Strategy has to be broken down before anyone can act on it. A five-year growth ambition cannot be done on a Tuesday. A task with a deadline can. So businesses cascade their goals: from the owner’s ambition, to targets for each part of the business, to project goals, to individual objectives. Each step makes the goal more specific and measurable.
Two quiet distortions happen along the way. The first is a change of unit. Goals at the top are usually written in growth, profit or margin. By the time they reach the people doing the work, they are usually written in cost and time. Somewhere in the middle, the business stops measuring what it wants and starts measuring something that is related to it only under certain conditions. The second is a change of horizon. Many of the most valuable decisions take years to show their worth, but people are reviewed monthly or yearly, so measures tend to reward what pays off quickly.
This article explains both distortions, why they lead businesses to hit every target and still miss the result that matters, and practical ways to keep measures faithful to the strategy.
A cascade that changes units
Consider a typical cascade for a business that develops and sells commercial properties:
- Business goal: grow profit by 5% a year over five years.
- Program goal: complete a mixed development at a 10% profit margin.
- Project goal: build the landscaped park for $90,000 within six months.
- Individual goal: save $10,000 on the park and finish a month early.
Every line is specific, measurable and traceable to the line above. But the first two are written in profit and margin, and the last two in cost and time. The individual goal can be fully met while the program’s margin falls, for example if the saving comes from landscaping that buyers of the neighbouring units valued, or if finishing early simply means the site sits idle while other parts of the development catch up.
Three conditions hidden in the conversion
Treating a dollar of cost saving as a dollar of margin assumes three conditions:
- Revenue is fixed: the saving does not reduce what customers will pay.
- Nothing valuable is degraded: the saving does not weaken something revenue depends on, such as quality, appearance, durability or customer experience.
- The saving is not consumed elsewhere: it does not simply shift cost or delay to another part of the work.
None of these is usually stated, and all are often false. Finishing early creates value only if something downstream can use the time.
Common misreadings
- Cost and time are good proxies for margin. They are, under conditions nobody writes down.
- Precision at the bottom is what matters. Precise targets are easy. Targets that faithfully represent what the business wants are scarce.
- It is a communication problem. People at the bottom of the cascade often understand the overall goal perfectly. They respond to the measure they are given. Better communication does not change that incentive.
- A consistent cascade is a valid one. Each line can follow logically from the one above while the chain as a whole loses the quantity that matters.
Write down the conversion
Treat the cascade as a chain of conversions, and at the point where money becomes time and cost, write down the conversion in one sentence, for example: “we are treating each dollar saved on construction as worth a dollar of margin, on the assumption that sale prices and quality are unaffected.” Writing it down is most of the work, because it is often the first time anyone has.
Then test the three conditions. If any is uncertain, give the person responsible a companion measure in the unit that matters at the top, however rough. The park manager keeps the cost and time targets, but also tracks a simple indicator of how the park affects the development’s sale prices or buyer feedback. A rough measure in the right unit is often more useful than a precise one in the wrong unit.
Finally, name an owner for the conversion: the person responsible for checking that it still holds as circumstances change. In many businesses this is the program or project owner, who often does not realise it is their job.
The horizon problem
The second distortion is about time. Research published in the Harvard Business Review in 2013 evaluated chief executives on long-term company performance over their whole tenure, rather than on short-term results or reputation, precisely because short measurement windows can reward the wrong behaviour. The specific rankings from that work are now historical, but the lesson remains: how a business measures performance shapes what its leaders do.
Many important investments, such as building capability, entering a new market, developing a product, training people or improving culture, take years to show their full value. If people are judged mainly on this quarter’s margin, they will protect this quarter’s margin, sometimes by cutting the very investments that would create future value. Measures act like incentives even when pay is not linked to them.
Match the measure to the value horizon
The question is not short term versus long term. It is whether the measurement horizon matches the time it takes for value to appear. A turnaround may need tight short-term cash discipline. A new product may need years. A safety improvement may need immediate action even though its financial benefit is indirect. Different decisions deserve different clocks.
Patience needs evidence
Long-term investments are vulnerable to a particular failure: weak results can always be defended as “part of the long-term plan”. Patience without evidence becomes denial. The answer is not to demand immediate profit but to define what evidence should appear before the final return. A new service might be expected to show customer adoption, repeat use and falling cost to serve before it shows significant profit. If those early indicators persistently fail, it is time to rethink. Long-term thinking needs better accountability, not less, because the final proof arrives later.
Four layers of measurement
For significant initiatives, use four layers:
| Layer | Purpose | Example |
|---|---|---|
| Near-term health | Cash, risk, safety and operational stability | Cash flow, on-time delivery, incidents |
| Leading indicators | Evidence that the assumptions behind the plan are coming true | Customer adoption, repeat orders, cost to serve |
| Strategic position | Capability, customer and market strength | Skills depth, customer concentration, market share |
| Long-term value | Lasting financial and stakeholder outcomes | Profit, margin, customer retention |
Set review points and agree in advance what results would lead to speeding up, redesigning or stopping. Across all layers, ask one more question: what behaviour will this measure encourage?
Talk about assumptions, not just variances
Performance reviews often focus on variances: what was above or below target and why. A more useful conversation also asks whether the assumptions behind the targets still hold. Are customers still willing to pay what we assumed? Is the saving still free of side effects? Has something changed that makes the original plan less relevant? A variance tells you that something moved. Examining the assumptions tells you whether the measure still points in the right direction.
