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When should you use a stretch target? How does the stretch target interact with the "regular" targets for a metric? Setting targets seems to be a more of an art than a science but I think it is one of the most important aspects of designing an effective performance management system. |
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Stretch targets and regular targets can get quite confusing within the context of a particular measure in a Balanced Scorecard. I've seen the approach used in 2 different ways. 1) Stretch targets can represent the goal at the end of a strategic planning cycle. Thus, if you have a 5 year plan, the stretch target can be the goal at year 5. The regular targets would be all of the interim targets leading up to that plan. Thus, you would have year 1 quarterly targets and then year 2-4 annual targets that all build to the stretch target. 2) The other option is to have 2 targets for a particular time period. Thus in Q3, you could have a target of 80% and a stretch target of 90%. You need to be careful with the communication message for these targets. Does 80% mean it is OK, or do you have to reach 90%? Does compensation change between 80-90%? I think you need to be very clear why you are choosing more than one target to represent a performance goal if you are going to do it at all. I hope this helps. Ted |
