Challenges and implications of setting realistiget target
On an annual basis and as part of the business-management cycle, companies have to organise an important exercise for all employees, especially functional managers, to propose a business plan and annual budget for review and approval.
Under this normal process, one of the big challenges is how to set the right target for the upcoming fiscal year. Each department of a company needs to plan for operations and activities, which have to be supportive and aligned with the total company’s vision, mission and strategies.
As businesses need a certain level of growth to ensure their continuation and long-term survival, it is important for every business unit to set a challenging target contributing to competitiveness and strength enhancement.
By and large, the business planning process starts with setting revenue targets, such as for sales or services.
The revenue target to be proposed by the sales department is crucial not only for its own operation but also for other related departments that will use the figures as a basis in developing their budgets.
If the sales target called for a big jump such as a 50-per-cent increase from the previous year, it would be inevitable for all concerned to plan to support the increased volume.
For example, the factory may need to increase production capacity, the warehouse and logistics department has to plan for increased work and expanded storage space if needed, and back-end departments have to be prepared for increased transactions and administrative support as necessary.
The pressure on setting an appropriate target may come from the top management, who have to negotiate and demand the highest possible commitment from key managers, taking into account current performance and emerging competitors in the market.
After a few reviews and revisions, the final agreement can be reached with the clear target figure for further action-plan development. The following are some of the good characteristics that a target should possess.
n Realistically attainable target – It is useless for a company to set a target that is apparently far from being achievable. This type of target may cause negative consequences when the related departments have to formulate strategies that require more resources than needed. Finally it can end up with waste and high costs.
It is necessary, therefore, to make sure that any targets to be agreed upon should be based on a thorough study of the assumptions and a reasonable projection.
n Incorporating optimistic views – Even if the previous financial year was a tough one for businesses, it is recommended that companies put in place some optimistic outlook in developing the target numbers. Without positive thinking, it is hard for a business to move forward to maximise its potential. Managers should look for opportunities, rather than struggling with the existing difficulties.
n Competitiveness and challenges – Successful companies with long track records can easily fall into the trap that they will be continually strong in the future. It would be more appropriate to analyse the company’s competitiveness and identify areas where weaknesses become evident. Loss of market share can be a sign to be focused on.
To keep up with emerging strong competitors, management should therefore try to set targets that can help enhance a company’s strength and eliminate the weaknesses.
n Shared commitment – The development of a good target should be derived from cycles of shared information between the top management and the lower-level managers before the final agreement can be made. This iterating process can be done in the approaches of both top-down and bottom-up suggestion, negotiation and reasoning.
By sharing ideas and concerns over the target to be set, lower-level and top management can arrive at a commitment that is powerful and call for all possible efforts that can lead to success in the future.
At the beginning of a new year, companies have to start operations with a new target involving all members of the organisation. The target should not be considered as just what we want to obtain without taking into consideration associated risks and special resources required.
Targets can be achieved through talented staff members’ capability, tools and efforts available in an organisation. Without a properly refined process, it is dangerous for a company to mislead the team with unrealistic targets.
Yanyong Thammatucharee is head of international finance and operations at Central Marketing Group. He can be reached at [email protected].
