BY DR. TANAI CHARINSARN

APRIL 7, 2017

“The greater danger for most of us isn’t that our aim is too high and we miss it, but that it is too low and we reach it.” — Michelangelo

The concept of setting "objectives" to drive strategy emerged several decades ago, which popularized the idea of Management by Objectives (MBO). This concept teaches that organizations can be effectively managed by "setting objectives" and having everyone figure out the "how" to achieve those objectives. Under this approach, it is believed that if everyone achieves their individual objectives, the organization, as a whole, will achieve its goals. This concept was initially useful at a certain level and eventually gave rise to what is now called Key Performance Indicators (KPIs).

However, what often happens in reality is that organizations employ this concept to set individual goals and let various departments or units develop their strategies to achieve these goals. Often, these sub-strategies don't lead to overall success because they're not well-coordinated. Different units may not collaborate, and work doesn't proceed as planned, ultimately resulting in a lack of success.

Another issue is that when each unit is tasked with developing its strategy, the strategies may not align, leading to conflicting goals. For example, the sales department might want to increase sales by introducing new products or flavors, while the manufacturing department has a goal to reduce costs by decreasing the number of product variants. These mismatches can lead to internal conflicts, hampering the organization's overall performance.

In reality, successful strategy implementation should start with discussions about what needs to be done to make the organization successful in a highly competitive market. Once a comprehensive strategy is developed, objectives are derived from it. Goals are not determined by desired outcomes but are based on the assumption that if the organization follows its strategic plan, "the results should be this way."

The process of goal-setting is intricate because goals serve as motivational factors for individuals, affecting their job performance. Therefore, setting goals shouldn't be a matter of merely assigning numbers to be met. Instead, it should involve the use of financial models to calculate the financial impact of the intended strategic actions. In some cases, sensitivity analysis or scenario analysis may be used to enhance precision.

So, how many goals should be set? The appropriate number of goals is highly context-dependent. They should be specific and realistic, able to be explained using financial models, and receive consensus and buy-in from all relevant parties.

It's worth noting that setting goals too low can lead to complacency, while setting them too high without a well-defined strategy can lead to unrealistic expectations, pressure, and an exodus of talented employees. The most appropriate goals are those that align with the strategic plan, are realistic, and foster collaboration and commitment among all stakeholders.