Targets, KPIs, Priorities…I’m Confused!
Watch/Listen here or on Apple Podcast, Spotify, or wherever you listen to your podcasts“I believe as the leadership team goes, so goes the rest of the company. So if you don't have that consistent and significant sustainable growth, you've got some work to do.” — Mike Goldman
“Having the right plan, even with a crazy fast changing world is going to allow you to make sure you're all pulling in the same direction.”
— Mike Goldman
Distinguishing Between Targets and KPIs
-Targets: Overarching financial and non-financial goals for the company within a quarter or year.
- KPIs: Specific performance indicators supporting targets, such as sales closing rates or employee turnover rates.
- Relationship: Targets are broad objectives; KPIs are detailed metrics tracking progress towards these goals.
- Management: Both can be managed within a spreadsheet for analysis.
Introducing Priorities and Rocks: The Essence of Effective Planning
- Priorities: Annual actions necessary for achieving long-term visions.
- Rocks: Critical quarterly actions driving progress towards targets and future goals.
- Focus: Ensures efforts support sustainable growth and long-term vision, not just immediate targets.
- Difference from KPIs: KPIs are day-to-day metrics, while priorities and rocks are strategic actions aligning with broader objectives.
Outcome-Driven Planning: A Real-World Example
- Emphasis: Focus on achieving tangible outcomes over merely completing tasks.
- Challenge: Ensure priorities or rocks lead to meaningful results, not just plans.
- Prioritize: Actions with lasting impact that align with organizational goals, avoiding distractions or shifting priorities.
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I want to talk about something that causes a lot of confusion on teams, especially leadership teams, because if it confuses the leadership team, it's going to confuse every other team. And that's when we say we're creating a plan for the quarter or a plan for the year. What are the parts of that plan?
You know, what does it mean? Is it just numbers? And the confusion I see is
companies tend to, on the one hand, talk about things using this amorphous language. Language that could mean different things to different people. They'll say, you know, we have goals. And sometimes those goals are numbers.
Sometimes those goals are, you know, implementing an ERP system. It's this amorphous thing. And I think we need to use, I know we need to use very specific Language. So sometimes it's the language that they use. That's just confusing. So we need to have common language across our organization, but sometimes it's because
when leaders think of a plan, they think very narrowly about the plan. I was just with a new client recently who said they had both a quarterly plan and an annual plan. And when I asked to see the plan during our kickoff session, they pulled out a spreadsheet. And on that spreadsheet were a bunch of numbers.
Nothing about what they're actually going to go do, but it had revenue target by year, by quarter, by month. It had a gross margin target. It had a set of net income targets by quarter and by month. And of course for the year. There was a net income target. There were some non financial targets, like how many new clients they needed to add and how many new products they needed to add.
Their plan was a bunch of numbers. Now, there's nothing wrong with that. That needs to be part of the plan, but what they were missing is what they were going to go do. And when I brought that up, they were confused and I'm going to start using the terms I use in planning. And it's not goals.
The word goals is too amorphous.
When we talk about numbers, I call them targets or KPIs, key performance indicators. And those terms can be used interchangeably. Really the only difference in how I use the two is when I talk about targets, those are typically for the quarter, for the year, the four, five, seven, most important financial and non financial targets.
For the company, it's yes, things like revenue, gross margin, net income, net cashflow. It may be number of new clients we need to add. It's all those numbers. Key performance indicators are also targets and targets are also a type of key performance indicators. But when I use the term key performance indicators, I'm normally going beneath that to the KPIs, the key performance indicators that are important for each function.
To hit in order to meet those targets. So sales may have a KPI, which is we should be closing 45%, you know of our leads, human resources may have a target that says, you know, our employee turnover could be no higher than 10%. So targets are kind of the five, four, five, six most important numbers that are really driving your you know, what are you going to set out to, to accomplish from a number standpoint in a year or in a quarter?
And then the KPIs are the more detailed numbers that will help you get there. Those are all numbers. Those could all be on a spreadsheet.
Where my client got confused is when I said well, okay, I don't see your priorities I see a bunch of numbers, but I don't see your priorities and and they looked at me like I was talking another language they didn't understand.
