Strategic Planning - How To Set Your Goals and Objectives
Strategic goals get the company from point A to point B and define how it will allocate its resources to implement its strategy. Despite this, Kaplan states that very few companies know how to properly set stretch goals that contribute to the strategy’s execution.
What are strategic goals?
Goals are the results that a company intends to attain or situations it aims to reach. Their establishment allows the organization to focus their efforts towards a common objective and provides a consistent way of evaluating their performance and, consequently, the effectiveness and efficiency of the business units.
Dr. Kaplan recommends that executives find appropriate methods to set goals that will help the company achieve its expected performance levels. For a goal to become a performance standard, it needs to be clearly stated, measurable and given a specific time frame for its enforcement.
Once goals are set, they can be broken down into sub-goals for different strategic themes. For example, a company that intends to double its earnings in the medium term can break this objective up into simpler sub-goals such as: increasing the number of customers by 25%, increasing revenue per customer by 33% and reducing administrative costs by 20%.
Once the sub-goals have been chosen, the next step is to identify the strategic initiatives the organization will use to achieve each goal. For example, to increase the number of customers, and thus double profits, the company could implement a new telemarketing campaign to attract new customers and develop a CRM (Customer Relationship Management) program to increase their customer retention rate.
How to Define Goals
Organizations can take two approaches when defining their goals: external or internal.
The goals that are most commonly defined with the help of external sources are the financial ones and those that refer to clients and the market. The company may look to its industry for benchmarks on metrics such as sales and productivity growth rates, and then set itself the goal of being the number one or two or be in the top quartile or quintile of its industry.
As for the goals relating to customers, indicators such as market share are inherently external as they seek to improve the company's position compared to the closest competitors of the company.
Other goals that may be set externally are those concerning processes, especially those related to costs, quality and process duration. The company may look for benchmarks within its industry or in trade associations, or it may perform or participate in third-party benchmarking studies.
External goals arise from the company’s need of becoming a leader in its industry. For example, a manufacturer can strive to have the fastest product development process of its industry, from idea conception until the product is made commercially available. Another example would be a bank that aims to become the preferred choice of customers by offering the fastest response in the industry to loan applications.
As for internal goals, they depend directly on the company and can be used to improve the performance of the processes implemented within the organization.
One of the ways goals may be set is by using the “half-life” method, which assumes that a formal quality improvement process can reduce defects at a steady pace, meaning that each 50% defect reduction takes approximately the same number of months.
Another method that can be followed when the company has numerous homogenized branches is to implement internal benchmarking. This way, each branch would aspire to reach the performance levels shown by the leading branch. For example, the goal could be reducing the gap between the subsidiary and the leader by 25% each year. This method also recognizes that improvements may become more difficult to attain as the subsidiary nears "performance perfection".
In determining the extent to which the company expects to reduce defects or improve performance, managers can validate if the path they are following will effectively yield the expected returns in the time allotted for them.
How To Motivate Staff To Achieve The Goals Set?
Getting staff to commit to the fulfillment of the goals set by the company can be a difficult task. Senior executives must know the motives for each goal so they can properly support and communicate them to their employees, thus convincing them that reaching these goals would directly benefit them. It is common for companies to encourage their employees and managers through bonuses tied to the company’s performance and the achievement of the set goals.
The company may also incentivize its employees even if the goal is not reached in its entirety. This way, employees will not be discouraged if they feel the goal will not be completely achieved during the period in question and will continue to work throughout the period to get as close as possible to it.
To successfully implement the Balanced Scorecard method, executives need to set clear and achievable goals that encourage the necessary changes within the company. Kaplan mentions that, while the process of goal setting is one of the least developed of the Balanced Scorecard, if used correctly it can generate great benefits for the organization. The executive team needs to set goals that are challenging enough to achieve the necessary change, and then back them up with a continuous motivation process, to enable the organization to achieve the implementation of its strategy.
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We provide our customers the tools and expertise they need to guide them through their strategic planning process, helping them choose the right goals and objectives for their organization. Furthermore, we help them clarify their strategy, translate it into operational terms and monitor it to ensure it is implemented effectively.
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Author: Trissa Strategy Consulting
Source: Kaplan, Robert S. "Target Setting." Balanced Scorecard Report (2006): 1-5. Online journal.