During our annual planning meeting earlier this year, my team asked some really good questions about setting strategic goals and I decided to write down the answers because they vastly improved our strategic plan for this year. Here they are. But first, let’s define what strategic goals are.
In the context of strategic planning, goals are quantifiable metrics that translate your objective into expected, measurable results. Goals should be specific, measurable, achievable, relevant, and time-bound and should cover both financial and operational targets. Goals help you track whether you are making progress towards achieving your strategic objectives.
It is critical to set meaningful goals because “what gets measured gets done”. That by itself however is not good enough. So how exactly do we set clear goals that drive achievement of our strategic objective?
How To Set SMART Strategic Goals?
In my business we are using the OGSM methodology to define our annual strategic plan. The OGSM is a one-page business plan that describes what we are aiming to achieve and how we are going to get there. The objectives and goals (O and G) together describe the ‘WHAT’ while the strategies and measures (S and M) together describe the ‘HOW’.
While the objective is a qualitative statement about the future direction of your business. The goals are the quantitative description of your objective. Goals should translate your qualitative objective statement into measurable figures. These are the big picture numbers that represent the future state of your business and help you measure whether you are successful.
It is important that your goals align with the purpose and the timeframe of your objective. A great way to describe your goals is to apply the SMART approach to goal-setting. Goals must be
- Specific: the goal must be clear and unambiguous
- Measurable: the goal must be quantifiable and progress trackable
- Achievable: the goal should be ambitious, but it must be attainable
- Relevant: the goal must be realistic and relevant to your objective
- Time-bound: the goal must have a clear timeline and target end point.
When we set strategic goals, we look at our objective statement and translate each element of the objective into a goal. We make sure that we cover both financial aspects but also high level operational aspects. By applying the SMART logic, each goal is clear and unambiguous.
We do this until each element of the objective is captured by at least one or two goals. Then we review the goals and double check that they truly reflect what we aim to achieve. We test whether each of the goals is needed to fully satisfy the objective. If we spot a goal that seems superfluous or not relevant, we drop it.
Once the goals are selected, we assign numerical values for the targets we aim to achieve. The numbers should reflect the ambition and the timeframe of the objective. The goals should stretch the team, but should also be rooted in the realities of today so that they are ambitious but achievable.
How Many Goals Should Your Strategic Plan Have?
We typically set 5-8 strategic goals. Why? The goals are the high-level metrics that make the objective of our strategic plan measurable. We prioritize those goals that are truly relevant to the objective and our specified time frame.
When writing our strategic objective, we use the “what-by-how” method. This means the objective statement has two parts which together define what we are aiming to achieve and how we will do so. For each of these two parts we set 1-2 dedicated goals. Because this gives us data to determine
- when we have achieved our objective, and
- how we are tracking along the way.
Depending on the length and nature of the strategic statement this usually means we end up with 5-8 goals.
Could you be successful with only 2-3 goals? Yes, you probably could as long as they are sufficient to measure success of your strategic objective. Could you be successful with 8-12 goals or more? Yes, you probably could. But now I’d be concerned whether these dozen goals are still the most important high-level goals about the future state of your business, or whether these are already the key performance indicators of your day-to-day operations. Keep only those goals that are relevant to the strategic objective.
What Are Examples of Strategic Goals?
We are running a for-profit business so we must cover the financials. Typical hard and soft financial goals include
- Revenue (e.g. sales, volume, quantity)
- Profit (e.g. gross profit, EBIT, EBITDA)
- Cost (e.g. operating expenses, personnel costs, marketing costs)
- Market Share
- Growth (e.g. sales growth, CAGR, growth over market)
In addition, we may cover important operational aspects such as
- Customer satisfaction
- Employee engagement
These are typical categories of strategic goals. We pick the goals relevant to our strategic objective. Consider the following two concrete, albeit fictional examples.
Example 1: Tony’s Pizza
Objective: Tony’s aims to expand beyond its delicious pizzas to become a trusted Italian restaurant where families feel at home and share an enjoyable, freshly cooked meal.
- $$$ Total sales revenue per month
- $$$ Gross profit per month
- >60% sales from non-pizza food & beverage menu
- 80% of customers indicate they feel at home at Tony’s
- 95% of customers indicate they feel the food is fresh and enjoyable
Example 2: Florian’s Fastener Solutions
Objective: Drive double-digit sales growth to become market leader in fastener solutions by expanding into international markets and launching new category of mechanical fasteners
- $$$ sales/year, 12% compounded annual growth rate (CAGR)
- >26% market share
- >40% of customers would indicate Florian’s as a leader in fastener solutions
- $$$ sales/year in international markets
- 20% of sales from new mechanical fastener category
- 5 product launches/year
In the examples, Tony and Florian defined 5 and 6 examples, respectively. And both of them ensured that each element of their objective statement were covered.
Why Are Clear Strategic Goals Important?
As mentioned earlier, “what gets measured gets done”. So it is important that you measure what matters. This means that your goals must be clearly aligned with your business purpose and your strategic objective. It is also important that everyone in your business understands these goals and knows how to contribute to their achievement.
Consider the following bad example from my business experience. Our objective included to drive sales growth from innovation. So we set the target to launch 5 new products that year, similar to Florian’s fasteners above. That goal was specific, measurable, achievable, realistic, and time-bound. Yet when it came down to the wire, the team ended up launching 5 new products that were barely ready, had not yet completed customer testing, and ended up flopping hard. What had happened? The team was so focused on launching and the number 5 that there was no regard for making sure that the products performed and were actually getting sales.
I learned the hard way that if growth or innovation sales is what I am after, then I have to define goals for the product development and the launch (the how) and the sales (the what).
Clearly defined goals communicate to the organization what the priorities are and where to focus. So reflect on the real purpose or intention of your strategic objective and make sure that your goals clearly reflect what you are aiming to achieve.
How Do You Make Sure That The Goals Are Achieved?
In the OGSM methodology, the Objectives and Goals describe ‘WHAT’ you aim to achieve, the Strategies and Measures define ‘HOW’ you are going to get there.
After the goals are set, we move forward to define strategies and measures which will drive implementation of the strategic plan. We usually define 3-5 strategies and check that they align with the objective and goals and do not leave any goal uncovered.
Next, we define measures. For each strategy, we define concrete, measurable targets and an action plan with clear caretakers and concrete deadlines.
Finally, we agree on a review cadence and when and how progress is reported. We typically set up a monthly dashboard that covers the measures as key performance indicators. In addition, we set up two different kinds of governance meetings to track implementation.
- 60-minute monthly review of issues and underperforming performance indicators
- 2-3 hour quarterly progress review for all strategies and measures.
Note that we do not actually review the objective and goals unless something in the review of the strategies and measures indicates a drastic shift in the market or our business priorities. We usually only review the strategies and measures and thereby ensure that the goals are achieved.
Goals are high-level, quantifiable metrics that translate your strategic objective into expected, measurable results.
Set goals using the SMART approach and cover both financial and operational targets. As “what gets measured gets done”, make sure the goals are relevant and sufficient to achieve every element of your objective. Define 3-5 strategies and corresponding measures to ensure implementation and goal achievement.
If you would like to learn more about the OGSM approach to strategy and goal-setting, continue here.
Do you have any questions or feedback? We’d love to hear from you. Please leave us a comment below.