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.

What makes a good salesperson?

There are lots of different types of people, each of which brings a unique perspective to sales.

What makes a good salesperson? Is it sales figures alone? What about the salesperson who makes his colleagues lives miserable, but hits all his targets? What about the salesperson who focuses on big deals every few months, bringing in more revenue, but missing monthly sales targets? What about the salesperson who can't work with his team? Who is so focused on hitting his numbers that he doesn't recognise that other people exist? What about the salesperson who misses his targets every month but helps his colleagues bring in more sales than they would otherwise get?

A lot of sales organisations put their focus on the numbers. How many sales? How much revenue? How long are the customers likely to stay with us? They call these targets. And they use them instead of management. By producing targets, they say, they can motivate their employees to do well. The next step is to say that their staff development plan is their targets -- if they do well, they get more money and bigger targets. There are a few things wrong with this scenario, as highlighted by the examples above:

• Rewards ignore reasons. If somebody works on a deal that takes a few months, and nails it, we congratulate them. If they put in the same quality work and external factors, such as markets collapsing, or the customer being bought, mean they can't make the sale, they are held accountable, and punished for their lack of results.
• Individual targets increase competitiveness. If there's a reward for being the best (recognition, more money, prestige), then most people will strive to be the best. This is how management sees it, and it's where the analysis tends to stop. Unfortunately, the law of unintended consequences indicates that there are more likely actions happening in the background. First of all, when you increase competition between teammates, you decrease teamwork. Creating competition breeds competitiveness. The teamwork that you've put so much time into producing will slowly disappear as people realise that the biggest hurdle to them being on the top of the pile isn't their customers, it's their coworkers. The salesperson who used to assist everybody so they could bring in their sales is more likely to focus on himself, to the detriment of the company. Individual revenue figures may go up while company figures go down. In addition, in order for their to be a winner, everybody else has to be losers. And the more focus you put on winning, the more focus will appear on losing. Your sales team will eventually end up with 1 winner and lots of losers.
• Targets are a form of control. Everybody understands that there's something wrong with the micromanager; that's why it's an epithet. Nobody wants to be micromanaged, but managers frequently don't see similar problems in putting so many restraints on their employees' actions that they can't think for themselves. If you tell people the only thing that matters are the numbers, then they'll behave that way. If you tie their pay to the numbers, but tell them to focus on personal development, they'll focus on the numbers. That's because your actions are much louder than your words.
• Rewards negatively affect relationships. If an employee's pay, month to month, is based on their making you happy, they're going to focus on making you happy, and be tempted to hide anything which might negatively affect your view of them. If they're in over their head, they will be far less likely to tell you, if you're in a position to reward them for not being in over their head. Your staff should be happy to come to you any time to talk about any problems they're having, whether it's personal development, professional development, making sales, or meeting their potential.

What's the solution?

Let's start with the basics: management isn't objective. There's no metric you can put in place which will fully manage an employee's performance. If there was, MDs would simply use calculators instead of managers, and the employment structure would be pretty flat. Good management is hard. It involves subjective measures, and judgement. That's why you were hired. You weren't hired to put a system in place that takes away all volition from your employees. If you were, you'd be a consultant, and you would now need a new job. What's more, the consultants who do those jobs frequently find themselves being called to the same companies, either that they've been to, or that their competitors have been to. What does that say about the methods they're using?
So, scrap the numbers. You know if your salespeople are doing well. You can tell. Some of it is the numbers, some of it is office banter, some of it is customer relationships, some of it is teamwork, some of it is their relationship with you, and some of it is their personal development. In other words, it's not the numbers, so putting their focus on the numbers is going to come at a cost.

There are a number of things that need to be considered in order to get the best from your employees.*

First of all, what motivates them? Why are they in the office? Why do they work with you and not with somebody else? Why do they get out of bed in the morning. When surveyed, most supervisors think their employees are motivated by money. And most supervisors say they aren't. The results of surveys of their employees indicates that money isn't in the top 5 reasons they work, and it's frequently not in the top 10. Find a good salesperson in your office. Ask him why he came to work for you. For some, it will be money. For most, they will probably state job satisfaction, challenges, new opportunities, career progression, or something else which has nothing to do with money. That's not to say that money isn't important, but it's also not everything. You can probably find someone in your organisation, or even your team, who is unhappy because they don't earn what they think is enough money. The interesting thing is that for each person, 'enough' is relative. It's not subjective, but it is relative. Once people have enough money to pay their bills, their rent/mortgage, and any of their other real expenses without worrying about it, money stops having a motivational effect on them. To that end, money can only be a demotivator, because not having enough is demotivating, but having twice what you need doesn't provide any increase in motivation, work quality, quantity, or creativity.

Therefore, it should be our goal to take as much focus as possible away from money. And there are a few simple steps (though psychologically challenging, especially in a traditional sales organisation) which we can implement to minimise focus on money.

• Pay people fairly -- pay must be egalitarian. People talk. If there's a huge discrepancy between what 2 salespeople make, they'll figure it out. And if they can't figure out why, there will be a sense of unfairness about the pay structure. Therefore, pay structures should be transparent. Employees know which of their coworkers are the best in the team. They know which ones provide the biggest value to the team. And if pay doesn't reflect that, there will be tension in the team. That's not to say that you can quantify exactly what it takes to move from one pay scale to another. Again, management isn't a calculator. But if somebody asks why a coworker is making more than them, you need to be able to tell them. Therefore, it is important to pay people fairly in the organisation, and pay them market rates or better, so they don't think they're being undervalued.
• Don't make pay contingent on performance. Everybody knows they have a job to do. They're paid to do that job. But you don't want them to constantly focus on whether they're going to be paid this month. You want them to focus on the job at hand. If someone isn't performing, there are ways to address that which don't threaten their well-being. If you are at a point where your salespeople's performance doesn't match your expectations, you will both know it.  The less focus you put on the consequences of that discrepancy, the easier it will be to address it constructively. The most important part of underperforming salespeople isn't the fact that they're not hitting their numbers. That's just a fact. The important thing is to figure out why. Is the economy in the wrong place? Are your expectations unrealistic? Are they having trouble at home? Do they need more training? Are they failing to recognise opportunities, or spending time on what are obviously closed doors? Each of these things has a different solution, but without identifying the problem, how can you find it?
• If you want to give bonuses, separate them from feedback. And don't make them dependent on performance. When you tell someone, you're getting 90% of your bonus because of X, Y, and Z, they hear 'You're not getting your full bonus.' They stop listening. And they're less likely to talk to you about things that might affect their bonus negatively than you would like. Give people their full bonus, if they're employed by you at the time of their bonus. If they're not performing, you should be working with them to address the performance problems, separately. If they're on their way out of the company because they don't fit, they know it. Hitting them with a decreased bonus is psychologically equivalent to punishing them, even if you don't intend it to be. The very best you can do with a performance bonus is to meet people's expectations. Giving people more money than they think they deserve won't make them better employees, but giving them less will almost certainly make them worse.

The 3 things mentioned above are difficult for many sales managers, and many managers in general, to accept. Many of them have had years of training that says contingent pay is the way to make things work, and have spent countless hours working in organisations which implement contingent pay. The higher in an organisation one looks, the more likely you are to find these opinions. My thoughts here are simple. If you have trouble believing what I've written, try it. Talk to your employees about what makes them tick. About why they left their previous job, and about what makes them want to get out of bed in the morning. It's a harmless place to start and requires no financial investment. If you find all your employees are motivated by money, then perhaps your organisation can't make use of the information above. But I'm confident you won't actually find that.

*I have a problem with this phrasing. I'll talk about why, later.