They said well, our priority is to hit 60 million dollars in revenue. You know, our priority is to have a net income of 15 percent, those are not priority. So again, I want to be very specific with my language here and I'll give you a whole bunch of examples that'll help, but we've got, you know, targets as the most important four, five, six numbers
we've got to hit. We've got KPIs, which are the more detailed numbers. Those are numbers we need to hit within a certain period of time. Priorities are what do we need to go do specifically to do two things. One, what do we need to do to hit those targets? Two, what do we need to do to make sure we're not only hitting our quarterly and annual targets, but we're setting ourselves up to reach our three year vision, our 10 to 15 year vision.
One of those things we need to do, because if all we do is focus on the quarterly targets and the annual targets, what we're going to do very often is sell out the future in order to meet today's numbers. And that is not going to help you create a sustainably great company. So we need those things. So when we talk about your annual priorities and
priorities. I have two different names I use for priorities. Again, I like to get very specific language. The more specific language we use, the less confusion there is. So when I'm talking about a year, what do we need to do in a year? I call those priorities. When we talk about what we need to go do, what are the most important things we need to do in the quarter?
I call those rocks. So whether they are quarterly rocks or annual priorities, those are, what do we need to go do in order to hit our numbers, but also to drive us forward towards our future vision three years out, five years out, 10 or 15 years out. Another way to think about annual priorities, quarterly rocks versus just someone's KPIs is hitting KPIs.
To me is to a larger degree, what I would call the whirlwind of the day to day, the head of sales hitting their sales targets, their sales key performance indicators, I almost confused and use the word targets there. Hitting the sales key performance indicators or, you know, customer service, you know, hitting their key performance indicators around, you know, client retention.
That's working in the business or the whirlwind of the day to day. When we talk about quarterly Rocks or annual priorities, that's more working on the business. What are we going to go do to improve the business? Now, it's not totally cut and dry, and I don't want to confuse you here, but I really want us to think broadly about this.
It's not cut and dry just because something is a KPI. Doesn't mean we can't have a rock or priority focused on that KPI. So here's what I mean,
customer service may have a KPI around client retention. And for example, client retention last year, let's say, was 80%. Well, the things you need to do to continue to hit 80 percent client retention, that's the whirlwind of the day to day. We don't have to create a rock for the quarter or a priority for the year to say, continue doing what you need to do to hit 80 percent client retention.
There's no value in that. You're already hitting that number. You don't have to do anything different. But if we decide this quarter or this year, we need to take a leap. We need to do something to significantly improve our client retention and we want to go from 80 percent to 95%. To me, that is no longer the whirlwind of the day to day.
We need to do something different as a company. In order to improve from 80 to 95 percent client retention. So even though client retention is a KPI. If a quarterly rock or an annual priority is about working on the business, improving the business to hit our numbers, but also to set us up for the future, then we can have a rock or priority is absolutely appropriate to have a rock or priority to say, we need to improve client retention from 80 percent to 95%.
So we've got targets, we've got KPIs, we've got annual priorities, we've got quarterly rocks. To me, those are the most important parts. It's not everything, but it's the most important parts of our annual plan on our quarterly plan. So it's not just a spreadsheet. So some examples of priorities, and then I want to give you some, I think it's fairly easy to understand the targets and KPIs.
I want to spend a little bit more time on the priorities and on the rocks and give you some examples, but also drive through what some characteristics are of powerful priorities and powerful rocks. So I mentioned one example of a priority could be to drive client retention up from 80 to 95%. That's a great example of an annual priority or maybe a quarterly rock.
Implementing a new CRM system is a great idea for a priority or a rock. What I'm about to share though, when we talk about powerful priorities and rocks is that that's not quite enough things like implementing a new CRM system, opening up a brand new market, are examples of things directionally that can be priorities and rocks, but they're missing some things.
They're missing some things, and I want to go through what makes a powerful priority to help you better understand what might be missing.
So, number one, just to get to what's wrong with implementing a new CRM system or what's wrong with opening up a new market is annual priorities
quarterly rocks should be smart, specific, measurable, achievable, realistically high time targeted. And I want to focus on the specific and measurable piece saying we're going to implement a new CRM system. How do we know? That it's been implemented successfully. If all we say is implement a new CRM system, if we say we're going to open up a brand new market again, what does opening up a market mean?
Does it mean we have a new office there, but we haven't sold anything? Does it mean we we've got at least, you know, a half a million dollars in sales out of that market? What does it mean? So rocks and priorities need to be specific and measurable. And as you get, as your timeframe gets shorter as you go from an annual priority to a quarterly rock, that gets more and more important because in a quarter, that's when stuff really gets done, you know, an annual priority.
