As we said goodbye to 2012 last Monday night, many of us were already thinking about the year ahead. For some, thinking about the future and setting goals for the year ahead is just a natural part of their “wiring”—an annual renewal process, if you will. But for many, it’s a way to declare a fresh start—basking in the glory of the things we achieved last year, saying good riddance to things we didn’t achieve, and making those proverbial “resolutions” on the things we want to improve and our forward looking goals and targets.
Doing the same thing…and expecting a different result
As we all know, no matter what our new year’s declaration of improvement may be, whether it’s breaking a bad habit, adopting a good one, or just improving on something that’s important to us, many would concede that their success rates are fairly modest, with only a scarce few of these resolutions ever making it past the first couple of weeks.
But despite the fact that most achieve far less than what they set out to, we, nonetheless, go mind-numbingly through the same process year after year after year. You could say that the end of the year, and the state of mind that accompanies it (induced or otherwise), makes us a bit Pollyannaish about the future, which, in turn, causes us to overreach somewhat.
Reasonable behavior for a typical human, granted, but is it as reasonable to expect the same apparently irrational behavior pattern from a corporation, whose goals are presumably established in a more thoughtful (and usually sober manner. Is it surprising that these goals often realize the same miserable success rates.?
Underachievement breeds underachievement
On a flight home last week I sat next to an individual who works as a planner/scheduler in a petrochemical plant in charge of maintenance practices. For him, one of the key measures of success is simply the percentage of PM’s and CM’s (preventive and corrective maintenance work orders) that are completed as scheduled. For most of us that don’t work in that industry, we would assume the goal to be fairly high, say north of 90%. But as it turns out, the industry average appears to be in the 80% range and at this particular facility, they were struggling to hit 40%!
I see this a lot with my clients, across multiple business processes. In fact, I’d say it’s more of an epidemic than a random set of occurrences. Call centers that plan for particular service levels, but end up in a huge “recovery” mode in the middle of the year based on changes to a handful of base assumptions. Sales targets that need to be dramatically adjusted based on lower than expected conversion rates. Employee churn that seemingly appears out of nowhere. Not to mention runaway costs and budget overruns in capital projects and initiatives.
Yes, of course, these are business realities that will always occur. Many are unpredictable but can be reasonably well contained with good contingency planning and risk management practices, or by adjusting the portfolio to have an overperforming area compensate for an underperforming one. Either way, we have accepted the fact that there will always be some level of error or slippage in our planning. The key, of course, is to minimize it.
Strengthening your performance plan
It all starts with understanding how poor target setting occurs. Here are a few of the most common breakdowns:
- Failure to specify and declare accountability—Many mid- to upper-level managers have a tendency to set goals at only a high level, consistent with what they must accomplish for compensation metrics and bonus payouts. For example, we might set productivity and quality goals for a regional operating group, or a customer contact center, or a production facility, but not “cascade” the measures to the discrete parts of the operation. That causes two problems: 1) accountability remains with the senior manager/executive and never flows down to the level where it can be most directly affected, and 2) the goals themselves are often misinformed, or at least not crafted with the best insight available. The result—all sorts of end-of-year juggling and balancing to make the sum of the parts hit the target number, which only works as long as there is enough slack to make up for one or more component shortfalls. It also creates difficulty in terms of understanding and diagnosing downstream problems and trends.
- Weak basis/grounding for forecasts—One of the biggest frustrations I hear from executives is their organizations’ ability to produce valid and reliable forecasts. Without a good forecast, it is virtually impossible to set useful and achievable targets. Part of good forecasting is understanding the component parts of the forecast, which we already discussed above. But more important still is the ability to define and understand the drivers of what you are trying to forecast. For example, if we our goal is to forecast service responsiveness in the call center (say, % of calls within an acceptable hold time), we need to be able to understand call volume, staffing capacity, and assumptions about productivity (current levels, expected gains, etc.) at a minimum. Understanding those factors a level or two down the cause-and-effect chain (say at a call type level) would certainly increase the confidence in the forecast. But creating a really robust forecast requires that we go well beyond that and understand the “drivers” of the components themselves—what factors are correlated with the attributes we are trying to forecast and by how much? So what does this look like in practice? Instead of looking at total volume assumptions from the year prior, we actually create a zero-based (bottom-up) forecast based on predictive variables and leading indicators (e.g., change in the volume of local/regional building permits might be used to tweak our assumptions about the volume of new connection call types).
- Alignment gaps –-Even with the best planning assumptions and accountabilities in place, there must be strong alignment across the various stakeholders who make up the forecast. That may sound like “motherhood and apple pie” for some of you, but I’ve seen too many cases where Department A makes a change to a business process to affect a certain operating metric without a clue of how that metric might be relied upon in other downstream forecasts. A good example of this is the impact that operational or product changes have on customer service and support requirements. Sure, if we do well in defining the forecast attributes, and cascading accountability, we should be able to minimize some of this risk. But unless we take the time to help our cross-functional managers and peers understand the interrelationships and dependencies between operating metrics and forecasts, there will always exist significant room for surprises.
- Weakness in measurement and reporting—Last but not least, is the importance of good measurement and reporting practices that will help identify issues before they become problems that affect the performance of the portfolio or the business as a whole. We should measure not only the operating results, but also the performance against each variable that contributes materially to that outcome, as well as how effectively we predicted and forecasted the nature and impact that each has on our business performance.
At the end of the year, or any reporting period for that matter, we all want to be in a position to declare success on our initial goals for the year. And where we haven’t been successful, we want to at least have had ample opportunity to course-correct to get back on track, or deliberately declare a different target. What we don’t want is to miss the numbers and not know why. Again, sounds like a no brainer, but those kind of questions and blank stares still plague many business and operating executives when it comes to missed performance goals.
Looking at how we performed as an enterprise, business unit, or function is an essential part of managing. But it is equally important to study the effectiveness and consistency with which we set our goals, targets, and forecasts throughout the business, as this will lead to more sustainable performance over the long run.
Let’s make that a goal for 2013.