Destructive metering: Management and the hazards of target-setting
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Posted: Fri 31st May 2024
As an avid runner for decades, I've always found solace and joy in hitting the track.
Unlike many other sports, running requires minimal equipment – just a good pair of shoes (although with age, I had to add ankle and knee braces but that's a different story).
The good
I did, however, invest in a heart rate monitor years ago, thinking it would optimise my training regimen by providing insights into my heart rate, pace and calorie burn.
At first, it seemed like a game-changer. It enhanced my workouts, added a competitive edge to my races and pushed me to keep adding distance and speed to beat my previous goals.
And there were the races – jubilant events with music, flags, cheering crowds and testosterone everywhere.
The bad
Yet, over time, I found myself succumbing to a series of injuries. It started with a damaged meniscus, followed by a painful bout of bursitis, then persistent lower back pain and finally plantar fasciitis that put me off running for two full years.
The ugly
It wasn't until I noticed that my injuries often flared up after intense training sessions or races that I realised the culprit – the heart rate monitor. It wasn't the device itself that was at fault, but rather my reliance on its metrics, pushing myself beyond my limits in pursuit of arbitrary goals.
Reflecting on my experiences in management, I couldn't help but draw parallels to what I termed 'destructive metering' – the misguided fixation on arbitrary targets without regard for the unpredictable nature of the business environment.
In many companies, the onset of budget season triggers a frenzy of goal-setting and planning. However, attempting to forecast future performance based on past trends or speculative projections is akin to running blindfolded – you may cover some ground but you're bound to stumble along the way.
Consider the volatility of oil prices as a prime example. In February 2015, industry experts predicted oil prices to hover around $80 per barrel by summer, only for prices to plummet to $40 within months. Such unpredictability underscores the folly of basing long-term strategies on short-term forecasts.
If you have not read Nassim Taleb's, Black Swan, I suggest you do. It will give you some insight into how unpredictable the world is.
Despite the inherent uncertainty, companies persist in setting targets that often bear little resemblance to reality. Come mid-year, when actual performance diverges from projections, management is left scrambling to reconcile the gaps.
This often leads to one of three scenarios:
1. Exceeding expectations
If results surpass expectations due to unforeseen factors, management may find themselves in the uncomfortable position of having to downplay success to avoid setting unrealistic benchmarks for the following year. Otherwise, they will face the expectation to repeat this growth the year after.
2. Meeting expectations
Results align with budgeted projections, offering a sense of validation but little insight into the efficacy of planning.
3. Falling short
When actual performance falls short of targets, excuses abound as management grapples with the repercussions of overambitious goal setting.
All three scenarios underscore the fundamental flaw in relying on static targets in a dynamic environment – the inability to anticipate and adapt to change effectively.
How's it relevant
You probably don't work in a large corporate organisation so may wonder what's this got to do with you? If you don't budget at all – you should. I don't intend to say that budgets are useful, only that they need to be handled differently.
In my experience, budgeting serves as a valuable exercise for assessing past performance and aligning resources with strategic objectives. However, its utility diminishes when used as a rigid measuring tool rather than a flexible management tool.
Instead of fixating on arbitrary targets, successful businesses prioritise adaptability and resilience, empowering managers to navigate uncertainty with agility and foresight.
A good budget should be based on a realistic plan and be accompanied by a robust execution plan. The plan and the budget need to be reviewed frequently (ideally, on a monthly basis) to ensure that reality is in line with the plan and if/when not, either change the plan or take corrective measures to catch up with it.
Ultimately, the best businesses aren't driven by arbitrary metrics or virtual 'heart rate monitors' but by a culture of adaptability, innovation and strategic agility.
By embracing uncertainty as a catalyst for growth rather than a barrier to success, organisations can chart a course towards sustainable performance and long-term success.
Relevant resources
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