What's wrong with targets?

Targets are a very popular tool in senior management circles. They're frequently used as a proxy for how well a company is doing. If it hits targets, it's OK, and if it misses them, something is wrong. As with all KPIs, people who like targets, really like them. Here are the reasons why, at a glance (if you have others, I'd be happy to hear about them).

Strengths:
1. Quick indicator about whether the company is doing as expected
2. Gives people something to aim for

Let's take a look at those 2 things, quickly.
1. The problem with assuming that your KPI (target vs. achievement) indicates how your business is doing, is that it excuses you from understanding how your business is doing. If the KPI is what you think it should be, then you can walk away from it, without understanding the underlying reasons.
2. Almost nobody in the company has direct influence on your numbers. Sales people can only sell to people that want to buy. Some items stop being attractive during a recession. Some markets suffer (or grow) when the sun comes out. Since nobody can actually influence those things, it's silly to put the target there as something to aim for. People will do the best job they can, and if externalities remain relatively stable, you might hit those targets. But externalities are never predictably stable.

For example, let's take a comparison site which allows people to compare prices in a market which is controlled by a few vendors, many of whom are simply distributors for a single company. At the beginning of the fiscal year (we'll use a year for simplicity's sake), we set our annual targets. We don't know what's coming up over the next 12 months, but we make an educated guess and set our targets based on our assumptions.
What happens when several months into the year, the single company raises prices (due to their production lines being flooded, for example), vendors raise prices to maintain margins, and our site suddenly looks more attractive to users? We do better. Our business improves. We almost certainly meet our targets, and there's a good chance we exceed them. But how much of that is due to things we have control over? Did we improve the site? Perhaps. Did we make things more effective? Perhaps. But the single biggest change that affected us was something completely outside our control.
If you're only looking at the targets, it looks like we've done an awesome job. But since we can't separate the impact of the change in prices from the work we were doing anyway, it's impossible to say where credit is due (other than the majority being due to increasing prices).
Now, let's set targets for the next year. We review the previous year, and we do our best to keep in mind that the last year saw price increases. Prices have now stabilized (the flood damage has been taken care of, and new factories, in drier regions, have been opened). However, as the manager of a company, I don't think I can go back to my board and tell them that last year was a fluke. This year will be much worse. All expectations indicate that. We may improve our processes or site in such a way that we can increase business by 30%, if we're extremely lucky, but the odds of making significantly more than 2 years ago is really hard to see. So, if I'm a typical manager, I set targets where I think the board wants to see them, knowing that they'll be almost impossible to hit, without external intervention.A month into the year, it's clear the targets are set too high. 2 months in, and it's really clear.

Now we're in the position of knowing that our KPI is useless, but we've agreed to be held to our own numbers, so we feel stuck. This puts in the position of thinking about the targets, when we should be thinking about growing the business. And if you've ever read Drive, you'll understand that putting numbers in front of people on a regular basis increases their focus (on those numbers), but decreases creativity, productivity, and motivation. It also tends to make us risk averse, as we see bonuses, kudos, and promotions going down the drain. And lastly, it tends to kill our long term view. After all, if we don't meet short term goals, we won't be here to meet long term ones. The end result is that during a time where creativity and risk are most needed, they are least likely to be utilized.

In the end, by setting targets, we set ourselves up for failure.

What's the alternative?

If you can't bring yourself to get rid of targets, start by not holding people to them. They're an indicator of our ideas of success at the time of setting them, not a definition of it.

Even better, however, is removing them completely.

When running a price comparison site, there are lots of other ways you can indicate success:

1. Conversion. When people click out is it to buy, or to escape?

2. As you roll out new features, do your numbers improve? Do you get new traffic? Does a higher percentage of your existing traffic convert?

3. If you use SEO, are you ranking better? Is it driving up traffic? If it's driving up traffic, do those users tend to commit?

