Why So Many Companies Rarely Achieve Their Annual Goals

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Few things are as energizing as the annual goal-setting process, where the management team decides on the company’s major priorities for the coming year, usually generating a sense of enthusiasm, optimism, and confidence. Conversely, few things are as deflating as the annual review, where the same management team often retrospectively discusses how and why they missed most of the goals that they had set for the company just twelve months earlier.

Why is this? Why are so many motivated, well-intentioned and otherwise capable management teams able to set logical and compelling goals each year, yet so few are able to regularly achieve them?

One possible answer is that after most companies set their objectives, they assume (or, more accurately, they implicitly hope) that their existing teams, systems, tools, and processes will be sufficient to achieve those objectives, which rarely proves to be true. I can say this from experience, as I missed more than my fair share of annual goals when running my own company. The more goals I missed however, the more I learned about what to do (or not to do) the following year to increase my odds of both setting and achieving truly meaningful goals.

What follows is a collection of those lessons. I hope you’ll apply all (or at least some) of them with a view towards increasing your own goal attainment rate. Some of these best practices were derived from my reading of The Four Disciplines of Execution, (or “4DX”) written by Chris McChesney, Sean Covey, and Jim Huling, which remains my favorite book on corporate goal setting and execution. We implemented their program within our own business, and I’d advise any entrepreneur or CEO to do the same.

Lesson 1: Stop Setting So Many Goals

In short: Setting too many goals is one of the primary reasons why most companies find themselves achieving none of them.

I recognize that when running a SMB, there are a seemingly endless number of problems to solve and opportunities to act upon. These problems and opportunities usually present themselves in the context of finite resources, competitive pressures, and tight timeframes, and as a result it’s incredibly difficult to limit your annual priorities to just a few things. Yet, if you want to achieve the things that are truly most important to your company, this is exactly what you should be doing.

There is a diminishing marginal benefit to setting a greater number of annual goals. Indeed, studies have shown that the greater the number of goals that you set for your company, the less likely you are to make meaningful progress against any of them.

If you deem everything to be important, then what you’re really saying is that nothing is of particular importance. Indeed, many CEOs wear a long list of annual goals as a badge of honor, implicitly thinking of them as a reflection of their ambition. In my experience however, a long list of goals is usually more reflective of a leader who doesn’t truly understand where she should be allocating her company’s scarce resources: Any mediocre CEO can set a large number of goals, but it is the truly skillful leader who can distill her company’s problems and opportunities into just a few truly important objectives. The following two skills thus become critically important for the CEO, both of which are harder than they may sound:

1. Prioritizing what’s truly important in an environment where everything can reasonably be argued to be important

2. Selecting the right goals, the achievement of which will lead to other desired outcomes naturally falling into place

Choosing goals based on the concept of “importance” is actually how most companies undermine the achievement of their goals before they even set them. As a result, when formulating your annual goals, don’t “what’s most important” (again, because almost anything can be reasonably argued to be important). Instead, ask: “If every other area of our operation remained at its current level of performance, what is the one area where change would have the greatest impact?”.

Based on my own experience, your company should have no more than two major goals per year. Anything more than that and you’ll likely decrease your prospect of achievement against any of them. This isn’t to say that your company will only achieve two things in any given year. Indeed, if you select the right goals, then your achievement of them can and will lead to other desired outcomes naturally falling into place. In this way, your major goals should serve as annual themes for your organization, creating a “north star” of clarity for the following twelve months that should guide substantially all of your major decisions. In my experience, having more than two “north star themes” (in addition to being an oxymoron) will do nothing but undermine the clarity that every CEO should always be aiming to create.

Lesson 2: Link Annual Goals to Your Bigger Picture Ambitions

Outside of the management team, particularly at lower levels of the organization, annual goals can sometimes be viewed as arbitrary, hollow, or even predictable, all of which cause your goals to lose meaning. This is a big problem. As a CEO, to increase your odds of hitting the goals that you set, you must find a way to ascribe a genuine meaning to the goals that you set, so that your employees understand why it’s important that the company achieves them. In my experience, the best way to do this is to tie your annual goals to something much bigger: It could be to your company’s vision statement, mission statement, core values, BHAG (“Big, Hairy Audacious Goal”) or your 10-year target. Assuming that these things themselves are meaningful, then an annual goal that is directly derived from them will indeed also have meaning, so long as you clearly communicate the link between the two (see my post on effective communication here). (Author’s note: The link will not work until that blog post has been published)

For example, suppose that the vision statement of a healthcare software company says “We want to deliver high quality healthcare to 1 million people living below the poverty line by 2030”. Now suppose that they sell their software through channel/distribution partners instead of via an in-house salesforce selling directly to end-users. An annual goal that simply states “Acquire 30 new channel partners by year-end” can sound arbitrary at best or hollow at worst, and in any case likely won’t be particularly motivating. Contrast that with a CEO who starts with the vision of 1 million underprivileged people receiving healthcare by 2030, and communicates that this year, 30 new channel partners are required to ensure that the first group of 100,000 patients can be adequately cared for, which will likely save up to 10,000 lives.

