Setting Performance Targets

Targets are an important part of our work life, whether we are setting them or meeting them. Target setting forms part of the budgeting process and the performance management of business units and individuals. Unfortunately the behavioral impacts of target setting on performance are not well understood, and this can lead to serious consequences such as game playing. Target setting is an under-researched area.

Our aim in writing this book is to help fill the gap in target setting for performance. The pivotal issue in target setting is that it is an art as well as a science. Managers must strike a balance between understanding and working with the psychologies of the people undertaking the organizational initiatives and the science of estimating probabilities, preparing budget forecasts, conducting sensitivity analysis, and so forth. We do not tie down the reader with the narrow view of target setting but take a more holistic and richer perspective.

A feature of this book is that we draw on ideas and research across disciplines, which is rarely done in this fi eld. Target setting is an underresearched area, as most of the research is on measurement and incentive compensation. This book fills the gap by drawing insights on target setting from a wide range of sources and across disciplines. Our book introduces the reader to some of the important methods, such as forecasting, sensitivity analysis, and probability analysis. We use practical examples to show how these techniques can be applied in target setting.

Our focus is on highlighting how interrelated the various parts of organizational activities are and how they impact on each other. Therefore, target setting must include an understanding of the organizational context (e.g., people, competitive environment, structure, strategy), as well as the impact of incentive compensation and information flows. From this broad background, this book examines key issues such as which targets to choose, how many targets, and the level of difficulty.

This book is ideally suited for managers and executives. It showcases the critical choices involved in the target-setting process and offers advice on how best to manage and execute it. Budgets are the most well-known organizational target- setting process, so we use lessons learned from budgeting to provide insights for developing other performance targets for financial and nonfinancial measures.