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HITTING THE MARK

The Art and Science

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of Target Setting
By MONICA FRANCO-SANTOS, JAVIER MARCOS and MIKE BOURNE

C
No

onsider this scenario: A building
materials company sets an ambi-
tious sales target, with bonuses
tied to performance, the idea be-
ing that it will motivate the sales force to put
in extra effort to deliver. A few months later,
however, the problems start. The combined
output of all manufacturing plants is insuffi-
Do
randomly assigned this target to this particu-
lar individual based on a total target of new
customers that he wants to achieve for his en-
tire region. Given that this is a mature market,
achieving 12 percent will be a tall order. For
the humble sales rep, is he likely to feel encour-
aged? If the key measure to earn the bonus is the
number of new customers, is the average cus-

cient to deliver the volumes sold. Deliveries
start to slip, customer relationships become
strained, and by the second half of the year,
the salespeople are spending the majority of
their time placating disgruntled customers.
Or take another example: A sales rep has
been given the target of increasing custom-
ers by, say, 12 percent, with a sum of variable
pay linked to the achievement of this target.
Chances are, some regional sales manager has
tomer value likely to be high for the company?
Targets are frequently used as motivational
techniques. Founded on well-established theo-
ries of achievement motivation, targets that are
specific and perceived as achievable can help
to focus managerial action, encourage people
to succeed and drive superior performance.
Indeed, some consider targets to be key factors
that either make or break a company.
Nevertheless, little consensus exists re-

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 The Art and Science of Target Setting

garding the true effects of performance tar-
gets. The previous examples reveal some
of the challenges of performance targets,
which, in the current economic climate, are
t
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Besides these organizational pressures,
performance targets take their toll on em-
ployees themselves: stress levels soar and
motivation suffers. As another executive

being employed with greater frequency to try
to influence employee behavior in pursuit of
certain strategic objectives. Many organiza-
tions are linking the achievement of targets to
incentive plans – and sales and business de-
velopment professionals are feeling the heat.
The tyranny of hitting the target can lead
to some undesirable consequences – not
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notes, “People are happy to get a bonus, but I
always feel that the amount of happiness de-
livered by meeting targets is nothing like as
strong as the degree of unhappiness delivered
by missing a target.”
Some even argue that targets induce em-
ployees to engage in dysfunctional behavior,
as they grow increasingly desperate to hit the

yo
least for employees, whose pay fluctuates
accordingly. Getting it right is tricky: If per-
formance targets are not in sync with the or-
ganization’s operations and capabilities, the
costs of achieving the targets may outweigh
the benefits.
As one senior finance vice president of a
fast-moving consumer goods company ex-
op
plains, “In our business, we set quarterly tar-
gets. The turnover figures have a U-shaped
pattern, reaching their peak toward the end
of the quarter. But market demand does not
behave that way. The result? We have to of-
fer bigger discounts just to reach our sales
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target at any cost. They might start to neglect
non-target areas, make imprudent decisions
and take excessive risks, thereby eroding or-
ganizational culture and trust. The recent
economic crisis and the collapse of many fi-
nancial institutions stand as living proof of
the dangers of overly ambitious targets cou-
pled with fat bonuses.
So, how should managers use targets, par-
ticularly sales targets or quotas? What are the
interrelationships, counterproductive effects
and wider impact of performance targets,
performance measures and incentive pay on
managerial behavior and performance?

targets. And we put our supply chain under
enormous pressure to deliver, which inevita-
bly drives up production and logistics costs.”
EXECUTIVE SUMMARY
The recent economic crisis failures: unrealistic goals, over-
No
In order to shed some light on these is-
sues, we conducted a two-year study of tar-
get-setting practices in contexts where such
practices are particularly common: sales or-
ganizations. Sponsored by the Chartered In-
stitute of Management Accountants (CIMA)
in the United Kingdom, our research focused
on four different companies in four different

and the collapse of many finan-
cial institutions stand as living
proof of the dangers of overly
ambitious targets coupled with
fat bonuses. Targets, at their
best, can motivate people to
succeed; at their worst, they
induce employees to engage in
dysfunctional behavior, leading
Do
emphasis on financials, lack of
coordination, bad communica-
tion, all adding up to dissatis-
faction and poor performance.
Based on these findings, the
authors identify the key mod-
erators that influence people’s
behavior and condition favor-
able outcomes when it comes
industries – media, financial services, con-
struction and industrial products, all operat-
ing in B2B sales. Nearly 100 sales representa-
tives from the four organizations participated
in interviews and surveys, and we analyzed
documents and specific cases in depth.
What we discovered yields lessons for
avoiding or at least mitigating the potentially
adverse effects of targets. In addition, we pro-