Measure the condition of the system
Short-term results can be improved by consuming the capability that produces future results: deferring maintenance, cutting training, running down stock buffers or neglecting customer relationships. These look efficient until a disruption reveals the damage. Include some measures of the condition of the business itself, such as equipment health, critical-skill dependence, customer concentration and supplier fragility, alongside financial results.
Measures in different teams can pull apart
Distortion also happens sideways. Sales may be measured on revenue or volume, production on cost per unit, purchasing on price per item and service on response time. Each measure is reasonable, yet together they can work against each other: sales wins small, complex jobs that production finds expensive; purchasing buys cheaper materials that increase rework; service responds quickly but without fixing root causes. Look at the full set of measures across teams and ask where they conflict. Shared measures, such as margin per job, on-time delivery or customer retention, help teams make decisions that serve the business rather than only their own area.
Review the scorecard itself
Measures tend to accumulate. Each was added for a reason, few are removed and some outlive the strategy they were designed for. At least once a year, review the full set: which measures inform a real decision, which encourage the behaviour you want, which conflict with each other and which belong to a strategy the business no longer follows. Retire measures that nobody acts on, and add measures for new priorities. A short, current scorecard is far more powerful than a long one that nobody trusts.
A worked example
This is an illustration. A specialist printing business sets a goal of growing gross margin from 32% to 36% over two years. The goal is cascaded to the production manager as “reduce cost per job by 8%” and to the sales team as “increase jobs quoted per week by 20%”.
A year later, cost per job is down 9% and quotes are up 25%, but gross margin has barely moved. Investigation shows that production savings came partly from cheaper paper stock, which led to more reprints and a few lost customers in the premium segment, and that sales had chased high volumes of small, low-margin jobs. Every target was met. The goal was not.
The owner writes down the conversions. For production: “each dollar of cost saving is treated as margin, assuming quality and customer retention are unaffected.” For sales: “more quotes lead to more margin, assuming the mix of jobs stays the same.” Both assumptions had failed.
The owner adds companion measures in the unit that matters: production also tracks reprint rates and margin on premium jobs, and sales also tracks average margin per job quoted and won. Leading indicators are added for the margin goal: share of revenue from premium customers and repeat order rates. A quarterly review checks the conversions, not just the targets. Over the following year, margin rises to about 35%, with cost per job roughly flat and fewer but more profitable jobs.
How this applies to a small Australian business
In small businesses, the cascade is often short, from the owner’s goals to staff targets, but the same distortions occur. Practical steps:
- Write your cascade in one column and mark the unit of each line.
- Find where money becomes time or cost, and write down the conversion.
- Test the three conditions: fixed revenue, nothing degraded, savings not consumed elsewhere.
- Add a companion measure in the unit that matters.
- Match measurement horizons to how long value takes to appear.
- Define leading indicators and stop criteria for long-term investments.
- Measure the condition of the business, not just its output.
The articles on choosing your decision measures before the design and when the project succeeds and the strategy fails cover related ideas.
Signals worth watching
- Lower-level targets met while the overall goal is missed.
- Savings nobody can connect to a financial result.
- Early completion celebrated without asking whether anything could use the time.
- Finance and operations disagreeing about whether something succeeded.
- Long-term initiatives continuing without leading evidence.
- Investments in capability repeatedly cut to protect short-term results.
Common mistakes
- Cascading goals without noticing the change of unit.
- Assuming cost and time savings equal margin.
- Treating the problem as communication rather than measurement.
- Measuring long-term investments only on short-term results.
- Defending weak results indefinitely as long-term.
- Ignoring the condition of the business behind the numbers.
Frequently asked questions
Should we stop setting cost and time targets? No. They are useful and necessary. Add a companion measure in the unit that matters, and check the assumptions that connect them.
How rough can a companion measure be? Quite rough. An estimate of margin per job, a simple customer satisfaction check or a quarterly review of price achieved is enough to show whether the conversion still holds.
How do we stop long-term projects becoming excuses? Agree in advance what early evidence should appear and by when. If it does not, review the project seriously.
How many measures should each person have? Few enough that they can all be acted on, usually three to five, including at least one in the unit the business ultimately cares about. Long lists of measures dilute attention and invite people to focus on whichever is easiest to improve.
Who should own the conversions? The person responsible for the overall result of the program or area, such as a general manager or the owner in a small business.
Questions to ask
- On our most important initiative, at which level does the measure stop being financial, and who decided the conversion?
- Can anyone state in one sentence how a dollar of cost saving relates to a dollar of margin?
- What would have to be true for our delivery targets to be worth achieving?
- Which investments take longer to pay off than our review cycles?
- What early evidence should appear before their final return?
- What behaviour are our current measures encouraging?
Bringing it together
A cascade is a translation, and every translation loses something. Write down where goals change from money to time, test the conditions behind the conversion, add a companion measure in the unit that matters and name someone to own it. Match measurement horizons to how long value takes to appear, require leading evidence for patient investments and keep an eye on the condition of the business behind the numbers. What a business measures does not just describe performance. It helps produce it.
Source: KEVOS notes, drawing on a 2013 Harvard Business Review study evaluating chief executives over their full tenure and on teaching material on cascading strategic goals. Examples and figures in this article are illustrations.
