Setting performance targets is a great way to challenge your organization to improve. Setting specific goals that must be completed within an explicit timeframe, then linking these goals to compensation plans, motivates employees to continuously raise the bar on customer loyalty metrics.

It is all part of a cycle of continuous improvement. However, many organizations that are measuring and managing their Net Promoter scores wonder how to set up the correct targets. They know that setting aggressive targets will keep their organization focused on the top two or three areas that will directly impact that metric. But which targets are the right ones, and how do you execute a complete Net Promoter discipline so you hit the bull's-eye on your Net Promoter scores?

To be meaningful, performance goals should be tied to specific dates and milestones so you can monitor your progress on the path to achieving desired customer loyalty levels. Most organizations set targets on an annual basis, with incremental values cast on a quarterly basis in parallel with standard business reporting deadlines. If this is your approach, make sure your sample sizes sufficiently represent baseline targets (especially for quarterly samples).

Other customers monitor progress against a three-year roadmap. Sharing the results keeps stakeholders on track and makes organizational goals more concrete. Measuring improvement from the customer viewpoint can link to revenue growth, increased market share, and improved market positioning--intrinsic areas of interest to the people who are looking at targets.

Ready, Aim . . . Hold Your Fire

Of course, targets don't always have to be linked to compensation, and it's important not to link customer loyalty to compensation strategies too soon. You must first establish a Net Promoter baseline as a starting point for understanding the drivers of the metric. Typically, most of our customers try to collect at least a year's worth of data (with feedback collected quarterly).

How do you know if Net Promoter is the right metric for your organization? The telltale sign is this: does it motivate employees to change their behavior? In some cases, the score becomes an end in itself--more important than the improvements that impact that score--which leads to "gaming."

Creating a metric that employees believe in isn't always easy. Most companies that succeed with Net Promoter keep the communication relatively uncomplicated so that employees understand the objective: having more customers say "good things about you" than "bad things about you."

Cross-functional and regional areas within your company must believe that the metric is the right one for them, and, more importantly, that they know how to improve their scores. This includes all kinds of employees--everyone from senior managers who may eventually be compensated based on the metric to customer-facing employees who have the metric linked to account loyalty.

In all cases, the metric must be straightforward, easy to calculate and intuitive to employees. In the world of psychology, we call this "face validity," or understanding the metric at face value. You would be surprised at how many organizations use a very complex formula to calculate customer loyalty scores. Many employees don't fully understand how these targets are set, which undermines the main goal of setting targets--to change behavior. You need visibility into the metric, and you should be very clear about how you set your targets.

Loyalty in the Cross Hairs

Although many businesses acknowledge the importance of setting customer loyalty targets, selecting the right approach can often be a challenging task. Numerous complex and inter-dependent questions typically arise, as evidenced by the following considerations:

- When are the baseline metrics sufficiently robust for setting performance goals?
- Who should participate in the performance-based program?
- What percentage of variable compensation should be impacted?
- Should other attributes besides Net Promoter measures be considered?
- What is a reasonable timeframe to expect improvement?
- At what level of the organization should goals be set? 
- What is the appropriate methodology for determining realistic but challenging improvement goals?

There is no 'one size fits all' approach to setting up these metrics, but reflecting on these questions will help you develop a Net Promoter discipline and metric that is right for you. Various methods are appropriate, depending on the information available, the organizational structure, the culture, the business strategy and the objectives. Remember, integrating loyalty metrics into performance goals and variable compensation takes time. The best strategies evolve gradually.

In my next blog, I will discuss the potential ways to integrate Net Promoter scores into compensation strategies. In the mean time, please let me know if you have some first-hand experience with these issues or care to comment otherwise.