Setting goals — the SMART way
In last month's article I wrote about setting a vision for the organisation and how it was the starting point for the formulation of a strategy.
If I were writing a text book on establishing strategy, I would walk the reader through sequential steps, creating a mission statement (who we are and what we do) and deciding on critical success factors (those things we must achieve if our vision is to be fulfilled).
But as I'm not writing a text book and writing monthly in such a way, I believe, would be inappropriate, I choose (because I can) to write articles on meaningful subjects that stand alone.
So, in today's article I will describe how, after the selection of a strategy, organisations can establish shorter-term goals that are effective. These we call SMART goals, a handy and descriptive acronym.
Having established our vision and mission and decided on our critical success factors, we now have to consider, with these in mind, how we, as the board, create goals for the management for the coming year. This is where we start to think SMART.
What are SMART goals?
These are goals which are specific, measurable, achievable, relevant and time barred.
It is surprisingly common for organisations (not just companies but all types of organisations) not to set a list of goals for the year, and even if they do, they often fall short of being SMART, or even smart.
To be effective, they should meet the following criteria:
Specific: the goal should define as exactly as possible what the board expects of management, should avoid generalities and contain positive action verbs.
Measurable: this, to me, is the most critical component of a goal. How is success measured?
The quantitative goals are easy, eg sales will increase by 10 per cent. The qualitative goals, however, are more difficult and may need to state in whose opinion the measure is met. This may be in the opinion of customers, the chairman, or the board as a whole. An example would be: “Service levels will be rated as excellent by more than 90 per cent of customers surveyed.”
Achievable: the board must endeavour to establish goals that introduce some ‘stretch', ie they are not for instance last year's sales figures plus a little extra for inflation. Management should be given some challenge. However, having said this, the goal must be achievable. A goal that has agreed ‘stretch' but which with effort is achievable, is motivating, whereas a goal that is set ‘top down' and is impossible is demotivating.
Relevant: it may seem obvious, but a goal must be relevant, and clearly so. A goal that has no connection to the vision and consequently the CSFs is simply a distraction.
Time barred: Every goal should have a completion date. If something is expected to be completed in the first a quarter, the goal should state this.
Following these simple commonsense rules on goal creation makes the job of monitoring performance and year-end evaluation of management effectiveness less subjective and facilitates productive discussion on corrective action throughout the year. It also enables the celebration of successes, as the picture of success has been clearly drawn.
And now, if I may, a little on input and output goals.
Output goals are those that are measured by the outcome or result of an action, for example, sales have increased by 10 per cent or profit has improved by 20 per cent.
An input goal is one that is measured by whether a stated activity has taken place rather than the result of that activity. For example, sales presentations are made to three major brokers in ten cities. Output goals are more effective and, therefore, although they may occasionally be necessary, input goals should be kept to a minimum. One can imagine a badly created set of input goals which are subsequently achieved with no meaningful result for the organisation.
So, as it is still early in the year, if it hasn't already been done, go to work on your SMART goals.
Roger Gillett is chairman of the Institute of Directors - Bermuda.