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Transcription of the episode

Hello,

In this episode we’re going to think about setting business goals. Unlike lots of previous podcasts, this one wasn’t inspired by one or a few SaunaGrow mentoring sessions. Its idea came from an exciting LinkedIn discussion, started by Marcin Majchrzak of Harmony Team. One of the questions that Marcin asked was:

What is the optimal number of sales meetings his sales team should carry out?

To give an answer, the respondents – trainers, male and female leaders and sales experts – were first given company parameters, its industry and salesman’s job description. The debate that followed had a few unexpected twists.

It inspired me to share my opinion on:

How setting company goals can work toward positive ends or they can damage the leader and his team.

1. The trap of instant gratification.

To begin with, let me tell you about someone’s interesting and controversial opinion on setting objectives and meeting targets. In his lectures Andrzej Blikle, a well-known mathematician, confectioner and manager, claimed that:

Rewarding employees for meeting the expected results is wrong. Wrong, because it creates a sort of an employer-employee game of “will I get a bonus if I do it?’. Consequently, the employee is ready to sacrifice anything and anyone for the sake of the bonus.

This “achievement – instant gratification” model, natural as it seems for the human nature and animal world, carries an inborn danger.

If the reward is pledged for achieving short-term goals, the resulting motivation tends to be corrupt.

Why?

On one hand, strictly and narrowly defined short term goals are easily scalable.

On the other hand, if such goals are set without any explanation of a broader context, the unfair, result-driven play begins.

For example:

If the bonus is promised for having conducted a target number of sales appointments, the sales team will obviously arrange any number it takes to get the bonus.

This policy is short-sighted and risky. It stops the sales team from taking a wider perspective, in which they could decide on an optimal number of sales meetings to sell the product, meet the budget, help the company grow and support the customers.

How to avoid the instant gratification trap?

There are ways to avoid this damaging, short-sighted game of inflating scores to hit targets.

One of them is making employees interested in a longer perspective of company growth.

In Poland, an increasing popularity is gained by stock option programs, such as ESOP – Employee Share Option Plan. They help employees who, as shareholders, lose their interest in pumping up results and raking in, and focus on contributing to the company value. Not all staff might find such a long-term commitment appealing, but to many, the prospect of being a beneficiary of a thriving and valuable organization can lead to more mature forms of engagement.

I know how it works as a participant of such programs in AirHelp, which is now worth several hundred million dollars, as well as in Morizon, few years ago sold for over 20 million dollars.

I know how stock option programs influence staff motivation and I highly recommend this approach to managers and company leaders.

Employee Share Option Plans are not the only way to depart from the policy of instant gratification. Another well-known one, OKRs (which stands for Objective Key Results), is used by Google. In this system, the company leaders set objectives and work out parameters that can measure to what degree these objectives have been completed. Next, department managers and their mid-management at marketing, operational, sales, IT and others, decide what their department can do to meet these objectives. Having decided if and how much they can contribute, departments set their own Objective Key Results, and then this procedure goes down to smaller teams or even individuals.

If correctly implemented, this tool is meant to support the communication among the employees, so they share a common awareness of the direction where the company is developing.

What should be avoided, is strong linking OKRs with the bonus system. If we do so, we are back to the instant gratification game, described by Professor Blikle. Someone, somewhere in the company might be tempted to make next year’s objectives so easy to achieve as to secure himself the bonus.

If achieving Objective Key Results is detached from the bonus system, the staff is more likely to understand them as guidelines.

Sharing the knowledge of what is important for the company, they are encouraged to develop their motivation in a more mature and less monetized way.

2. Set your objective in a time horizon.

The objectives should be also planned in time horizons. If we want to verify if our service is good, we have to define when reaching an accepted target can be called a success.

Let’s say we will be satisfied if we have sold our product to 100 clients in a year. If we take into account our growth dynamics, we must assume that we will not be signing 25 contracts per quarter. More probably, we’re going to sign 10 in the first, 20 in the second, 30 in the third and 40 in the last quarter. In this way, we will set a roadmap for our staff to know when and what to call a success.

If we do not set our goals, how can we evaluate that signing 150 contracts in one year is an achievement?

3. Adjust your objectives to market changes

Another point is that our goals should be flexible and open to modification more often than once a year.

