Let's imagine you want to run a marathon, 26.2 miles, to prove you can do anything you set your mind to.
But then disaster strikes. At 25.5 miles, with the finish line practically in sight, you get terrible cramps and can't continue. You're crushed.
You could argue that you're being a little hard on yourself. If you had run only 15 miles, you'd have had a good reason to feel bad about your performance.
But you were more than 97 percent of the way to the finish line, and for all intents and purposes, you'd done everything right. While you didn't actually complete the marathon, you've proved that on most days you could.
Most people don't think this way, and most businesses don't either. When they set a goal, typically, it is a signpost or a hurdle to be leaped over. Miss by a percentage point and you might as well have missed by a mile. Exceed you goal by a long shot and no one cares.
In reality, this misses a large part of the value of goals. They should not be merely motivational tools but learning exercises that can teach you important lessons about your team and your business. To realize this potential, businesses need to embrace a new concept: variance.
Variance (and why it's important)
Variance measures how close an effort came to a goal.
For example, if you set a goal of selling 1,000 widgets and miss it by 10, your variance is only -1 percent. Even though you didn't reach your goal, you didn't miss it by much.
On the other hand, if you exceeded it by 200, your variance now becomes +20 percent. That's huge. It not only shows that your team did well, it also likely means that there's something you don't understand about your team or business.
Variance has two advantages. First, it takes the sting out of a near miss, and keeps your team from over-focusing on a metric. But its major advantage is that it allows you to extract insight from your efforts.
A choice example
To see how that can work, let's dig in with a different example. We'll imagine that you have a chain of restaurants and want to increase revenue.
You look at your numbers, compare them to industry data, and realize that your lunch sales lag the benchmarks. To get in line with your peers, you need to sell 1000 additional lunches per week. And so, you set that as a goal.
Your marketing team then comes up with a plan to achieve this goal: a rolling series of offers, delivered digitally to your most loyal customers. The team also decides that first promo should focus on a free order of French fries for anyone who stops by for lunch during the week.
Next, you run the promotion and measure the results. For the purposes of argument, let's say you get 1,300 additional lunches that week. Congratulations, you did well.
But remember, you weren't simply evaluating your team's performance. You also want to learn. For that, you need to look at the variance.
In this case, it's +30 percent, which is pretty significant. So you do some research, and when you examine your promotion, you realize that the headline "Free Fries" drove a 35 percent higher open rate than your usual promos. The learning? Go for simple headlines and give something away.
On the other hand, let's say you only had 980 additional lunches. This is a variance of -2 percent. Do you fire the team for not living up to expectations? Of course not. You didn't miss by enough to matter, but you might want to try a different approach next week.
How it helps
Needless to say, this approach doesn't mean that you should never look at team performance. Weak execution is always a possible reason for failure. But variance can keep important milestones in goal setting, while providing a framework for learning and improvement.
For most would-be marathoners, of course, the finish line is a symbol that really can't be replaced. For businesses, goals tempered with a healthy dose of variance often lead to better results in the future.
This article is adapted from Does it Work?, co-authored by myself and POSSIBLE Americas president, Jason Burby.