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Annual Goal Setting and SMART Goals
SMART goals for manufacturers DON’T work. Goals are necessary but not sufficient to drive results. I’ll explain why (3 reasons) and what you can do instead.
It’s that time of year when we’re setting personal and business goals. As a Theory of Constraints expert and someone who worked with Dr Eliyahu Goldratt, author of The Goal book, it probably would not surprise you that I think goals are necessary. However, SMART goals for manufacturers are NOT sufficient to drive results.
Just because you have a goal, even if it is a SMART goal, that is NOT typically enough. Particularly in our complex businesses. Have you ever had the goal to increase revenues or profits in your business but did not hit the goal even though your goal was Specific, Measurable, Achievable, Relevant, and Time-bound?
According to an Economist Intelligence Unit survey of 500 senior executives, 90% don’t accomplish their business objectives – quarter after quarter, year after year.
A SMART goal to increase organic profits is easy to define so why might it be difficult to achieve? Have you had a profit goal before that you have not achieved? Why not? Before you continue reading, think about your answer.
This is worth understanding. Being able to set and achieve your annual, 3 and 5-year business goals could have a profound impact on you and your employees.
When I was a frequent Vistage speaker on Maximizing Profitability, and I would ask “How many of you are working on the same problems or goals as last year”? More times than not, all the hands would go up. And often, they were working on the same things for many years. Problems never (or rarely) got solved.
But whether you have been successful at achieving some, all or none of your goals in the past, my aim in this article is to help you increase the likelihood of reaching your goals in the fastest time possible. And like many of our articles you can expect some counterintuitive suggestions along with several A-HAs.
3 Reasons SMART Goals Are Not Met
In my experience in talking to business owners and working with over 500 custom manufacturers, I think the reasons can be categorized into 3 types:
1. “We don’t know SPECIFICALLY what to change.”
Simply having a SMART goal around profitability does NOT mean you know what to change. Your systems and processes are perfectly producing the profits you are currently achieving. If you want better results, you need to understand how and why you’re achieving your current results. And I mean a DEEP understanding. And because manufacturing is more complex than setting personal goals or even some other business goals, it’s a challenge.
You not only need to understand the negatives or problems in your current environment but how and why they propagate. Knowing that set ups are taking too long, or that you have too much WIP (or it’s growing), or that lead-times are increasing, on-time delivery is slipping, or that overtime is up, or that cash flow is down, is NOT deep enough.
Those are effects of your current systems and processes. If you try to tackle those problems in isolation, you’re not getting to the root cause and will have no/limited impact. This is the same reason so many hands went up signaling the same problems year after year.
Without deep understanding, you’re guessing. You probably have as many opinions on what needs to change as you have people. Guessing is akin to playing Whack-A-Mole. It’s extremely time consuming, expensive, and morale busting.
The good news is you don’t have to guess. In Theory of Constraints, we use rigorous cause and effect logic to understand the one or few things that need to change to reach your goals and what we call your future reality.
The number of things that you need to change are fewer than the negatives or problems in your current environment because of the interdependencies. Many of them are related and by understanding those relationships you uncover the fewest, most impactful changes necessary to achieve your goals.
2. “We don’t know what to change to. “
Just like there are no shortage of ideas on what to change, likewise there are even less shortages of ideas on what to change to.
We should do Lean Manufacturing! We should do 5S! We should change our ERP! We need more workforce development! We need an incentive plan! We need a flexible work schedule! We need quick change tooling! We need to hire sales reps! We need a better quoting software! We need more cross training! We need a new machine! (I could fill the whole page.)
Have you ever implemented one of these and NOT gotten the BOTTOM-LINE improvements you were expecting? I’m mean REAL bottom-line improvements. This is typically because you were improving a non-constraint or a symptom.
I’m not saying that some of the above list of ideas on what to change to aren’t good or won’t provide some benefit. They might, but you’ll have a better chance of achieving your goals in the fastest time possible by applying the right solution in the right place in the right order.
Not only is it common to jump to all your ideas of what to change to immediately after setting goals, there is something else ….. we are blind to what we don’t know. If you don’t know where your constraint is or that you should know where your constraint is, what chance do you have at the improvement necessary to achieve your goals?
And if you’ve never heard of the many Theory of Constraints tools or think they don’t apply to you, you might be missing your best chance of hitting your goals. For example, Throughput Accounting has invalidated Cost Accounting and the implications to quoting and financial decisions are profound. We’ve helped manufacturers reach a 10% Net Profit or more with just Throughput Accounting. But if you’re not aware, don’t know how to apply it, or have dismissed the concept – you may be missing a big opportunity.
Once you have the deep understanding with all the interdependencies on what to change, you
can focus your efforts on what to change to. But now, this is a very focused exercise. We are only considering those things can bring about the specific change we’re seeking. We are no longer brainstorming all the “improvements” we could do. We are only considering those things that will achieve the specific objective or create the specific effect we’re after. In some cases, it can be as simple as a policy or measure change.
Once we have identified the few changes we need, we trim any potential negative branches (negative side effects), and we check them. We again use rigorous cause and effect logic to make sure these changes create the future reality with the results we desire. We ensure we include all the necessary policy, procedure and measure changes.