During a current time horizon, we should be able to discuss if our aim is still adequate and fine-tune our strategies. An example of how vital flexibility can be, is visible in EU financing programs. With their rigid and unalterable conditions, every point of the contract we signed 2 years ago must be fulfilled and the money spent, no matter if it still makes sense or not, despite the changing market. This is wrong and it must change or lots of EU money will keep going down the drain.

The free market economy must be based on modifiable objectives.

4. Keep playing by the rules & collective decisions.

Here, a short reference to Professor Blikle again. Just like managers should not fiddle with the objectives to receive the bonus, their employers shouldn’t alter them to avoid paying the bonus.

If someone’s well-deserved carrot is put off again and again, they will lose their spirit. This, in the longer run, leaves the employer at a loss.

However, if our business environment should change and we have reached our next year’s target in the current year, we must set a new target. Also, if we acquire a new lucrative contract, we may have to reschedule our processes or modify goals. In both cases, these modifications should be agreed on collectively, not imposed. Only the aims and strategies jointly accepted as realistic may generate true personal involvement and confidence in success.

So, the goals are to be treated as reference points or road signs rather than a do-or-die situation.

5. How can benchmarking go wrong?

While we set our objectives, we must consider what goals other businesses in our market sector set for themselves.

This is the point that Marcin Majchrzak made in an earlier mentioned LinkedIn discussion – what is the value of a given performance parameter in the market that we should accept as a point of reference when we define our target values. So, finding market reference values – benchmarking – carries some risks. Let me explain this on the example of measuring the NPS parameter – Net Promotor Score. Most probably, more or less consciously, many of you have been involved in it.

The question asked to measure it is, “Would you recommend the services of our company to a friend?”. The answer is a 0-10 score with a comment option.

In short, this parameter is to measure how good our product is and how likely it is to be recommended. The parameter value is from -100 to +100. The companies like to use it in order to find out how popular they are among their clients and whether they are going in the right direction.

The question is, what NPS score is a reliable reference value?

Frankly, there is no correct value here. Of course, the closer to +100, the better, but no-one can decide whether +60 / +70 is good, acceptable or maybe 30 is good enough. Why? Because in various companies, even though the NPS methodology is quite consistent, this parameter turns out to be measured in different ways. For instance, the respondents are asked this question at different stages of their relationship with the company, the products and services vary and so do the customers’ satisfaction levels. In consequence, their willingness to recommend the company at various stages will differ, so no-one’s Net Promotor Score can be used as a hard benchmarking reference.

Let’s have a look at a more practical situation. If a customer of a car mechanic is asked whether he would recommend the garage before he hears the price estimate or before the repairs begin, he wouldn’t, until the job is done. If he is asked after his car has been repaired well and cheaply, he probably would. If the price has turned out to be higher than expected, even for a good reason, he probably wouldn’t. This situation illustrates that someone’s Net Promotor Score is an average calculated from responses received in a range of situations. It cannot be treated by others as an absolute benchmarking target.

If Apple has reached the 70 NPS, others 60 or even 90, these values should only be indicators of what others are achieving using their own NPS tools in their own environments.

It is more important to optimize our company procedures so as to be able to apply the same measurement tools in the same way and identical conditions.

This is the “ceteris paribus” rule of economics – “everything around remains unchanged”. Only then the change in parameters, let’s say, from 30 to 35 over a quarter or two, will truly indicate an improvement.

What follows from this example is that benchmarking is more about internal optimization than goal setting. It’s not about setting fixed targets, looking up to the results achieved by others, and then struggling to achieve them. It’s about creating a matrix of company activity, defining measurement parameters that enable us to understand the changes against previous time horizons.

6. Standardize your benchmarking tools.

An example of productive benchmarking – referring to how the others have achieved, using a set of parameters, is Peakon True Benchmark, an online instrument that measures employee satisfaction in over 40 aspects. With a frequency chosen by the management, it randomly asks a few of 40 staff satisfaction questions to all employees. The result is the information on how the workforce feels about various aspects of company life and activity.

The Peakon tool is used worldwide, which means the same questions are asked to thousands of companies, using the same methodology. The results provide a reliable source for analysis and comparison according to business sector, company size, geographic location, gender, work experience and lots of other aspects. This enables the users to compare any indicator with the average of a given aspect, in a comparable business sector.

To conclude, we should use benchmarking and market references cautiously as they can be misleading or introduce a dangerous result – gratification race, as Professor Blikle explained.

It is worthwhile to set goals, but when we do so, we should set them collectively to use them as road signs, not as “do or die” conditions.

Think about it, and share your reflections.

See you next time.

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