Though the desired end result is the same (acquire 30 new channel partners by year-end), the latter example furnishes the goal with both meaning and motivational qualities that will help it resonate better with the people who will ultimately be charged with making that outcome happen.

Lesson 3: Concretely Distill Company Goals Down to Both Departments and Individuals

Even when organizational goals are properly articulated and contextualized, they often become a bit more nebulous the further down the organizational chart one goes. This isn’t necessarily because the goals themselves are ill-conceived or illogical, but because at lower levels of the company, employees don’t always see how they can personally impact or contribute towards those goals.

To address this problem, you must concretely distill your 1-2 annual company goals down into both departmental and individual goals for every department and every employee within your company.

For example, in one year, our primary company goal was to acquire 100 new customers for a newly released product by the end of the year. With that goal in mind, we had to work with each department to determine what their most meaningful goals would be in light of our company’s primary objective. For example:

• Our Marketing group had two primary goals: One was a total pipeline contribution target (generating a sufficient number of leads to hit our customer acquisition goal), and one was a lead-to-opportunity conversion rate target (ensuring that the leads they generated were of sufficient quality)

• Our Customer Success group had a goal related to the satisfaction rate of recently onboarded customers who had purchased the new product, as well as a goal based on the retention rate of these customers (both guided by the principle that we wouldn’t hit 100 new customers by year-end if we regularly lost newly acquired customers only months after we first signed them)

• And so on, across Sales, Engineering, Customer Support, and all other departments

Once departmental goals were established, each department head (and each of their direct reports) were then jointly tasked with distilling their departmental goals into individual goals for each member of the team. For example, if our Marketing group’s departmental goal was to generate a certain amount of our company’s total lead pipeline, and we knew roughly how large our pipeline needed to be to acquire 100 new customers, then our Content Writer (a member of our Marketing team) could have an individual goal to write and release X pieces of downloadable content per month (with an understanding that 1 piece of content typically generates Y leads). And so on, throughout every member of the Marketing team.

Though this sounds easy to do, it requires a very careful study of what specific levers you need certain departments (and thus certain people) to pull in order to genuinely contribute to your company’s primary goals. For example, if your company’s goal has something to do with revenue growth, should the primary goal of your Sales department be related to more new customer acquisitions, or more sales back to existing customers? Should it be increasing the average price-per-customer, or increasing the average number of products sold into each customer? Presumably, not all of these levers will equally contribute to your company’s revenue goal, so you must select these departmental goals carefully, ideally utilizing data (and not opinions) to prove a causal relationship between the departmental and company goals.

Lesson 4: Tie Attainment of Goals to Compensation

Another reason why goals often lose meaning further down the organizational chart is because even if employees know how they can personally contribute to the company’s goal(s), they may not be personally incented to do so. Said another way: You must find an answer to the proverbial employee question of “what’s in it for me?”. Remember, people generally do what they’re incented to do.

I used to get enormously frustrated when it was suggested to me that I had to explicitly compensate my employees for helping the company to achieve its goals. Isn’t that what I was paying their salary for? Over time however, I came to learn that:

1. Achieving very specific organizational goals often demands that employees do more of something, do something differently, or do something more efficiently than the day-to-day tasks that they already get done in return for their salary

2. If I chose the right organizational goal and we achieved it, then any incremental pay due to employees in return for that achievement would be more than worth it

One year, we thought we had solved this problem by tying our company-wide bonus plan entirely to achievement of our primary organizational goals (we had two at the time). Though this represented a big step in the right direction, the magnitude of the bonus was too small to make any meaningful difference (employees could earn up to 5% of their annual salaries by way of a bonus if the company goals were achieved, and a further 5% of their salary based on a subjective evaluation of their individual performance).

We failed to realize that the magnitude of the incentive needed to be commensurate with the importance of the goal in question. In our case, a Software Engineer making an average of $100,000 per annum would earn only a $5,000 bonus if we achieved our company goals. After-tax and inflation, that number was probably closer to $3,000 in real dollars. Spread across 250 working days in a calendar year, that equates to only an additional $12/day/employee if the company achieved it’s goal. This, simply put, wasn’t enough to move the dial, especially when contrasted with hitting a company-level goal whose magnitude we described as “game-changing”.