3. “We don’t know how to cause the change.”
Now let’s say that you have identified what to change and what to change to. The next way you can go astray is on how to cause the change. How exactly, in what order should you implement to go from what you are to where you want to go – to that future reality?
There are a wide range of approaches typically used:
- Winging it, no implementation or project plan.
- A full-blown critical path project plan with every conceivable task we can think of that goes into a very complex project plan. More detail and complexity are better, right?
- Or something in between.
Our approach? We create an implementation plan for those few changes we need to make. Typically, some of the changes are simple but some are bigger and need to be detailed out. For example, your future reality might call for implementing some or all of Throughput Accounting. And while that is easy to say, we need to detail out the specific steps in the specific order. Likewise, operational improvements take some detailing.
Our Theory of Constraints implementation plan is approached differently than a critical path project plan. That’s a whole other topic, but I’ll summarize it as follows:
- Tasks are not brainstormed but flushed out by understanding the obstacles to implementation. This means we don’t have project plans with a bazillion tasks, only tasks that are necessary and sufficient to overcome the obstacle.
- Critical path is old technology, we use the Critical Chain which takes into account resource contention (your constraint).
- Task durations are not buffered, only the Critical Chain and project(s) are buffered.
Then, it’s a matter of focus. Our implementation plans make it clear the one step you should be working on.
Contrast that approach to what we often see … a business owner with ADHD constantly bombarding employees with whatever is on his/her mind at any given time. In this environment everyone
SQUIRREL!
has to STOP what they’re doing and work on whatever the hot topic or “problem” is. This creates a chaotic environment where employees are running around like chickens without heads and don’t have enough time to progress the implementation plan.
Oftentimes these business owners confuse being busy with getting REAL results, which will only come from focusing on the ONE thing that must be done. The goal is not to implement 100 good ideas in a year; The Goal is to achieve the result targets you set.
While it’s true that your strategic goals need to be progressed while doing our daily work and we get presented with new opportunities and new ideas constantly, it’s necessary to:
- FOCUS
- FOCUS
- Have a plan to deal with any “new ideas” or “opportunities” then if appropriate, update the implementation plan. If the new idea is higher priority, then what we’re currently working on, we can adjust and go right back to focusing.
A well-designed implementation plan can often ensure that the first steps you take free up some time and include what you can STOP doing. Many current projects will likely need to be re-prioritized and appropriately staggered taking all projects and resources into account.
If any team member needed for the focused implementation but does not have time, all their work/projects should be reviewed for items that can be eliminated or postponed consistent with all company priorities and the implementation plans.
When you correctly focus on implementation, implementation occurs much faster. This
means that the new ideas or opportunities can be addressed faster. Just like when there is less WIP in production, orders waiting for their turn will be run sooner than if you had left everything in WIP.
If accomplishing your goals is truly important, getting your priorities right and focusing are paramount.
Summary – Why We Don’t Aways Reach Our Goals
SMART goals for manufacturers are not enough. Goals are necessary but not sufficient to drive results.
The traditional approach doesn’t work:
- Most jump from the goal setting to solution generating without a deep understanding of what specifically needs to change in your current environment (systems, processes, and measures).
- Solutions are typically the result of a brainstorming session and only solutions which we are aware of and understand are considered. Potential negative side effects of these solutions are not considered nor trimmed. Policies, procedures, and measures to support the solution and desired results are also typically not considered.
- There are either too few or too many tasks but in either case they are brainstormed and likely do not overcome the obstacles to achieving the desired results.
The Greek poet Archilochus said “You don’t rise to the level of your expectations. You fall to the level of your training.” In terms of goals, I’d say that “You don’t rise to the level of your goals. You fall to the level of your systems, processes and measures.” It is our job as leaders and managers to create the systems, processes and measures for our organizations. Those drive our performance and if we want better performance, we need to understand what to change, what to change to and how to cause the change because what got us to where we are (no matter how great it is) may not takes us to where we want to go next.
The Theory of Constraints Roadmap provides the framework for this process.
The Velocity Manufacturing Roadmap Process Overview
The Theory of Constraints (TOC) Roadmap uses the TOC Thinking Processes and is divided into 3 stages:
- What to Change?
- What to Change to?
- How to Cause the Change?
We’ve tailored this process for our custom manufacturers and job shop clients. Here are a couple of images to give you an idea about the process we use. These images are high-level and not meant to be comprehensive but to show the concept.
Creating the Roadmap to Achieve YOUR Strategic Goals
I set out to write a short email on why manufacturers struggle to meet their goals. I ended up with over twelve pages of content but feel there’s more you need to know to really succeed in achieving your strategic goals. Because goals are private and every situation is unique, we’d like to offer you a no charge strategy session to discuss your situation.
This will NOT be a pitch session of our services; this will be a deep dive on YOU. We’ll talk about your goals, your challenges, opportunities we see and what might be missing from your roadmap. If you want our help, great. If not, that’s okay too. Either way, it will be time well spent.
For this no charge deep dive, please fill out the strategy session request form on VelocityManufactuing.com
