BSCol Best Practice Case Study

SFO Principle #2 Best Practice 2.3 Target Setting

Translate Strategy to Operational Targets—the granular level of the BSC—play a critical role in
Terms
driving strategic change and achieving breakthrough results. To
underscore the need for change, managers should establish
Best Practices ambitious targets—“stretch” targets—acceptable to any
reasonable employee, which, if achieved, would transform the
2.1 Strategy map organization. The cause-and-effect relationships in the
scorecard help identify the critical drivers that will allow
breakthrough performance in important outcome measures,
2.2 Balanced Scorecard particularly financial and customer ones. (See the article on p.
14 for more on identifying critical success factors and
2.3 Target Setting measures.) Stretch targets must not be set in isolation. For
example, managers of customer-facing processes should not
develop customer stretch targets without consulting with their IT
2.4 Strategic Initiatives organization, which is likely developing its own supporting
targets. To identify the interdependencies within the strategy
map, executive team members must understand all BSC targets
2.5 Executives Accountable
and their underlying rationale; that way, there will be a
consensus about which measures are drivers and which ones
reflect the ultimate desired outcomes. For example, “number of
widgets produced on time” would be a driver; it supports the
outcome measure, “number of widgets sold at target margin” (a
measure dependent upon the driver). (continued next slide)
BSCol Best Practice Case Study

SFO Principle #2 Best Practice 2.3 Target Setting

Translate Strategy to Operational Moreover, by collaborating in the target-setting dialogue,
Terms
executives can better recognize their common cause—and how
their individual performance affects their colleagues’ ability to
Best Practices achieve targets. Since strategy execution can be understood as
a team sport, helping everyone understand the rules of the
2.1 Strategy map game is critical to achieving success. Targets can be set
through a variety of approaches. You might ask “What target
level must each measure hit in order for the organization to
2.2 Balanced Scorecard achieve breakthrough financial results?” While this approach
focuses everyone’s attention on the ultimate objective, it can
2.3 Target Setting ignore the interdependencies among objectives within the
BSC’s other perspectives. Another approach: focus on customer
expectations and identify targets that would put your
2.4 Strategic Initiatives organization in a strong competitive position. By focusing on
customer outcomes —and achieving them—it’s likely you’ll also
meet your financial targets. Yet another way to define targets is
2.5 Executives Accountable
by benchmarking, either against external standards or past
company performance. No matter what point of reference you
use, once you have identified targets for the first period of
measurement, you are on your way to learning by experience
which approach will best serve your organization.