Performance measurement is critical to success in most organizations. We kid ourselves into believing numerical targets are the most objective way to measure people, but what is often forgotten -- measurement must take place against some standard. And targets are filled with biases and bad estimates that, if examined after the fact, wouldn't stand up to scrutiny. The prudent power player takes advantage of this situation to set goals as low as is credibly possible.
If a company saw a five percent drop in earnings in a year, most people would call that a failure -- unless the year was 2009, when the vast majority of companies saw declines of twenty percent and more. And when the goals for those managers were set in late 2008, do you think they foresaw a steep drop in earnings? Most probably had targets of increased earnings for 2009, which they missed miserably. So was a five percent decline a win or a loss? It depends on what you measure against.
This may seem like an obvious statement, but let me be clear about it -- there is NO upside to setting your own goals and targets high. It is in your best interest to make sure your targets are set as low as possible.
How do you do that?
By exploring, with as much discipline as possible, all the things that can go wrong in the coming year, with particular focus on those items outside of your control. Things like: the economy, interest rates, your customer's sales and their financial well being, uncertainty, -- the list can be extended by all the potential doom factors in your own personal scenario. Take a credibly pessimistic view on each one of these.
What do I mean, credibly pessimistic? Find a forecast or scenario that is still in the mainstream, but below the median. As an example, the potential for a "double dip" recession should have been built into last year's goals. This year -- a very weak economic recovery, or perhaps even no growth.
But won't I look like a naysayer? Won't I seem hopelessly pessimist?
No, because you must also show confidence in your own performance on the factors you do control -- your new product, a new pricing program, that cost reduction. No don't go crazy here -- you still want the overall target to be credibly low. The desired effect is a fairly bleak external picture, that is improved upon "some" by your efforts. Where "some" is as small an effect as you can convince people it needs to be.
Yes, there is some craft required to sell this. And everyone has seen variations of it before, so they're likely to roll their eyes a bit. But the bottom line is, there just isn't any better way to set your targets. If you let your targets be set based on median views of the future, and you'll fail at least half the time.
Another thing you must pay attention to is the accumulation of numerous small risks to your target. If there is a small chance of three things each going wrong, but if any one happens you will fail, then you've got a problem. Three small probabilities equals something greater than a small chance of failure -- it equals a moderate chance. If there are four risks, the chances of failure go up. Five is worse. And so on...
So if you have responsibility for several P&Ls, or projects, or cost reductions, make sure you don't just add up the results of all the individual pieces and make that your goal. Something will likely go wrong somewhere, and unless you build that probability into your targets -- you'll have failure on your hands.
Finally, if you have subordinates, you MUST pass along a collective target higher than the one you are signing up for. Sometimes considerably higher. Someone responsible for carrying out a piece of the project or P&L will fail, and you need to have others striving for a higher number to offset the difference.
If these tactics seem unfair or slightly deceptive -- remember they are the province of the power player. And the prudent power player does everything within his or her control to make sure to record wins.
