In 2007 goal setting malpractices blindsided many financial institutions into achieving short term productivity goals that led to the Great Recession in the United States. This event is now known as the subprime mortgage crisis.
Specifically, many banks entered the mortgage bond market and set highly speculative goals to sell adjustable-rate mortgages. This drove many financial institutions to engage in myopic behavior and sell many adjustable-rate mortgages to achieve goals which brought us into over two years of economic turmoil.
So what can we learn from this incident? Well, in everyday business we use dashboards infused with key performance indicators (KPIs) to monitor our performance towards goals. There are many mistakes we make when creating our goals and operationalizing them into KPIs that allow us to follow similar suit to those that had a hand in being blindsided by poor goal setting practices in the mortgage bond market.
1. Inappropriate Goal Timelines
When creating dashboards you should pay careful attention to what goals you are attempting to measure. For example, in the case of goal setting for revenue, many companies overlook the fact that achieving short term goals such as a quarterly target can cause managers to engage in nearsighted behavior to achieve those goals rather than long term annual revenue goals. This is why Coca Cola ended their practice of issuing quarterly earnings reports with much reason.
One research study 1 sought out to examine this effect and looked at why it is difficult to find a cab on rainy days in New York City. It turns out that cab drivers tend to make daily earning goals and because the demand of cabs is so high on rainy days, they meet their goal thus they head home for the day.
The recommendation here is to ensure that your goals timeline is appropriate. For example, if your sales team is frequently hitting monthly quotas and then winding down for the rest of the month then perhaps your timeline horizon is inappropriate.
Use historic data to calibrate the right goal targets in relationship to goal timeline. You may even highlight an annual revenue goal in a dashboard to bring focus to the big picture goal at hand.
2. Competing goal types in your dashboards
Often times our dashboards might mix quantity and quality type goals that help us focus on the big picture of what the dashboard is attempting to measure.
In one research study 2, researchers controlled the difficulty of goals and sought out to measure how participants approached both qualitative and quantitative nature in a stock investment scenario. The researchers found that participants began sacrificing goals about quality to achieve more quantitative goals simply because they were more measurable and easier to accomplish.
This goes hand-in-hand with creating too many KPIs in your dashboards. Your users can not only become blindsided by quality vs. quantity goals, but also begin to tunnel vision into monitoring only one goal. It is best to select at most 4-6 KPIs to monitor rather than overload your dashboard.
3. Goals should be well thought-out and realistic
Goal creation should not come out of an arbitrary process, they should be well thought-out and have realistic expectations. Oftentimes, people assume creating difficult stretch goals encourages hard work. For example, many managers create stretch goals with 10-20% over expected goal with the idea that it will motivated employees such as an annual sales revenue target that is unrealistic.
However, the real scenario is it could lead into excessive risk-taking and cheating behavior. Research has indicated challenging stretch goals has allowed negotiators to reach inefficient deals in negotiations. Imagine what this could mean for your sales team!
The best practice here is to identify a broadly construed business objective for your dashboard. This can be a statement of what you are attempting to achieve. Once you have that business object, you can begin to operationalize your goals into statements of how they are specifically going to be attained, what the targets are, and who the key players are going to be. Much of the operationalization step should be based on your historic data in order to create an appropriate growth model.
Lastly, you will need to select the appropriate visualizations for your KPIs to monitor your goals.
This along with the other recommendations will ensure that you are delivering high-quality dashboards to your business users to deliver the utmost high-quality work.
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