to detrimental outcomes like
those recently witnessed. How
can companies get it right?
The authors studied target-
setting practices involving
sales managers, account man-
agers and business develop-
ment professionals in the U.K.
over a two-year period. Their
research turned up a litany of
to formulating targets, incen-
tive schemes and performance
measures. They then suggest a
10-step process to improve the
whole way in which perfor-
mance targets are set. It takes
some work, they say, but if well
designed, targets can resume
their original purpose: to drive
superior performance.
pose a framework to help managers set targets
in an integrated way that works in sync with
other management processes.
The Problems of Targets
Setting targets that are “high but achievable”
has been the managerial prescription of the
past 50 years. And it’s true that having clear,
quantifiable targets is much more motivating,
and can lead to better performance, than pat

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 The Art and Science of Target Setting

t
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admonitions to “just do your best.” you do your best one year, you know it’s going
The problem is that the “high but achiev- to penalize you the following year, because if
able” mantra often only ever works when the you work very hard and do very well, you can
whole of an individual’s performance is de- be sure your target will be increased. So why

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livered personally, with minimal interaction
with the rest of the organization. As soon as
the individual forms part of a bigger process,
merely pursuing self-interest ends up doing
more harm than good. That is why some ar-
gue that targets can actually undermine team-
work and deter performance improvements,
not to mention instilling fear in those who
bother? However, if you just do what is neces-
sary and no more, then your target will stay as
it is or decrease.”
THRESHOLD EFFECT. Targets are allocated inap-
propriately across the sales force. This aspect
of the target-setting process produces what
is known as the “threshold effect,” when a
uniform performance target is applied indis-

yo
have to meet them.
In our study of sales managers, account
managers and business development profes-
sionals who regularly use targets, the follow-
ing problematic issues were identified.
RATCHET EFFECT. Targets are forecasts pri-
marily calculated on past performance data.
Knowing this, salespeople who expect to be
op
with the company for at least the next target
period have a perverse incentive not to exceed
targets, even if they could easily do so.
For instance, crafty salespeople might
make 105 percent of their target to guaran-
tee their bonus, but never 120 percent, as
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criminately across all sales units or regions
without recognizing contextual differenc-
es. This allows no incentive for individual
excellence, while at the same time encourag-
ing top performers to reduce the quality or
quantity of their performance to just what
the target requires.
Consequently, as one participant ob-
served, “There seems to be little interest or
motivation to achieve the targets, and some-
times there’s even resentment based on the
feeling that another part of the team has an
easier target.”
TOO HIGH OR TOO LOW. “Sometimes those with-

this higher figure would generate a harder
target for the next financial year. This so-
called “ratchet effect” causes salespeople to
purposely restrict their performance to well
below their potential, as one sales rep with an
industrial products company explained: “If
No
out market knowledge set stretch targets that
are unrealistic,” said one. When targets are set
too high, salespeople become discouraged, or
worse, engage in dysfunctional behavior to
distort or misrepresent outcomes. Converse-
ly, when targets are set too low, the maximum
potential of salespeople is not being realized,
and additional bonuses are being paid out

ABOUT THE AUTHORS without any real boost in performance.

Monica Franco-Santos is
a senior research fellow
at Cranfield School of
Management’s Centre for
Business Performance,
where she conducts research
and consults on the design,
Do
sales and sales management,
organizational learning,
and coaching for business
development professionals.
Mike Bourne is the director
of Cranfield School of
HITTING THE TARGET, MISSING THE POINT. Some
performance measures, though no longer
linked to the current business strategy, con-
tinue to be used anyway. If performance mea-
sures are not reviewed regularly, there is a
strong chance that some targets persist even
though they are well past their sell-by date.
REALITY CHECK. Related to the previous point,

implementation and
management of performance
measurement and reward
systems.
Javier Marcos is a lecturer
at Cranfield School of
Management’s Centre for
Strategic Marketing and Sales.
His main areas of research are
Management’s Centre for
Business Performance.
His current research
interests are in the areas of
performance measurement
and management techniques,
planning and budgeting, and,
in particular, understanding
the impact of HR practices on
business performance.
we found that most organizations did not re-
view their targets, once set, until the end of
the defined period, unless forced to by some
major occurrence. Yet if targets do not reflect
specific contextual changes that might come
up during the course of a certain quarter, for
example, then distrust is much more likely to
arise.
CASH OVER CLIENTS. Even though most of the
organizations we studied emphasized the

