This kind of review process lets you set meaningful stretch goals too. Such goals are a popular leadership technique (popular among leaders, anyhow) for getting people toexert maximum effort. But many leaders are far too casual about how they specify and use them.
RAM: There can be a lot of hot air in stretch goals. They are useful, but not if they’re arbitrary, if they’re used as a tool to whip people into a frenzy of working harder. A stretch goal has basically two purposes. One, it can force you to think about doing things in a radically different
way; two, it can help you to execute exceptionally well.
For example, Sam Walton set a stretch goal with his famous declaration: “I will continue to reduce prices as long as I live.” He accomplished that. Henry Ford did it in the early 1920s. Matsushita did it in Japan. And Ingvar Kamprad of IKEA did that in Sweden for a long time.
Meeting his stretch goal forced Walton to find new ideas that Sears and Kmart never had: dock-to-dock logistics, online information transfer to suppliers, and cutting out a lot of waste in transactions. These procedures translated into everyday low prices.
Taken from: Execution The discipline of Getting things Done
Last year, for example, one manager organized a specialized sales program to put a product into a new market, adding a couple of people to run it, and it brought us revenue we wouldn’t have had otherwise. In another segment we took a risk and were able to increase prices by half a point. And we trained five more Six Sigma black belts, enabling us to have more cost-reduction projects. All these came out of dialogues; I didn’t suggest them.
Sometimes, on the other hand, you have to put the pressure on. Say somebody clearly isn’t going to make his targets and doesn’t have a good excuse. I might say, “So what are we going to do? I’ve got to report to Wall Street at the end of the quarter, and I can’t just walk away from my commitments. Maybe I should bring you along when I go to the press and say, ‘Here’s the guy who’s responsible.’ No? Well, how about this: You’ve got fifteen thousand stock options (I always know how many they have), and you’re a member of the 401(k). Your team members also have options and 401(k)s. If we miss our estimate and our stock drops ten or fifteen percent, doesn’t that have any impact on you and the others?”
So I make it a personal challenge: if you don’t accomplish your objective, if you don’t do what you said you were going to do, you are hurting yourself and your teammates. Usually the man will break his chops to make the numbers.
Taken from: Execution The discipline of Getting things Done
So you have a good debate about how to close whatever gap exists. You want to have that debate because the worst thing is someone who says he can make it but then doesn’t. You count on him, and he doesn’t come through. I’ve talked to many operating people who said, “You know, I knew at the beginning we had no chance at this plan.” My reply is, “Why didn’t you speak up and say so? I’m not going to run out of the room. I am going to challenge your plan. I’m going to try to get as much stretch as I can, but if it’s not achievable, nothing’s been accomplished here that’s good.”
One approach is to give a person a number, and she comes into a budget review. She says, “You know, I’m highly confident I can make ninety percent of this number in this way. I don’t know how I’m going to make the remaining ten percent—I can’t see it in the business. But I’ve got a couple thoughts, and I’ll accept your challenge. And I’ll come back at the end of the first quarter to tell you whether it’s in the cards or not, because if I don’t know by then, it’s not going to happen.”
I’ll say to her, “I’ll give you a couple of suggestions right now. I’ve been over your plan. If you get one more point of productivity, that closes the gap. One half-point of price will close the gap. But I don’t want you to tell me you’re going to get another point of productivity or half-point of price until you go back and make sure you can. And you may have better ways to close the gap. But those are two things to think about.”
Taken from: Execution The discipline of Getting things Done
As we noted earlier, a big problem with conventional budget processes is that targets disconnected from reality can be all but meaningless for the people who have to meet them. An operations process that runs on the social software of execution solves this problem, because the people
themselves help set realistic targets. And since those targets are the ones their rewards are linked to, the operating plan is where they take full ownership of them. This is the bedrock of accountability.
LARRY: Let’s assume we rolled up the operating plan, and the corporation was $50 million short of what it had to do in order to meet the estimates of the street and so on. I tell them, “We as a company think this is the realistic target. This is what we’ve led people to believe. We’ve asked you to come up from what we agreed upon earlier, but there’s still a gap between what you think you canmake in the ten operating businesses and what we think we have to make.”
I can’t just give them numbers they can’t make, because that isn’t going to be helpful. We’ve got to talk about how we fill the gap. I say, “What ideas do we have that begin to close this gap? We’re going to keep health care costs flat across the organization, so that’s going to give you two cents a share. I’ve got some ideas to help you, but I’m
still short.”
Taken from: Execution The discipline of Getting things Done
My purpose is to set up with him or her an apparatus to still achieve that plan by the end of the year. I explore the first quarter in detail to see how much they know about it and what they’re going to do about it. And the emphasis that I have is on early action.
What I say is, “People, we’re talking about operating plans. This is not about hopes and dreams. This is about realities. Don’t tell me you hope it’s going to get better. Don’t tell me that you dream about doing it better . The reality is that in the first quarter it wasn’t better. That’s the
database that we’re going to go from, and that’s the database we’re going to act upon.”
Now, if it develops that we can foresee some cash issues at the end of the second quarter, I might reduce the capital budget a little bit. I’m going to say, “Okay, we approved$50 million for capital expenditures in your operating plan, but I’m going to reduce that to $45 million in order to maintain our cash flow plan. Now you have to select the capital
projects most beneficial to the business. If you’re back on plan at the end of the quarter, fine, we’ll look at those things again, and we may bring them back to the original state.”
This process doesn’t guarantee that you make every plan in the corporation—you don’t. But you’d be surprised by the number of people who come awfully close under conditions that were a lot different than were assumed when they put the plan together.
Taken from: Execution The discipline of Getting things Done
