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How to Set Fair Targets in a Multi-Divisional Organization?The Problem: An Unwieldy Planning ProcessSetting annual targets across a building products manufacturer's divisions and geographic market units was a time-consuming and contentious process. Similarly, it was difficult for management to properly evaluate performance relative to plan throughout the year. Management found it challenging to get a clear and consistent set of assumptions about what was driving their product/geographic businesses. How much lift or drag was coming from the economy and customer end-markets? To what degree were recent acquisitions playing a role in expansion? What effects were their own pricing, promotion, and distribution tactics having on their sales? Our Approach: Generate Alignment around Business Drivers and Performance Metrics Global Insight initiated its Business Drivers Workshop process with each division to understand their perspective and information about what was driving their businesses—both in the United States and elsewhere around the world. Through statistical analysis of their sales data, as well as available market data, Global Insight developed and validated a set of custom market indexes for the company overall and each division. These indexes were further sub-segmented by customer end-market and geography, and also incorporated indicators of both customer end-market production and investment, weighted to reflect the influence of these factors on their business. Key to success was carefully determining weights to reflect the impact of new demand from either OEM or customer investment and the impact of replacement demand from the stock of business relationships already in place. The Answer: Dashboard with Divisional Market Indexes The results of the process were integrated into a corporate planning dashboard that showed the historical and forecasted growth rates of the market index developed for the company, its divisions, its geographic markets, and its customer end-markets. These benchmarks were used as the initial set of planning assumptions for divisional performance. Because these benchmarks were from Global Insight—an independent and trusted source—and because the divisions had been involved in the development and validation process, the planning process was elevated to a higher level. No longer debating basic drivers of the business and the influence, the management teams could focus on developing specific strategies and tactics to beat the competition. Divisions facing slow growing markets would have appropriately lower targets than divisions in faster growing markets. With better aligned and more fact-based metrics in place, the annual planning process and quarterly performance reviews were much more productive and effective.  |
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