purpose-driven planning...

At some point every year, planning for the next one starts, generally with a look at how the current year is tracking and how prior years have gone. Then, an initial budget gets drafted and, if there’s multiple parts of the business, all the separate budgets will get rolled up into a single picture.

Some time passes which, given the tight deadline for submitting budgets, seems unnecessarily lengthy. Just when you’ve almost forgotten you prepared a budget at all, you get the email from the boss - the one that says budgeted expenses are too high, and revenues are too low.

You’ll go backwards and forwards with revisions until eventually you’ll get to the number the finance people (or business owner) wanted in the first place. A number that’s usually a double-digit percentage increase on last year.

You can try to short-circuit the process...


I did once.


I went to our finance people and asked what number was already written into the plan for the year. Here’s how that conversation went….

Me: “So how about we make it easy on all of us this year, and you tell me what percentage growth you’re looking for?”


Finance: “Now, now, Doug. That’s not how we do it. We value your input and can’t really finalise next year’s plan without it.”


Me: “Ten percent increase in revenue then, is it? Same as last year. With expenses held steady. Also same as last year.”


Finance: “You seem a bit hostile, Doug. Nobody else has been obstructive during this process.”


Me: “On the contrary…I’m being neither hostile nor obstructive. I’m hoping to save everyone a lot of time, effort and anxiety by delivering to expectations. If I can do that with my first effort, imagine how great that would be.”


Finance: “Now now, Doug. That’s not how we do it.”


At which point, I’d see the conversation going nowhere, and give in. 


Sadly, I’ve not made that up….

While that’s an experience from the corporate world, we’ve seen similar events unfold in all sized businesses. It’s simply a question of scale.

What’s important here is that there’s no mention of a reference to business purpose, vision or strategy in the process outlined. That’s because they're rarely actively considered in the rush to get the numbers and targets sorted. 

What are the key dangers of planning without purpose?


What can go wrong if you prepare your annual plans and establish targets for the business and team members in isolation of purpose, vision and strategy?

Short-termism


The focus becomes almost totally on what the business must achieve, financially, in the year ahead. Little or no regard is given to what must be achieved if the business is to be true to purpose over the longer term. Meeting agreed strategic, purpose-driven milestones remains secondary to achievement of this year’s (or even this month’s) financial targets. 


Co-operation and collaboration go out the window


When team members lose sight of purpose, there's a strong likelihood any desire to collaborate will diminish, if not disappear altogether. There might be a possibility of them helping colleagues achieve short-term imperatives but it's unlikely. Our observation is that team members become very self-interested when the focus of the business is on the short-term only.


Innovation and imagination are stifled


When purpose goes missing, people in the business are more likely to focus on what must be done to meet the short-term targets rather than what could and should be done in the context of bigger picture possibilities. In particular, the appetite for measured risk-taking reduces to near zero which firmly puts a lid on innovation.


The business becomes more inward-looking


This is particularly true when financial results lag targets. The tendency is to remediate by cutting costs which rarely has a positive impact from a purpose perspective (and can in any event only go so far).


Team engagement will suffer


There’s just too much evidence to ignore showing that team engagement is higher in businesses that are truly purpose-driven. It’s also a fact that engaged teams directly impact customer satisfaction and propensity of customers to become repeat purchasers and to be advocates for the business.


No buy-in


The stark reality is that when team members can't see or feel the link between what they're expected to achieve day-to-day and the higher purpose of the business, it strangles commitment. That lack of buy-in means one thing and one thing only: a reduced likelihood targets will be achieved.

None of this is meant to even remotely suggest that financial targets are a bad thing.


It’s simply that too often, they’re formulated with little or no thought to the longer term, purpose-driven aspirations of the business. 

How could a business better deal with the planning process and formulation of targets?


Think about taking a different approach this year to break the cycle created by old habits. Consider basing your planning and target setting around the following questions:

“In the context of our business purpose, our vision and strategic plans, what key initiatives are underway that will continue into next year? What new initiatives have we agreed for the year ahead (and beyond). What will be our investment in those initiatives and how will they impact revenues in the short and longer term?”

Starting with a preferred financial outcome and working backwards might be something you’ll get away with for a while. But it’s not the path to a healthy, functional and sustainable business that will attract and retain customers nor engage team members. 

It’s that simple. 

Our mantra at GrowthCatalyst is that the financial results in a business are an output of everything else that happens within it. 

Peter Drucker says it better: “Profit is not the purpose of a business, but rather the test of its validity.” 

How true…


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