Here is a brief excerpt from an article written by Pooya Nikooyeh and Jared Sclove for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Companies should bear in mind four principles during the target-setting part of the transformation process.

[Here are the first two.]

One of the most important steps in a transformation is the choice of a financial target. Done well, that exercise sets the tone for the whole program, fundamentally changes the way people think, and liberates leaders to achieve the unachievable. In our work with companies over the past six years, we’ve learned four key lessons about the target-setting process.

1. There’s always more money on the table than you think

We recently looked back at 15 companies we’ve worked with, comparing actual savings at the end of their transformations with the numbers their managers thought they could make at the outset. The result was instructive. On average, the companies delivered 2.7 times more than their senior executives thought possible when the transformations got under way. At one industrial company, the outcome was 4.7 times greater than the original target: $50 million.

That business was not untypical. Many management teams are prisoners of their past, more inclined to look back to the comfort of old routines than forward to the potential of doing things differently.

2. Incremental thinking is the enemy

When companies set targets, we recommend starting with what’s theoretically achievable and adjusting this figure downward only when there’s clear evidence that certain actions are unrealistic. People arguing for a lower number ought to shoulder the burden of proof and be challenged to support their case with facts. In short, they must answer the question “why can’t we do this?”

Junior managers at a mining company, for example, initially opposed a plan to cut the journey time between the coal face and an aboveground recreation area used for tea breaks. Frontline workers, however, came up with a suggestion to build a break room inside the mine, reducing transit time to and from work areas by a fifth. The company used this opportunity to create a more pleasant environment, with a win-win result: happier workers and a more productive mine.

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Here is a direct link to the complete article.

Pooya Nikooyeh is an associate partner in McKinsey’s London office, and Jared Sclove is a senior partner in the New Jersey office.
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