Target setting for overall performance of an organization is a vital task. Do it in the second stage of the practical corporate strategic planning process.
Most businesses usually precisely know what they are trying to do for whom. This will be something like ‘make a satisfactory return on their shareholders’ invested capital’.
From a practical standpoint however, setting targets for achieving this is not without its challenges. There may be quite a few different ways to define and measure profits.
Each type of enterprise, private, public, or partnership, may require a slightly different treatment. However, remember we are planning for the firm as a whole. We need ‘corporate performance indicators. More precisely, we need Beneficiaries Performance Indicators (BPI). These measure company performances in terms of the benefit delivered to Intended Beneficiaries, namely owners or shareholders. In most cases, these will be to do with return on capital and growth of profits or Earnings per Share (EpS).
There is a straightforward set of steps to decide a target for any given business.
It is important to set two figures. First, set a minimum level of performance or Tmin. Set another above this a level above this, which we think of as ‘satisfactory’, or Tsat These avoid the problems with setting a single unrealistic figure target.
Strategic planning teams in most non-profit organizations find it more difficult to set the top-level target.
They need to clarify the basic purpose of the organization first. If not, they will find it almost impossible to quantify it with any clear BPI. They need to sharpen up the definition of corporate purpose so it can be measured with figures.
I have explained this more fully at non-profit organizations and their purposes.
The concept of the minimum target for corporate performance is a powerful one. It stresses for the strategic planning team the level of performance that their organization absolutely must achieve.
Tmin is also the key trigger to for major action. If an organization cannot state the minimum target in verifiable figures, or if the performance of the organization falls below this level, then its governors should consider replacing top managers. Alternatively, the organization may need reforming into a more specialized unit.
Sadly, in too many non-profit organizations, many attempts to measure corporate performance are off the beam. They are not corporate performance indicators. They do not measure the benefits delivered to the Intended Beneficiaries. They are not quantifiable or not even verifiable in the real world.
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For more information on target setting and appropriate performance indicators for this check out these resources-