How to set business goals and achieve them needs to be addressed through a system that integrates scorecards with the processes that created the performance-metric outputs. This objective is achieved through the Integrated Enterprise Excellence (IEE) business management system.
Business goal setting is important; however, the setting of arbitrary stretch goals throughout an organization can lead to a misdirected emphasis and possibly playing games with the numbers relative to the achievement of target objectives. Enron at the turn of the century and the financial crisis in 2008 both illustrated how business goal setting and playing games with the numbers can lead to not only unhealthy but destructive behaviors.
Business Goal Setting Illustration
To illustrate how a company’s real objective might not be achieved from a simple stretch-goal performance objective, consider the following in a business goal setting effort.
An organization could set a very aggressive end-of-quarter total revenue goal for its sales force.
Since bonuses of sales personnel depended upon meeting their targets, a large number of sales have been typically generated at the end of the quarter because of pricing concessions and other special-customer deals approved by management.
Because of the additional end-of-quarter order volume, operations encountered additional expense from work-force overtime payments. This overtime also led to more errors than normal production efforts because of personnel fatigue. These non-conformance issues not only required resources to resolve the issues but also negatively impacted customer satisfaction.
The overall impact to the financials was also not good since less revenue was generated on a per transaction basis. In addition, the price concessions and also the profitability of each transaction were unfavorable because of the additional costs from overtime and reworks.
In conclusion, for this business goal setting example, a function in one portion of the business can be doing something that makes the numbers desirable but at the same time negatively impacts another portion of the business and/or the business as a whole. Potential resolutions to this specific issue include re-formulating the sale force compensation program so that these quarterly meet-the-goal-or-else quarterly spikes don’t occur and the bottom line always gets positively impacted from the sales force’s efforts.
Business Goal Setting and Stretch Goals
The setting of a new performance goal without a plan to change a process or business system usually leads to problems. The purpose of the stretch-goal concept is to create an assumption that if we ask more of our people, they will perform better. Think about that. It assumes that the workforce is currently under performing, not that the current business processes are inadequate to reach the performance goals.
Ask yourself; What are the constraints to create success? If it is not the people, then consider not using stretch-goals but set goals to make process improvements that change the overall business performance. Dr. Lloyd S. Nelson summarized this line of thinking when he stated: “If you can improve productivity, or sales, or quality, or anything else, by (e.g.,) five percent next year without a rational plan for improvement, then why were you not doing it last year?” This type of thinking can change the process of business goal setting.
Business Goal Setting that has Whole Enterprise Benefits
Organizations can have beneficial goal setting when they start by first viewing their enterprise as a system of processes with predictive performance measures. An Integrated Enterprise Excellence (IEE) system value chain is a means to create this operational perspective for an organization. The IEE value chain provides predictive performance measures (links through the oblong boxes), while linkage to processes is through the rectangular boxes. These predictive performance measurements are referred to as 30,000-foot-level metrics for operational measurements and satellite-level metrics for financials. Automatic updates to an IEE value chain can be achieved through Enterprise Performance Reporting System (EPRS) software.
The next thing that organizations need to do is to determine where an organization needs to improve so that the bottom-line benefits the most. The 9-step IEE enterprise process management (EPM) system in business process management (BPM), which is described in the book Integrated Enterprise Excellence Volume II, provides guidance for what an organization should do to undertake this effort. In this system, the above IEE value chain is referenced in step 2.
Steps 3-6 provide direction for the activities that lead up to a goal that is to be set in step 6 of this system. The Business Process Management Guidebook in Figure 9.3 illustrates how an Enterprise Improvement Plan (EIP) provides a visual for showing the alignment of improvement projects to what is needed at the enterprise level; i.e., steps 4, 5, 6, and 7 of the 9-step roadmap.
Business Goal Setting and Process Improvement Efforts
For enterprise gain, emphasis should be given to areas of the organization when conducting business goal setting that provide the most whole-business benefits to the financials. Opportunities for improvements are:
- Organizational constraint or bottlenecks
- Reduction of waste, such as inventory
- Reduction of defects
The 30,000-foot-level predictive performance metrics associated with measurements that need improvement create a pull for the execution of improvement efforts. These improvement efforts that are a result of the business goal setting efforts could be accomplished through several activities such as a:
- Kaizen event
- Lean Six Sigma Project
- Just do it effort
- Deming’s Plan-do-check-act process
A detail roadmap for executing process improvement efforts is described in the book Integrated Enterprise Excellence Volume III.
Business Goal Setting Implementation
Organizations gain much when they execute business goal setting as part of a business management system that integrated predictive scorecards with analytically/innovatively determined strategies that result in improvement efforts that benefit the enterprise as a whole. Integrated Enterprise Excellence (IEE) provides a means to accomplish these objectives.
With the IEE approach, traditional approaches for reporting historical organizational metrics can change to predictive measurements. Ten examples of this conversion are available through Business Goal Setting and Dashboard Scorecard Reporting. One of the example illustrations is how the red-yellow-green or stoplight scorecard sets business goal setting, which can lead to much firefighting and unhealthy, if not destructive, behaviors.
IEE addresses the business scorecard and improvement issues that often occur in organizations, which are described in a 1- minute video:
Contact Us to set up a time to discuss with Forrest Breyfogle how your organization might gain much from an Integrated Enterprise Excellence (IEE) Business Process Management System implementation for setting and achievement of business goals.