Not too long ago, companies swore by their long range business plans. 2 year, 3 year, 5 year, …heck, I even remember one client with a 10 YEAR plan, complete with 10 year performance targets! Long range plans and targets were the norm. And our executives were put in place to manage these plans. And MANAGE they did. Many viewed themselves appropriately as CARETAKERS or custodians of the business plans during their time at the helm- their primary job being to avoid disaster and keep things moving along.
So what makes made these leaders operate like this? And why do many still operate like this? What makes a good “leader” turn into a “maintainer” of the status quo? I have a little theory, and it goes right back to how we set up and execute our our performance management system. My theory is that there are three fundamental flaws inherent in most PM frameworks today. They are as follows:
1. Our planning horizons are way too long. Few individuals (actually, I can’t think of one!) have the ability to “crystal ball” accurately into the future. I’ve talked to many a sales executive who tell me that their long run sales forecast is, at best, “a finger in the wind guess”. Two things bother me about this. First, these kind of projections directly drive the forecasts these companies give to individual and corporate investors (a very scary thought if you base any of your stock purchases on little things like PE and growth ratios!) Second, God help the poor soul that inherits that “finger in the wind” projection in year 3 of a 5 year plan. Planning horizons that are too long term, by definition, create very shake foundations on which to build future success.
2. Within these “long term plans”, our managers remain “SHORT TERM ACCOUNTABLE”. I’ve often wondered what kind of performance we’d have if our executives remained vested in the performance of a business unit, once they’ve moved on to bigger and better things. Why don’t our PM systems give some level of weighting to the later stages of their business plan, say years 2-5, once they’ve departed ? It’s interesting to wonder how many plans fail because they are built on bad foundations- foundations that never become visible because a) the executive that built it is long gone, and b) there exists a very convenient fall guy whose bad luck has left him holding the bag. Something to think about.
3. Finally, many of these executives have already achieved financial success. (note I stopped short of just using the word success, which would imply overall success) Yet we still try and motivate these executives with money. OK- I’m not being that naive. I know executives will always aspire to more money. But I would argue that an executive who has banked millions will be a lot more likely to take big (and often bad) risks, than those who have not, even if there’s a pile of cash awaiting him when he wins. These kind of executives have little to lose and a LOT to gain. Far better to find rewards that go well beyond financial success. Find those attributes that make a Phil Mickelson or Tiger Woods still compete even though they’ve achieved well beyond any reasonable definition of financial independence. Remember, some of the greatest executives in history have turned companies around without asking for a penny of salary during the turnaround. Remember Chrysler? Where are those executives today?
Also…and this may go without saying…you must have very solid risk controls in place at this level. At lower levels of the organization, money can be as good of a motivator as it can be a deterrent of risk (i.e. make the wrong bet and lose your job). As wealth builds, however, the “money governor” begins to lose its steam. Organizations must turn to controls to govern decision making and other related executive behavior.
There you have it…my little three part theory on why its difficult to achieve sustainable performance against long run business plans.
The optimal solution to the problem (my opinion only) is to stop fooling yourself into target setting more than 12 to 24 months out. That would solve 90% of the problem. Of course, I don’t mean stop “visioning”. But I do think we should stop guessing at longer range targets, and fooling ourselves into thinking that we can effectively manage them successfully given the almost certain changes you’ll experience in personnel and business dynamics.
But if you must have long run targets, give some serious thought to points 2 and 3. They can be useful tools for managing the long haul.
Author: Bob Champagne is Managing Partner of onVector Consulting Group, a privately held international management consulting organization specializing in the design and deployment of Performance Management tools, systems, and solutions. Bob has over 25 years of Performance Management experience and has consulted with hundreds of companies across numerous industries and geographies. Bob can be contacted at firstname.lastname@example.org