Mals musings: target setting for forecasters
Is target setting the missing piece in your drive for stellar performance?
By on Apr 11, 2010Is target setting the missing piece in your drive for stellar performance?
There are those who believe forecasting was only invented to make astrology look good. Nonetheless, the ability to forecast effectively remains a critical skill. Forecasting serves many purposes, but what we will explore in this article is the impact of forecasting on sales representatives motivation.
What is the optimal way to distribute national targets down to individual territories? Most target-setting processes are biased and sub-optimal. When done properly, effective target setting distributes sales targets fairly, boosts company performance, and also helps to manage risks.
All sounds good in theory, but there are some key components required to unleash the ability of target setting to boost performance and inspire confidence.
Accuracy: Forecasting methodology must have a track record that authenticates its validity in terms of accuracy and precision.
Independence: Those charged with delivering the set sales target need to be sure of the independence of the system, thereby negating the tendency to blame management bias.
Transparency: A black box approach tends to create confusion and destroy trust. A transparent approach increases buy-in and instills confidence
Customized: It is critical that the system is able to accommodate bottom-up input so individual peculiarities can be accommodated.
Ease of use: sales managers and sales reps should deliver the outputs in clear, user-friendly format so it is easy to use alike.
A popular approach is to build the forecast using bottom-up inputs. This works well because it takes real life market peculiarities into the system. However, since most targets are eventually imposed top down it creates a challenge in terms of the distribution of the gap between corporate target and bottom-up forecast. Some would argue that the bottom-up forecast should be the target, and I would agree but for the tendency to sandbag.
The allocation of the gap between corporate and bottom-up approach is a critical part of the process and one that can significantly affect buy in, motivation, and resource allocation.
Imagine that the bottom-up approach resulted in a forecast of $30m and the corporate target set is $33m. In essence, we have a gap of $3m. How do we distribute this additional $3m? There are three main options available depending on company philosophy.
Even Stevens: Since the corporate target is 10% more than the bottom-up target, then we can give all the sales representatives a 10% increase in their targets. However, this does not consider historical performance nor does it consider potential. In effect, it will punish some while giving others a relatively easier time.
More Joe: With this approach, we will ask our best performers to take on a bigger chunk of the additional amount while requesting a relatively lower proportion for our poor performers. This punishes our top performers without challenging our poor performers and can result in reversing of performance ranking from year to year.
Now or Never: Here we give our stretched top performers less additional amounts to do and we require our poor performers to step up to the plate. This has fairness built in, as we ensure that we do not kill our top performers while cutting too much slack for non-performers.
Sales reps are like joggers, runners or sprinters. The key principle is that we have to be careful not to be asking our sprinters to go faster while we are barely challenging our joggers to get into running mode. An effective process for turning national targets into effective territory targets can aid performance, tracking, and sales force motivation. The power of forecasting lies not in predicting the future but in our ability to influence it by setting motivating sales targets.