So this is what we want to do over the next 12 months. It's the 90 day sprint, the quarterly priority where stuff really happens. We've got to absolutely make sure we have something specific and measurable there. So that's the first of a number of characteristics of powerful priorities.
It's got to be specific and measurable. Second is, we want to make sure we've got a small number of quarterly rocks, a small number of annual priorities. If I say to you, what are your priorities for the year? And you list out 12 things. That's not very helpful. If everything's a priority, nothing's a priority.
So I coach my clients, I coach you right now, have no more than three or four priorities for the year or rocks for the quarter. Next is, and this is not always an easy one is the rocks and priorities should be outcome driven, not task driven. So let's go back to the example of implementing a new CRM system.
Not only was that a nice idea for a rock or a priority, but not a great way to state it because it's not specific and measurable, but it's also not outcome driven. What are you trying to achieve by implementing a new CRM? Is it possible to implement a brand new CRM and get no value from it? Trust me, it is.
I know a lot of companies that have done it. And screwed up the implementation or had a great system, but the sales folks and the service folks are not using it the way they should. So it adds no value. So just implementing the system is not a great way to define that priority or rock. Now to say we are going to, you know, use a CRM in order to improve client retention from 80 to 95%, that's a damn good way
to define that rock. So it has the CRM in it, but it's not successful unless it's helped us achieve an outcome. Another great example of that. And I do want to spend some time on this one because it's such a challenge for folks.
Another great example of an outcome driven priority or rock, which is what you should shoot for versus task driven, which can be dangerous is I was working with a client.
Who was the head of HR. And she told me that her rock for the quarter was to plan and design a leadership development program. I am all for leadership development, but I challenged her on the definition of that rock, because in my view, planning and designing a leadership development program at the end of that 90 day period of the rock.
At the end you have a plan. And a plan in and of itself adds no value. In fact, when I hear the word strategy or the word plan in a priority or in a rock, to me it's like fingernails on a blackboard. Because that tells me it's task driven. We are going to hit some milestone tasks and at the end we're going to have a plan for a leadership development program.
We're going to have a design for a leadership development program. But so what? We haven't impacted anyone yet. So I challenged her and I said, is it possible that you can do all of the things you need to do to plan and design that leadership development program. And at the end of 90 days, it adds no value.
Her first answer was no, of course not. Leadership development's important. We need to do that. It will add a ton of value. I said, when will it add value? It'll add value when we successfully implement the program. I get that, but I've seen way too often plans and designs happen, and then the program is never implemented.
Or it's implemented and it's not implemented very well. Or maybe the leadership development program was great program that was implemented, but the senior leaders in the organization just didn't put enough importance behind it and didn't allowtheir leaders to or didn't encourage their leaders to invest the right amount of time.
Maybe they pulled them back and said, no, it's more important to spend time on the business. I mean, there are a host of reasons. And by the way, in this particular company, they were, they had a tendency to chase the shiny object. So there was a chance she would create a great plan and design, and then they'd invest somewhere else.
So when I took her through all those examples, she said, yeah, I guess there are, there might be a chance that there is no value at the end of 90 days. So what we thought about was a couple of different ways to make sure that we actually got value at the end of 90 days, that it was more outcome driven, not task driven. And here's where I challenged her or how I challenged her.
I asked her from this leadership development program, what was one of the most important outcomes. She wanted to achieve by implementing the leadership development program. This big leadership development program, which would certainly take more than 90 days to plan, design, implement, execute, see results from.
But I said of this big leadership development program and process that you want to put in place, what's one of the most important outcomes. And one of the things she said was she wanted to improve the talent density of the organization. Now if you're not familiar with that term and you may not be, I talk about it on the podcast all the time and I talk about it with my clients, but it is, , there's a framework that I use to assess talent and within that framework, the percent of, high performers minus the percent of low performers in the organization gives you your talent density.
So improving talent density is critically important. So I love that outcome that she was looking for, but I asked her, I said, is there a way that we could actually improve talent density in 90 days? And the first reaction was no, that's too short. We can't implement the program by then. We can't train everybody by then, but I said, what if we got a little bit more agile.
And thought of this in a little bit more of an incremental way and took smaller bites. Is there a way to narrow the scope of this program so that we can impact talent density at the end of 90 days and build part of your leadership development program. And then maybe next quarter, focus on something else.