A+ goals require A+ incentives. You can get by with C- incentives only if you set C- goals.

Lesson 5: Track Output Metrics and Input Metrics

Most people understand that it’s difficult to achieve a goal unless you’re regularly tracking the progress that you’re making against that goal. If your goal is to acquire 100 new customers in 12 months, you’re naturally better off checking your customer acquisition numbers weekly, monthly, or quarterly, as opposed to simply looking at the final number 12 months from now.

Most people however don’t understand that, in this example, tracking customer acquisition numbers alone is far from sufficient. This is so because number of customers acquired is an output metric: It is the result of some group of activities that are required inputs to acquiring a new customer, and by the time a new customer is acquired (or lost), it’s already too late to do anything about it. What’s more, it’s possible for your company to miss this goal due to circumstances entirely outside of your control.

Almost all companies track these types of output metrics, but the real magic comes when the relevant input metrics (which are actually far more important) get tracked: In this case, input metrics represent those activities that need to occur long before a customer has been acquired. For example, to acquire 100 new customers in 12 months: How many leads do you need to generate per month? In order to generate those leads, how many free webinars do you need to host? In order to ensure that those webinars are sufficiently well attended, how many promotional emails do you need to send in the preceding two weeks? In this example, new customer acquisition is our output metric, but leads generated, webinars hosted, and promotional emails sent are the key input metrics that will tell us whether we’re on track to hit our goal long before we succeed or fail against it.

By way of another example: If your goal is to lose 20 pounds in 6 months, instead of simply tracking weight lost (an output metric), you’d be better off tracking calories consumed per day, number of visits to the gym per week, and the average intensity of each gym session (input metrics). Input metrics are within your control, and they’re predictive of the output metric manifesting.  

Lesson 6: Have A Regular Review Cadence That Include Employee Commitments

Once you’ve established your input metrics for your 1 – 2 primary company goals, the next step is to establish a “scorecard” for yourself and your management team that passes the “desert island” test. The desert island test is as follows: Pretend that you, the CEO, were stranded on a desert island for the whole year, and you’re only handed a single (one-sided) piece of paper each week that has to answer the following question for you: “How is our company trending?”. The only thing permitted on that single piece is a group of 5-10 input metrics representing your 1-2 primary company goals.

Once you have your “desert island scorecard”, you need to make it a formal part of each weekly management meeting (we formally dedicated 10 minutes per meeting to reviewing the scorecard). If and when you identify a metric that is off-track relative to goal, it should be flagged and discussed at the highest level of the company each week until it’s back on-track. Each week, whether their departmental goal was on-track or not, each manager would then make a commitment to the rest of the management team in regards to what (s)he would do this week to improve their input metrics (which, in turn, move the company closer towards its primary goal). We also dedicated 5 minutes of each meeting to review commitments and “to do” items that we agreed to during the previous week’s meeting.

Each of your department heads should also do the same thing during their weekly meetings with their respective teams: Review their scorecards, identify and discuss any issues or any input metrics that are off-track, and have employees make weekly commitments regarding what they’re planning to do this week to improve their input metrics.

In following this approach, you will have distilled an otherwise nebulous annual goal into a series of actionable commitments made on a weekly basis for every employee in the company. This is very powerful.

Though weekly commitments alone aren’t enough. If you spend all of your time thinking only in weekly increments, you’re very likely to miss the forest for the trees. This is why you also need to create a quarterly meeting and commitment cadence to compliment your weekly process.

During quarterly sessions, we would often take the team off-site, usually for 1-2 days. We would go through the same process of reviewing the scorecard, dissecting the input and output metrics, making commitments, and reviewing progress against commitments made last quarter. Naturally, the quarterly commitments tend to be of a higher level than the weekly commitments. For example: If the Content Writer mentioned above had a goal of publishing X downloadable pieces of content for the year, his weekly commitment may have been to research and decide upon his newest topic before the end of the week. His quarterly commitment could be, for example, to have signed partnerships with a graphic designer, copy editor, and web development company by the end of the quarter to make his content pieces more impactful.

In Sum

If you’re exhausted just reading this, then you’ve accidentally stumbled upon the reason why so many companies rarely achieve their annual goals: Because it’s hard work, and it requires real changes in behavior, structure, process and (in many cases) compensation.

If your company has some truly important objectives to achieve this year, don’t fall into the trap of assuming (or implicitly hoping) that your existing teams, systems, tools, and processes will be sufficient to achieve those objectives.

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