Setting Targets or Expectation Setting

Indian Finance Minister P. Chidambaram in an interview about India’s slowing GDP growth, to the Wall Street Journal says,

“We must aim at 9%, as I will, and we must be happy if it’s between 8% and 9%.”

This begs the question “Is he setting a goal for GDP growth for the country or is he managing expectations?”

A goal, IMO, is something that is ‘actionable’, i.e. you and your team can take actions which help you achieve that goal. Much like a goal in football, you can’t score one by just being on the field.

GDP growth, on the other hand is a product of:

– externalities – like the monsoon or India’s demographics which no government (knowingly) had a hand in creating
– long-term policies and action – one could argue that the 1991 liberalization is the biggest driver of GDP growth in India today.
– short-term policy and action – which tends to be more monetary policy – interest rates and money supply. Even here, short-term means at least a couple of quarters.

If you agree with the above, then you have to also agree that within a fiscal year, there is precious little that the Finance Minister or the government can do to influence the growth rate positively. In fact, in order to control inflation, the FM will have to throttle back growth. So the quote above, is in effect, expectation setting.

But it doesn’t come across as such. In all the discussion about growth targets everywhere (and there is a lot of it), growth rates for the year are projected as goals, not estimates. Words like “target”, “goal”, “aim for” are liberally used. Don’t be fooled by it. This is just taking credit for not screwing up something that was going to happen anyway.

You’ll find this behaviour in the corporate world as well. When cause and effect are separated by long cycles, it is quite common to penalize the manager who did the right things, but did not last to see them bear fruit. As also the manager who does nothing or worse but is around at the right time to reap the harvest that someone else sowed.

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8 Responses to Setting Targets or Expectation Setting

  1. Short term policy can also be letting the rupee go up against the dollar, which can curb inflation without really letting go of growth (most of which is internal, and is likely to offset any loss through exports). We have some fantastic reserves which we should either use to pay for whoever wants dollars out, or convert to formats which can pay for infrastructure. That can drive the economy and control inflation – since most of our inflation seems to be imported at this poitn.

    That I think is an action to reach the goal – if it was ever a goal. I agree with you that it was more a “suggestion” instead, and the ministry can do little more than to echo data that indicates where we might end up.

    It’s difficult to distinguish between an action that causes a long term result versus a short-term one. Because the long term result may happen due to a multitude of factors, like luck, rains, frog croaking or whatever, and it’s an argument only in hindsight.

    Two books – “Blink” and “Freakonomics” talk about the same event – dramatic reduction in crime in the 90s in the US.

    Reasons for those were usurped by the authorities of that time, including better policing, infrastructure or what you may. The books disagree. One book says says there was a tipping point, at which crime moved down, and that point was somewhere in between. Reasons could be anything.The other suggests that it was the Roe vs. Wade ruling in the late 70s that effectively legalised abortion which resulted in a lower crime rate as less unwanted children were born after then. And thus, less such children reached an age where they would otherwise take to crime.

    I think statistics can be massaged to meet whichever of the above conclusions you want. I think I would rather believe in magic than go through the exercise. I also think most managers that take credit for the result of the decisions know secretly that there was more magic to it than their input, but that doesn’t give them a bigger raise.

    Perhaps that’s why the Indian system had family based work cultures – if your father was a jeweller, you had to be one etc. The funda is: if your father had a good long-term strategy, you’ll earn the money and it stays in the family. It’s a wild thought but it puts an end to credit-snatching. What you want to be really, is a passive owner of the business where people are fighting for such credit. That’s the only person coming out better in the process.

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  2. Basab says:

    Deepak,

    You make several good points. Cause and effect are related in the real world by really complex ways. Most of the times, we are inferring a cause and effect relationship, and not well. Human tendency is to take advantage of this and one of the ways we do it is to take credit for it ourselves if we happen to be overseeing the outcomes when they occur.

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  3. Shefaly says:

    Basab:

    You say: “A goal, IMO, is something that is ‘actionable’, i.e. you and your team can take actions which help you achieve that goal.”

    It made me smile because nearly all sales jobs – not least in the Indian IT services firms – set goals as ‘bare minimum must-achieve’ numbers, and then there are stretch targets at which the bonus begins to matter.

    Likewise I do not see PC setting a goal. The 9% is a stretch target given current conditions. The 8-9% is a realistic range he thinks – yes, subjectively – that can be achieved.

    In the UK, economic growth rates are set out as projections, not goals or expectations. Just projections. Might that be a better word?

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  4. Basab says:

    Shefaly,

    Goal setting in Sales is a whole can of worms. Don’t make me open that one!

    I think projections or estimates is the right way to think about GDP growth, especially, when one is talking about the year one is in.

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  5. Siddharth says:

    Basab,

    I am shipping you a can opener. Please use it when you write the next blog.

    I want to understand ‘Goal setting in sales’. Someone has to decide where you should go (A), someone tracks where you are heading (B), and someone tracks where you are today (C).

    Information about yesterday or today is easy; but what is the science behind projecting tomorrow. I have seen http://www.farecast.com but I want to understand salescast.

    Have a good weekend!

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  6. Shefaly says:

    Basab:

    “Goal setting in Sales is a whole can of worms. Don’t make me open that one!”

    Why do you think I made the comparison? 🙂 Siddharth is even offering a can opener!

    But, yes, the rest of the post was serious.

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  7. Krishna says:

    I think it’s neither 🙂

    He just meant – “Look, everyday new skeletons keep falling off the cupboard of big Wall Street banks by way of MTM losses. Look at our own backyard – ICICI bank, HDFC Bank, Kotak and even SBI have started making provisions in millions of $$. Now that affects liquidity in the system badly and mars the leverage plans of hedge funds/private equity that drove huge FDI/FII flows into India. I look to RBI guv for leads into future but he knows nothing more than to hike CRR by 50 bps at every sneeze. The guy is equally clueless as I am. So what do you want me to do. I’ll just stop at “aim”ing. Nice word, will help me cover my back if I get off-target by a mile. Come on people. Gimme a break!”

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  8. Rohit Jain says:

    Hi:

    Interesting thoughts and interesting correlations. While the correlations are correct the allegation I am not sure is. I am not too sure that FM has no control over the GDP rate. The gestation period of impact of several policy decisions in todays economic conditions are much more faster and infact reflect within a year. Ofcourse there are factors like monsoons and its resultant impact that they can hardly do anything about. But then they would have factored the forecasts of that.

    In a service industry driven economy the impact is infact felt within 2 quarters. If inflamation and coalition politics was to give FM a free hand, and ofcourse if there was intent (which we all hope there is), the GDP impact can be felt in 2 quarters I feel. Case in point if he was to ease up control on money, lending would ease up, loans would ease up, housing sector would witness growth (players like ICICI would take max a week to put peddal on sales), hence related industries would start to get boost. Its a whole cycle.

    Anyways quite liked your writings. You can visit by blog rohitjain.wordpress.com for some different perspectives on business and people challenges.

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