MODERN MARKETING
officers and so on now complain about the way their skills and time are being subverted by the culture of targets . They long to put the “ customer ” back at the centre of their working lives .
One last comment about the tyranny of annual forecasts , targets and budgets :
“ Leadership is burdened with passive resistance and corporate gaming in the traditional annual planning model . Many have personal bonuses based on fixed annual targets and static measures . Forecasting processes frustrate the ‘ right ’ behaviours and drive the ‘ wrong ’ ones . The desire for HQ control often drives inappropriate and suboptimal behaviour .” Doug Ross , Strategy Magazine , March 2007 Summary of research into the planning behaviour of 1000 participants internationally .
Consider now the often puerile and backward-looking process by which quantitative objectives are set . It has been consistently shown over the past fifty years that sales people sell the products they find easiest to sell , often at the maximum discount , to the customers who treat them nicest . Such sales go into the database and form the basis of forward projection for forecast purposes .
However , there is a different and more professional way of setting an objective for the following year . If addressing a growth market , a legitimate strategic objective might be “ to be market leader in three years time ”. In order to achieve such an objective , the marketing director would need to assess market size three years hence . He might then consider what market leadership might be , say 25 %. So , extrapolating backwards from this future target , he could establish what sales he needed to achieve next year and the years following to reach the attainable goal of market leadership .
Then we have the kind of knee-jerk , macho management-by-objective targets that are often set by senior managers without considering the unintended consequences . A classic example of this is the desire to cut costs by reducing working capital , such as inventory . If the logistics manager is paid a bonus to make such reductions , then they will no doubt be made .
So the poor unfortunate customer asking for one hundred widgets and two hundred didgets , on being told they can only have fifty of each , changes supplier . The circumstance of the forgone sale is lost in the system , the logistics manager has achieved the objective set and so has the finance director . The database on which the next year ’ s forecast is made is impervious to all this .
Even the great Unilever , when losing market share to Proctor and Gamble , realised that their forecasting and budgeting system was holding them back . In a presentation in 2006 at Cranfield , a senior financial manager said :
“ We used to spend £ ½ billion out of a £ 50 billion turnover just on budgeting . All it led to was setting the lowest sales / profit target ( and under no circumstances exceed it ) and the highest marketing budget ( and under no circumstances underspend it ). The consequence was appallingly bad behaviour on the part of everybody . We were boxed in by too many targets , defined
“ success ” in the wrong way , were too inward and backward looking and set the wrong performance targets .
Unilever ’ s new system is more about helping people win than holding them to account . Now , when you meet people , you can ’ t tell what function they ’ re from , because they are just talking about the customer and the business ”.
This particular professor has little patience with managers who believe that forecasts , targets and budgets are all they need , and that using them to put the fear of God into their subordinates somehow constitutes good management . You can get away with it for a while in times of growth , but sooner or later you will be found out as a mental midget .
Malcolm , author of 44 books , is a Professor of Marketing at six of the world ’ s top Business Schools . His extensive industrial experience includes a number of years as Marketing Director of Canada Dry . He spends much of his time working globally with the operating boards of the world ’ s biggest multinational companies . He is Chairman of six SMEs . In 2006 , he was listed by the Times as one of the country ’ s top ten consultants . www . malcolm-mcdonald . com
14 ModernBusiness June 2016