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 The Art and Science of Target Setting
importance of customer relationships in their
sales strategy, their targets were based over-
whelmingly on financial indicators. “Cus-
tomer orientation is not there at the mo-
ment,” admitted one participant. “We focus
so much on revenue that sometimes we forget
about our clients.”
LACK OF RIGOR. Targets are based on poor data
analysis processes that lack rigor. Data are an-
alyzed without considering critical statistical
rules and techniques. What’s more, data are
studied superficially, even though organiza-
yo
tions have the IT capabilities to conduct in-
depth analyses.
ONE-WAY COMMUNICATION. “Targets are im-
posed by the company, without any discus-
sion or involvement of the salesperson,”
complained one participant. Without com-
munication and negotiation about the targets
for which they are responsible, salespeople
op
will not take full ownership of them; also, the
company will not fully grasp how to set targets
in ways that they can be best achieved.
LACK OF MUTUALLY AGREED PLANS. Echoing the
previous point, another executive expanded
on the consequences of this lack of negotia-
tC
tion: “Everybody is treated the same, so ev-
eryone has the exact same key performance
indicators and targets, which I feel is unfair.
Not all territories have the same potential.”
A better way would be to sit down and ham-
mer out an action plan together – something
that appears to be the exception rather than
the rule. Instead, action plans tend to be left
No
to the discretion of individual salespeople, re-
sulting in some having workable plans while
others have none or ill-conceived ones. By not
openly sharing key performance indicators
and targets, collaboration and organizational
learning is dampened, giving rise to a culture
of unhealthy internal competitiveness.
CREATIVE CLASHES. A business development
executive with an advertising firm said, “The
Do
threat of not hitting a target sometimes com-
promises our creative output. Rather than
spending time positioning ourselves cre-
atively, the pressure is on us to make money
first.” During the target-setting process,
people need to be given time to reflect on the
big picture, in order to see potential interrela-
tionships between their targets and others’. If
not, then invariably some inconsistencies will
surface, and not all targets will be attained.
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t
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Taken together, all of these small issues
add up to one big detrimental effect on the
organization as a whole. More than half of
those whom we surveyed said they were dis-
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satisfied with their performance targets, with
only 15 percent satisfied. Likewise, nearly half
perceived targets as having negative conse-
quences on their behavior, with just over 20
percent saying targets had any positive im-
pact on them.
When setting targets, the single most im-
portant factor to remember is achievability.
As stated before, targets have to be perceived
as achievable by the individuals in charge of
making them happen. “When unrealistic tar-
gets are set, or when targets are imposed that
you have no control over, it is often demoti-
vating,” testified one forlorn sales rep.
However, dissatisfaction on the scale re-
vealed by our study is rarely the fault of unre-
alistic targets alone, but must be considered
alongside associated issues of incentive pay
as well as the measures used to gauge perfor-
mance. Figure 1 depicts the interrelatedness
of these factors and the key moderators that
we found influence people’s behavior. Let’s
take a closer look at each.
Incentive Schemes
When setting incentive schemes, there are
five key factors that will strengthen or mini-
mize the desired or undesired effects of per-
formance targets.
ELIGIBILITY. Who in the sales department is
eligible to receive incentive pay? How much
influence will each person have? In order to
effect positive behavior, everyone who shares
the same role and influence over sales perfor-
mance should be entitled to receive sales in-
centive pay.
INCENTIVE SIZE. Incentive pay is normally cal-
culated as a percentage of salary. In determin-
ing how much to pay your salespeople, the
incentive size should be internally and exter-
nally equitable – in other words, you should
take into account what’s deemed equitable
inside the company, while staying in line with
sector norms and corporate peers. A company
should also consider how much influence cer-
tain individuals exert over performance re-
sults: The higher the influence, the larger the
potential size of the incentive, because then
incentives are rewarding individual merit