And we came up with two ways, two alternatives to do that. One was instead of training all 45 of these next level leaders that they wanted to train. What if we were to pick five or six of the highest potential leaders? And instead of creating something super formal, we just worked specifically with those folks
on how to coach and mentor their people to improve and develop their people. I make the difficult decision to cut the cord on some people. What if we just work with a small number of people? Do you think we can impact talent density for their organizations in 90 days? The answer was yes. We then talked about a second alternative, and this was the alternative that they wound up successfully implementing is what if we did focus on all 45 people, but we narrowed the scope and we just, we taught those 45 people how to use the talent assessment, how to calculate talent density, and very specifically
what could they do to turn some folks performing at a B level into folks performing at an A level? Coach them on some folks that were low performers and maybe had to get them up out of the low performance category or coach them out of the organization. It was some very specific coaching that got to the heart, the most important parts of improving talent density.
And while they certainly weren't going to improve it by leaps and bounds, they were certainly able to do that within 90 days. And again, build part of their leadership development program. So it's a very, you know, agile, iterative approach versus we're going to spend months and quarters designing and planning something to hopefully get value later.
I don't like the whole idea of hopefully getting value later. How can we get value now? So I spent a lot of time on that one characteristic, but again, it's trying to make your rocks and priorities more outcome driven.
And less task driven. Few more characteristics as we kind of wind down. One is each annual priority,
each quarterly rock should have clear accountability and by accountability. I, differentiate that from responsibility. There may be multiple people responsible for an annual priority. There probably is. There may be many people responsible for the successful completion of a quarterly rock. If you define responsibility the way I do, which is who's rolling up their sleeves to help get the job done.
But there needs to be one person accountable. Accountability is always an only one person who owns it. Who's coming up with the strategy. Who's coming up with the plan. Who's measuring the results, who the leadership team is going to look to, to say, how are we doing? And if we're not in the green, what do we need to do to get there?
What help do you need from us? So there needs to be clear accountability for a rock or a priority, a rock or priority should be something that's within your control. It shouldn't be something that relies on, you know, hopefully the economy improving, or, you know, we'll be able to do this. If the government puts some new environmental regulations
into effect, or it depends what happens with our competition. The more an annual priority is within your control and a quarterly rockers within your control, the more successful you're going to be. And the less you're just going to blame outside circumstances. Next is your, and I'm going to talk specifically about quarterly rocks here.
Your quarterly rock, this 90 day priority should have a number of intermediate milestones and measures within a 12 or 13 week period of time, maybe there are four or five or six milestones that may be measures or maybe tasks measures are better measures of an outcome, as I said before, are better.
The reason why it's important to have those milestones is number one, it's going to help you plan accomplishing the rock, but it's also going to help you and it's going to help the team hold you accountable. If I say by the end of the quarter. We're going to improve talent density by X or by the end of the quarter, we're going to improve client retention by Y.
If all I know is that number by the end of the quarter, within the quarter, there's no way for the team to hold you accountable. But if you have milestones, measurable milestones, or in some cases, task based milestones throughout the quarter, now in your weekly accountability meeting and in your monthly meetings, you can hold yourself accountable and the team can hold you accountable.
So we talked about a number of characteristics, priorities, either annual or quarterly, annual priorities or quarterly priorities. We're going to align around a small number. They should be specific and measurable. They're outcome driven. There's a clear accountability. There are milestones and measures for you to help be held accountable for.
And remember the difference between targets and KPIs, priorities, and rocks. All of those are important parts of the plan. If your plan is a bunch of numbers on a spreadsheet, then you don't have a plan. Why is all this important?
It's important to make sure that everybody on your team and everybody in the company is pulling in the same direction.
All you have are the numbers, the sales team and the service team and the operations team and the marketing team may all be pulling in different directions, doing what they think is the smart thing to do, but without a set of annual priorities and quarterly rocks, there's no understanding of what we need to do.
And therefore a whole lot less of a chance we're all going to be pulling in the same direction and remember your annual priorities, your quarterly rocks should focus not only on making the numbers in the short term, but should focus on achieving vision in the mid and the long term and all of this, creating the right plan.
Why is it important? The world is changing so fast. Some companies say, I don't even, not even gonna have a plan. The world is changing so fast,
having the right plan. Along with the right vision is going to challenge you to greatness, having the right plan, even with a crazy fast changing world is going to allow you to make sure you're all pulling in the same direction and to make the smart decisions, decisions to zig and zag as you need to. So hopefully I've clarified and hopefully you start using language that's more specific to
yes, we have a set of goals for the year and no one knows if you're talking about numbers or priorities, use specific language, go create a great plan. Until next time, take care.