Setting targets so people play to win

Do you like missing targets?

Do you like missing targets more when your bonus is target dependent?

Do you like missing targets even more when your teams’ bonus pool is target dependent?

There is a view held in some organisations that targeting everyone through the organisation on revenue (or NPS or whatever is the key sales metric) drives accountability, ownership & a winning mindset.

Yet in many cases this type of target setting does not lead to targets being achieved. Instead it leads to lots of time spent on internal discussion, & ‘play not to lose’ behaviours in the market.

Why?

Primarily, because people are more ‘loss averse’ than they are ‘gain hungry’. The feelings of regret, blame & frustration at missing a target are much stronger than the feelings of achievement, success & happiness at hitting a target. So, we do our best to avoid having these powerful unpleasant feelings of loss.

Two behaviours which people develop to avoid the ‘loss’ of missing targets are:

a) People spend time developing arguments for lower targets, and then time negotiating the targets. In a matrix organisation, for example of global, regional and local business units, cross hatched with multiple product categories … that can be a lot of negotiation interfaces! I worked in one company, where annual planning for the next year began in March, and went on until November! Can you imagine the energy wasted on internal debate, which would be better spent on winning in the market place!

b) Once the target is agreed, people develop in-market plans that minimise the risk of missing the target (instead of experimenting and taking calculated risk to maximise business). Including hiding or ‘freezing’ support budgets in the second half of the year, in case first half sales are not good enough and the budgets need to be turned in to meet profit commitments. Oh dear!

And all the while, somewhere on a company wall are values which include things like ‘accountability’, ‘winning mindset’ and ‘ownership’!

As a CEO, with a group of Business Unit (BU) leaders reporting to you, what you actually want is for each BU to really ‘play to win’ – to take calculated risks and try to achieve the impossible. If you have 10 BUs & they all play to win, the likelihood is that some will over-achieve, and your business will meet or beat it’s potential. You want to play a broad game, not a series of narrow games. But the narrow approach to revenue / profit target setting at every level through the company is driving ‘play not to lose’ behaviour. As a result your best hope is to just deliver the overall target you have set, forget ‘smashing it out of the park’.

So what is the alternative?

* Ensure your company has clear Purpose & Values – Why you exist and how you want to be seen & experienced by your stakeholders. The Purpose & Values are the criteria by which decisions are made throughout the business.

* Have your teams develop clear transparent plans, where everyone knows what they and their co-workers will deliver

* Think hard about how you use targets and bonuses / incentives, to be sure that they are really driving the mindset & behaviours that you want

* Restrict annual planning / target discussions to the shortest possible time; and spend that time on open, high quality discussion about the business opportunities & challenges, not negotiating.

* Be ware of ‘leaders’ who confuse leadership with target setting & fear!