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 The Art and Science of Target Setting
rather than external eventualities.
PAYOUT FREQUENCY. How often will incentives
be paid to salespeople? The frequency of pay-
out should be consistent with your other sales
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processes and strategic plans.
PERFORMANCE/PAYOUT RELATIONSHIP. How are
incentive payments calculated and how do
they vary when charted with performance on
a curve? Different design aspects are associ-
ated with performance/payout relationships:
linear, regressive or progressive relationships
between pay and performance; the use of caps
yo
versus no caps; payments starting at 100 per-
cent of the target or at a fraction of the target.
Each design aspect needs to work in harmony
with your unique organizational context, as
each will have different effects on behavior.
FOCUS. What proportion of incentive pay is
linked to individual, business unit and/or or-
ganizational performance? One participant
op
in our study felt that, at the moment, “we are
doing two different roles – traditional sales
and account management – but we are only
being measured in one – sales.” The focus of
incentives, therefore, needs to be closely con-
nected to the way in which salespeople actu-
tC
ally work and the way in which sales tasks are
interrelated.
Performance Measures
Similarly, when setting performance measures,
there are also five key factors that strengthen
or minimize the desired or undesired effects
of targets.
No
CONTROLLABILITY. Can salespeople influence
the results of their performance measures
through their own decisions and actions? The
more control that salespeople have over their
performance measures, the more effective
those measures will be, and the less likely you’ll
hear comments like this one from a sales rep of
an industrial products company: “I don’t really
understand how I can affect my bonus.” The
Do
goal is to try to minimize the “external factors
over which I have no control.”
INFORMATIVENESS. Do performance measures
provide relevant information to sales manag-
ers about the effect of salespeople’s decisions
and actions? It is important that the perfor-
mance measures used for compensation pur-
poses provide relevant information to their
users for decision-making purposes.
ALIGNMENT. Are sales performance measures
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consistent with the strategic sales and mar-
keting objectives of the firm, as well as with
the firm’s strategy as a whole? “Cooperation
between departments and colleagues is dif-
ficult,” said one. “Sometimes we are going for
the same target but independently of each oth-
er.” Performance measures need to be aligned
with strategy, in order to encourage the expect-
ed behaviors and avoid the well-known prac-
tice of rewarding A, while hoping for B.
OBJECTIVITY. Are performance measures based
on observable phenomena uninfluenced by
personal judgment? Measures used for pay pur-
poses need to be perceived as objective by their
users. Perceptions of subjectivity or partiality
generate feelings of unfairness and may have
detrimental effects on behavior.
QUANTITY. How many measures are being used
to assess salespeople’s performance and de-
termine their incentive pay? To keep people
focused, the number of performance mea-
sures needs to be relatively small. “If you have
too many targets, you have to keep reminding
yourself of what they all are,” said one, “par-
ticularly with the non-sales-focused targets.”
According to psychology research, five seems
to be ideal.
Overarching Factors
In addition to everything just mentioned, there
are several further factors that apply across the
board. When it comes to setting performance
targets and measures, completeness, agree-
ment and reliability are important, while clar-
ity, review and fairness are valid for incentive
systems as well. Above all, clear communica-
tion is essential.
COMPLETENESS. Do performance measures
fully capture the various dimensions of sales-
people’s performance? In principle, the mea-
sures used to evaluate performance and earn
rewards need to encompass several key di-
mensions, not just the financial but custom-
er-related aspects, too. If there are numerous
dimensions, then they need to be prioritized
and correlated, to understand how they inter-
act and whether some can be excluded. For ex-
ample, if two performance measures are highly
correlated, it may be possible to collect data on
both, but just use one for determining pay, as
the information from one might well predict
how the other behaves.
AGREEMENT. Do salespeople agree with the
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 The Art and Science of Target Setting

