Setting good targets for strategic measures is a critical part of designing an effective strategy execution or performance excellence framework. These targets (along with your actual performance data, of course), trigger the red, yellow, and green stoplight indicators on Balanced Scorecards. These stoplights determine where you focus your improvement efforts, so bad targets can mean you're allocating critical resources to the wrong areas.
Too often, I find that organizations simply don't know how to set good targets. There are five ways that I have used and some are better than others.
If you consult the Malcolm Baldrige National Quality Award or any state quality award criteria, you will find the two best ways to set targets: benchmarking (or industry comparisons) and customer valid requirements.
We'll start with these two. I'll cover the other three in my next post.
Benchmarking is effective because you are attempting to find the best industry performer in whatever outcome you are measuring and meet or beat their performance. Dr. W. Edwards Deming, the noted quality and productivity guru, was not a big fan of benchmarking because he thought one might be limiting their improvement potential in some way by focusing on what others have achieved.
Regardless, if you can find someone whose process is similar to yours and they are the best performer you can find (they could even be a division within your organization), trying to emulate them and beat their performance is a great start.
Years ago, I was working with the senior management of a chemical plant that was producing polyethylene product at a 14% defective rate. They believed this was the best they could do and were soon to be sold or shut down due to the poor profitability that the defects were causing.
When I helped them find another polyethylene plant with a similar
product and process that had a 5% defective rate, they realized what
was possible and began to find ways to meet that stretch target. Their
improvement efforts raised the plant's profitability three-fold!
Sometimes just knowing something is possible helps us reach new
performance levels.
Identifying and using customer valid requirements is another very effective way to set targets.
One organization I've worked with had set a target for "customer wait time" at a level that was very comfortable for them, but it was not necessarily comfortable for the customer. The client thought that if they interviewed their customers -- who were often coming in to pay traffic fines -- and asked them how long they would like to wait, the answer would be a resounding and angry “zero minutes, I don’t even want to be here.”
When pressed, they were able to find a diplomatic way to query these customers (using a brief survey), which helped them arrive at an achievable target.
They also came up with another approach they could use if the surveys didn't directly provide their target. Since they were passing out customer surveys to all visitors, they realized that if they measured customer wait times and correlated them with the survey responses, they could draw conclusions on which wait times were acceptable to their customers and which wait times were not.
The survey not only allowed them to create a valid target, but it also provided this organization with customers' specific ideas on how to reduce wait times and achieve the target.
Watch for my next post, in which I'll cover the other three ways to set targets.
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