4. If you use PPC, are you getting value for money?

5. Are people finding it easy to get through your site? Is the average time per page going down, or up? Which direction should it be going (if you want commitment to your site, it should be going up. If you want people to come to your site and leave to buy something, it should be going down).

6. Are you capturing more and more of the people who left your site? Why did they leave? Have you resolved their problems?

7. How do you compare to the rest of the market? Are you leading? Following? Are you increasing your slice of the pie?

8. Can you increase the size of the market? Are you improving market penetration? Finding new markets? Finding new products? Experimenting?

etc.

Understanding your business cannot be done with a single number. It takes time, and effort. And managing by targets doesn't allow for either.

General response to Atlas Shrugged

Disclaimer: I just finished Atlas Shrugged.

Short version: Atlas Shrugged is deeply flawed, in numerous ways. It ignores reality in favor of fantasy land, pretends that human emotion can be, at all times, subservient to reason and rationality, and is poorly written.

Long version:

It's written as if the world and humans could be completely rational beings, if only we wanted to.
It's written as if all rational beings will want the same things she thinks we should want.
It's written as if everybody who isn't a capitalist is a waste of space.
It's written as if everybody in a company, other than the current owner is a parasite.
It promises that hard work and diligence will pay off, without addressing the times when it won't.
It promises that opportunity exists for everybody, while ignoring the fact that opportunity is nearly always determined by parental wealth.
It implies that being successful is a sign of deserving success.
It says that organized labor can never be a good thing.
It says that if you work for a capitalist they will do right by you by doing right by them.
It says that entrepreneurs would never act unscrupulously to get ahead, or to prevent someone else from challenging their dominant position.
It says that all regulation is bad.
It says the people are either complete idiots who are lying to themselves, or heroic entrepreneurs.
It says that people who start companies are the only people that drive the economy.
It says that there's nothing good about taxes (including fire departments, garbage collection, and police)

It ignores that regulation helped end the Great Depression.
It ignores that government provided services for everybody
It ignores the fact that any business, left sufficiently long, and grown sufficiently dominant, will use their position to their advantage
It ignores the benefits of the Clean Air Act
It ignores what happened before she was born -- the fact that the Wild West was largely lawless, and robber barons worked people to death and threw them aside.
It ignores thousands of years of evidence which states that if you let a company (or before companies, a merchant) behave however they want, you will end up with despots, murderers and tyrants, even if that's not what you start with.
It ignores the fact that entrepreneurs are human. Everybody is human.

There's a lot of talk in Atlas Shrugged about how the world would work if everybody behaved like the entrepreneurs, largely ignoring the fact that they don't. That there are thousands of reasons people don't behave that way. She writes as if her image of the perfect person is what we should all aspire to be, while ignoring the fact that we live in a world where we can choose what we want, and that choosing our aspirations is as important as choosing how to get there.

In short, it's fantasy. It ignores reality in favor of wishful thinking. Since it's supposed to be a warning on what not to do, or a treatise on how to behave, the fact that it's based on flawed logic, incorrect assumptions, and lies, makes it a complete failure. It does not, in any way, do what it sets out to.


The truth is, if you live in America, the government gave you your home. Whether it was the English in New England, the Spanish on first landing, or the American government during the days of Manifest Destiny, there isn't a single inch of American soil that wasn't taken from another people, through force, by people of the government, or directly supported by them.


Ayn Rand states at the end of the book that she was never given anything. She ignores (at a minimum): roads, police, fire departments, schools (for herself and her children), garbage collection (imagine if it was paid for on an individual basis. Now imagine your neighbor can't afford it, or doesn't want to pay for it), emergency care, military, subsidized corn (which allowed her to live on all the cheap American food), railroads (laws passed and property taken from existing owners), western expansion over territory that belonged to another people first (and who the government forcibly dislodged).
In other words, she is either lying about what she has been given, or takes for granted all the government programs that do work, while demonizing government in general. She was, whether she intended it or not, a hypocrite.