t
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measures being used to assess and reward their
performance? For optimum results, salespeo-
FIGURE 1
The Key Moderators ple need to participate in the process if they
ALIGNING PERFORMANCE TARGETS, PERFORMANCE
are to embrace the measures that they are ul-

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MEASURES AND INCENTIVE SCHEMES: KEY ELEMENTS
timately going to be judged by.
RELIABILITY. Are the data used for calculating
TO DRIVE EFFECTIVE BEHAVIOR.
the performance measures reliable? If perfor-
mance data is distorted or manipulated, this
PERFORMANCE PERFORMANCE INCENTIVE will have a negative effect on behavior. Sales-
TA R G E T S MEASURES SCHEMES people need to trust their performance data in
order to behave appropriately.
CLARITY. One salesperson described his bonus

yo
Achievability Controllability Eligibility structure as needlessly complex. “It’s not actu-
ally that complex,” he said, “but I still don’t un-
Informativeness Incentive derstand it.” No matter how crystal clear you
Size think your performance measures are, if your
Alignment own salespeople don’t grasp how they are cal-
Payout culated or even what they mean, then you lay
Objectivity Frequency yourself open to some negative behavior. Make
sure all your salespeople truly understand the
op
Quantity Performance / performance measures and targets that are
Payout used to assess and reward them.
Relationship REVIEW. “The salespeople have special product
Completeness
sales targets, but these are constantly not met,
Agreement Focus and nothing is talked about when we meet to
improve these figures.” Not talking about
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Reliability problems doesn’t make them go away, but rath-

er, they will manifest themselves in negative
behavior. Targets, incentives and measures
Clarity need to be reviewed periodically in order to
ensure validity and achievability; this also en-
Review ables salespeople “to identify weaknesses in
our teams.” Regularly carrying out reviews, and
Fairness communicating the results of those reviews,
No

has a direct effect on behavior.

Communication FAIRNESS. The way targets are set, measured
and incentivized needs to be perceived as fair,
impartial and equitable – not favoring any one
particular territory, team or person.
COMMUNICATION. Perhaps the most important

People’s overarching factor relates to the way that poli-

Behavior cies around targets, measures and pay are com-
municated to salespeople, and the quality and
Do

timing of that communication. Survey respon-

Personal development plan
Self-leadership
Training & coaching
Recognition plan
Base pay
dents expressed their frustration this way: “By
the time we are told what the target is, half the
year has gone … We’re not informed of how
measures and targets are performing until the
period is over. This has a negative effect.”
There needs to be clarity of communica-
tion: Salespeople need to know what the tar-
get is, how it has been calculated, who is re-
sponsible for achieving it, how well they are

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 The Art and Science of Target Setting

t
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MAP THE
ROUTE TO
SUCCESS
CLARIFY PRIORITIZE
& SELECT OBJECTIVES

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STRATEGIC
OBJECTIVES
3
4
REVIEW 2 OPERATIONALIZE
STAKEHOLDER >>>>>>
EXPECTATIONS >> > 5

>>

>>
1

>>>>>>
Continuous

yo
Monitoring COLLECT
6 DATA

>>

>
> >>
>>>>>>
7
DISCUSS
10 ANALYZE
DATA
& AGREE 9 8 & PRODUCE
ACTION PLAN A FORECAST
TOGETHER
op
SET
DESIGN TARGETS
FIGURE 2
The Target-Setting ACTION
PLAN
Wheel
TEN STEPS TO IMPROVE TARGET
SETTING. EACH STEP BUILDS ON THE
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OTHER IN A CYCLICAL PROCESS.

doing against it, and so forth. The timing of
the communication is also important: When
performance targets are set, they need to be
communicated either before or as soon as
No
2. CLARIFY & SELECT STRATEGIC OBJECTIVES.
Once stakeholder expectations are identified,
the next step is to express these expectations
as strategic objectives. Strategic objectives
are clear statements of what the organization
needs to achieve. They should be few in num-
ber and address different stakeholder require-

the target period starts, not later. Finally, the
more transparency there is, the more satisfied
people will be, which will have a direct effect
on their behavior.
Ten Steps to Improve the Target-
Setting Process
Based on these findings, we suggest the fol-
lowing process to improve the way in which
Do
ments, such as, what do our customers/inves-
tors/employees require?
3. MAP YOUR SUCCESS. A “success map” is simply
a visual tool that links the objectives together,
so that higher level objectives are represented
as being delivered through the attainment of
lower level objectives. Expressing the goals
in this way will provide you with a powerful
communication tool explaining what is to be

performance targets are set. It is divided into
10 steps and presented in the form of a wheel
to illustrate its cyclical nature (see Figure 2).
1. REVIEW STAKEHOLDER EXPECTATIONS. The
first step is to review the expectations of your
organization’s stakeholders. Who are your
stakeholders? What do they expect from you?
Answering this will determine the critical areas
that your organization needs to address in or-
der to be perceived as successful.
achieved and why. By developing a success
map, you will be able to explain the goals to
the whole organization, as well as being able to
show where each part of the organization con-
tributes to achieving these goals.
4. PRIORITIZE OBJECTIVES. Not everything can
be achieved at once, so you will need to priori-
tize. Most companies we investigated tried to
achieve too much, too soon. It is much better
to prioritize and deliver fewer objectives than

