By Bryan Lapidus, FP&A
Many companies are working on the planning process now and continuing through the fall. They will be setting goals and targets, but are they daring enough?
The term “big hairy audacious goal” (BHAG) comes from the 1994 book, Built to Last: Successful Habits of Visionary Companies, by James Collins and Jerry Porras. President John F. Kennedy’s 1963 proposal of sending a man to the moon is held up as the prime example of a BHAG. But what makes a good BHAG, how does it relate to other planning tools, and what are the dangers if it is used incorrectly?
A BHAG is a goal that is big enough to lift us out of our everyday thinking and short-term focus on the month, quarter and year, and set our sights on an exciting horizon. For Collins, it is an emotional calling to an organization: “A true BHAG is clear and compelling, serves as unifying focal point of effort, and acts as a clear catalyst for team spirit,” and would have to satisfy a few criteria:
This may seem like another fuzzy consulting buzzword to mix in with strategy, mission, vision, purpose, and of course, regular goals. A well-designed BHAG should challenge all of the above by being at the intersection of the following:
The BHAG may not necessarily tie to your current strategy and goals; a transformational vision may demand a similarly transformational approach to achieving it, and your current strategy may not get you there.
Stretch goals are not the same as BHAGs. A stretch goal may be go beyond your stated goal by 5 or 10 percent, to do a bit more of the work that is currently in progress, perhaps by working a bit longer or being more efficient in what you are doing. A BHAG might be a 30 or 50 percent improvement, which is not something you can do by putting in a few more hours at the office.
Setting a BHAG based on accounting goals carries several risks. Since there is some discretion in accounting, this can be an invitation to manipulate the books to achieve the goals. Also, revenues and profits can come at the expense of good strategy; a company can cut prices to boost volume and achieve a revenue goal, at the expense of an income goal. And accounting goals do not tie to a vision and mission, and therefore may not engage the broader company as much as those who get a bonus for reaching the goal.
Similarly, a BHAG that does not align with strategy can seem incongruous. If it is too narrow, it will put focus on one section of the company to the detriment of others. If it is too general, it may have no relevance to strategy and operations, leading to confusion. A goal should not compromise other critical company elements that also motivate employees, such as corporate philosophy and principles. And selecting a size BHAG should not be considered a substitute for strategy — but if you do set a giant target in the distance, it will shape your strategy. In some cases that is desired; in others it is a problem.
The BHAG approach calls for a 10 to 30-year goal; how many goals are constant or relevant over that time period? Some successful BHAGs are, such as wiping out polio (nearly there!) or malaria. But businesses find that the technology and landscape change so quickly that it is hard to set such an audacious long-term goal that will hold up over time without limiting your options. What if your company needs to pivot, sell itself, or divest? Will management toss out the BHAG?
Bryan Lapidus, FP&A, has more than 20 years of experience in the corporate FP&A and treasury space working at Fortune 200 and private equity-owned companies. At AFP he is the staff subject matter expert on FP&A, which includes designing content to meet the needs of the profession and helping keep members current on developing topics. Bryan is also a member of the Global Advisory Board for The CFO Alliance. You can find him on LinkedIn and reach him at Blapidus@afponline.org.