Meeting Targets Isn't a Strategy
The vice president of sales at a Silicon Valley technology company
was on his hour-long commute home one evening last week when his boss called
his cell phone. "Did you make your numbers today?" the boss asked.
Before the vice president could respond, his boss continued, "And by the
way, you're going to have to make more cuts."
Richard Hagberg, an organizational psychologist, recounted the
conversation after meeting with the man later that night and listening to him
vent about his job. "He's under enormous pressure to meet certain sales
and profit targets on a daily basis now, and often the only way to do that is
to keep cutting people and resources," says Mr. Hagberg, founder of
Hagberg Consulting Group. The vice president, who supervises about 200 people,
spends all his time on "day-to-day tactical stuff and trying to get more
work out of fewer people," Mr. Hagberg says. The executive knows his
company needs to streamline its product line and figure out ways to better
compete against a bigger, more efficient rival. "But in the climate he's
in, there's no time" to plan for the future, Mr. Hagberg says.
Global competition has never been fiercer, but investors still
want ever higher returns. And CEOs know their jobs and compensation packages
depend on delivering. So at many companies managers down the ranks are being
given targets that can be met only by steep cost cutting.
But such an approach can easily backfire. For one thing, employee
loyalty and teamwork erode quickly, along with innovation and risk taking. So,
in some cases, do business ethics. Managers and employees who fear they'll lose
their jobs if they don't deliver their assigned numbers are more inclined to
fudge results.
And companies that become fixated on hitting quarterly and even
daily targets often don't produce sustainable profit growth. "It's hard to
capture employees' hearts, and best efforts, with numbers alone," says Mr.
Hagberg. In a recent study of 31 corporations, his staff found that the highest
returns were achieved at companies whose CEOs set challenging financial goals
but also articulated a purpose beyond profit making, such as creating a great
product, and convinced employees their work mattered.
Susan Annunzio, CEO of the
A regional manager at an advertising agency told Ms. Annunzio how
this happened at his highly profitable unit after the agency was acquired by a
bigger global concern. His new boss first cut frills like Christmas parties and
office plants, but then moved on to training budgets and staff. "So the
most talented staff found new jobs, took clients with them and then there were
more cuts," Ms. Annunzio says. After about a year, the regional manager
figured the best thing he could do was meet his boss's targets by eliminating
his position and walking away with a severance package. "He and his team
were the best thing the acquiring company had purchased, and they destroyed
it," Ms. Annunzio says.
A manager at a Dallas-based IT company who didn't want to be named
for fear of jeopardizing his job -- a concern cited by many of the managers I
talked to -- says he has seen some operating costs rise following the layoff of
some talented and experienced employees. When his company outsourced its
computer-support staff to
Other managers who meet targets fear that in the long run they'll
be punished more than rewarded. When a plant manager at a manufacturing company
was told to shave operating costs, he knew he could meet the target within a
month by changing some production procedures, says Ms. Annunzio, who
interviewed him for her study. But he worried that his bosses would then raise
the bar to a level he couldn't meet, and he wouldn't get a raise at the end of
the year. So he parceled out the cuts over 12 months.
What to do? Ms. Annunzio says more CEOs have to "have the
guts to stand up to the investment community and tell them companies can't cut
their way to sustainable profit growth." Instead, she says, they should
differentiate their products and seize opportunities in new markets -- and
value the employees who help them do it.
Article from
CareerJournal Today – March 2005