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 The Art and Science of Target Setting
fail to deliver on too wide a range of goals. Fo-
cusing objectives will help employees be abso-
lutely clear about what is important during the
coming period.
5. OPERATIONALIZE. Design the appropriate per-
formance measures. Since the way in which
you define the measures will ultimately drive
behavior, you must define these measures in
such a way that they reflect organizational
goals and encourage the right behavior from
those responsible for delivering those goals.
6. COLLECT DATA. As a basis for setting targets,
yo
you will need to collect timely and relatively
accurate information. Don’t make the frequent
mistake of skipping this step. The data may
never be perfect, but you can at least gather
some information that is consistent and reli-
able enough to serve your purpose.
7. ANALYZE DATA. This is fundamental. Through
the previous step of data collection, you should
op
be able to draw upon your knowledge of the
past to make some future projection. Then, you
will need to analyze your capabilities: Are your
existing processes adequate to deliver on your
forecast? Most companies make forecasts, but
fewer devote sufficient time to reassessing
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their capabilities, which is often why targets
are not reached.
8. SET TARGETS. Once the previous seven steps
have been completed, this is when you set the
target. This requires sound judgment, and you
will need to assess the risk of getting the target
wrong. Most organizations we studied stopped
at this point, but this is most certainly not the
No
end of the process.
9. DESIGN ACTION PLAN. An action plan encom-
passes all of the projects and changes to the or-
ganization that are required to ensure that the
target is reached. This may entail training and
development, new processes, new IT systems,
new products or new ways of working with cus-
tomers. This plan lists all of the activities that
have to be accomplished in order to meet your
Do
targets, so it is important to schedule their de-
livery. Achieving your target – or not – is predi-
cated on this plan being implemented.
10. DISCUSS & AGREE ACTION PLAN TOGETHER. Fi-
nally, the whole plan must be communicated to
all staff. In our study, most managers thought
they had done this, while most staff felt the op-
posite. The communication has to be two way
and via appropriate media. It has to be done
regularly and allow for ongoing dialogue. A
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t
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good practice is to hold regular staff meetings
in which the objectives are restated, the goals
reiterated and progress reports shared. Simply
circulating the annual targets in an e-mail does
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not count as effective communication.
Recap of Top Tips
Target setting is part art, part science. Admit-
tedly, it is a difficult process, and the risks and
consequences of getting it wrong are high. In-
vesting in improving the organizational capa-
bility for target setting is a worthy endeavor.
To do so, managers need to recognize the com-
plexity inherent in any well-designed target
measurement and incentive system, and make
certain that targets are:
Q Clearly defined, so everyone understands
them.
Q Neither too high nor too low.
Q Allocated appropriately across individuals
and teams.
Q Consistent with each other, the company’s
economic and competitive environment,
and business strategy.
Q Based on rigorous data analysis, which con-
siders more than just past performance.
Q Periodically reviewed.
Q Owned and accepted by the individuals who
have to attain them.
Q Supported by a specific action plan.
Otherwise, performance targets will not
serve as effective management tools.
Finally, you may be thinking that this whole
process of target setting seems like a lot of
work. Indeed, it is. Yet the consequences of set-
ting poor targets are much worse, adversely af-
fecting the performance of individuals and the
business for years to come. If you can’t spare
the time and effort to do it properly, then may-
be you should ask yourself whether it’s worth
your organization setting any targets at all.
TO KNOW MORE
Franco-Santos, M., and M. Bourne. “The Impact
of Performance Targets on Behaviour: A Close
Look at Sales Force Contexts.” Cranfield School of
Management’s Centre for Business Performance.
Full research available from the authors: monica.
franco@cranfield.ac.uk, javier.marcos@cranfield.
ac.uk or m.bourne@cranfield.ac.uk.
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