How do you set business objectives that count?
Updated: Oct 30, 2020
For long enough I personally did not realize the importance of how growth objectives are set in an organisation. I found that most often they are defined as targets for KPIs and failed to see the implications. For one thing, a good growth objective has to be set relative to the company’s mission and hence it has to reflect the value that it delivers to the customer. The difference is key for long term success because in this way:
The team can see beyond short term success – focus on metrics that are not connected to the value of the service/product will ultimately lead to unsustainable growth (or suboptimal growth)
The team is aligned and you avoid having different teams focusing on different metrics; silos will sooner or later impact customer experience and/or work environment
The team is much more motivated because there is a sense of making a meaningful contribution – this brings in a mindset focused on growth and problem-solving. It’s about empowering people to see the broader picture and building on their skills rather than considering them as means for a short term narrow aim.
To get a simple and yet practical example, I often see companies establishing growth targets in terms of income. This can lead for example to insufficient focus on innovation and improving customer service; in more extreme cases it can also incentivize chasing sales without considering the clients’ benefit or cost cutting (eg by saving on employee training or remuneration). Moving on to the second shortfall, for many departments, income is somehow “abstract” in the sense that they might not see how is there everyday work connected to that or what are they supposed to do to contribute to that. In practice a company is likely to see this disconnection and choose to give department-specific targets focused around KPIs specific to their area of activity. Even that however is not without shortcomings as departments can end up feeling that they each have their own project rather than seeking to help each other; in extreme, communication between departments breaks down and they can even end up pulling in different directions. How many times did you hear people in one department rolling their eyes and speaking badly about other departments? Finally, income as a target is in no way empowering for team members, stimulating innovative solutions, spurring a sense of mission or helping in overcoming growth stumbles. It also lacks a longer term growth driver and the company might fail to establish a sustainable growth path, it might fail to recognize longer term opportunities, it might do a poor job in positioning its product or service in a way that highlights the value delivered to the customer etc.
When the focus is on the income and there is a shortfall in achieving it, it is easy to lose focus and motivation as there is nothing bigger beyond that to motivate team members in seeking alternative solutions. When instead they all reckon that their purpose is not o generate x Euros but to contribute to something valuable, they are more likely to work together to find another route that takes them there.
Similar dynamics affect other metrics which are not reflective of the need that the company is trying to fill with its service/product. In this context, I like the term used by Sean Ellis who speaks about setting objectives by establishing a North Star Metric which reflects the value proposition offered by the company and captures “the magic moment” in the interaction with the client. The silent point is that such metrics also serve to measure engagement or depth of client relationship. A few examples used oftentimes are:
- Daily active users for Facebook
- Whatsapp: number of messages sent by a user
- Airbnb: number of nights booked
- Quora: number of questions answered
In this framework KPIs are not redundant but they are rather seen as indicators for measuring progress; they are not growth targets but rather ways of measuring what the company is doing well and what needs to be improved. Furthermore, KPIs need to be mapped against the North Star Metric; users need to understand what the relationship with the latter is, how do they relate with the company’s mission and how different KPIs influence each other (somehow similar with the OKR framework).
Another thing to consider is that for an objective to be effective, it has to be specific and time-bound. We tend to get what we aim for so we have to be specific in setting objectives. “Improving daily active users” is not same as “Reaching 100,000 daily active users by 31stMarch 2020”. This precision is not only serving in ensuring that all team members are on the same wavelength, it also provides one’s mind with clear instructions.
Finally, the objectives that work best are those that are helping one move towards something rather than away from something. That is, I would advise against objectives such as “Avoiding a reduction in daily active users over Q2 2020”; framing objectives these way is far less inspiring that having some sort of gain to look forward to and favors a problem-frame rather than an outcome-frame.