Goals gone wild: pitfalls in target setting
Every year or quarter sees managers turn their attention to an important and time-consuming task: setting goals for the next reporting period. The organization’s objective is to align around SMART (specific, measurable, attainable, realistic and timely) targets. Goal setting is important for many obvious reasons including setting financial expectations, allocating resources and motivating & measuring employee performance. Despite its significance, the process is often marred by negative analytical, political and organizational factors – many hidden – which lead to sub-optimal business results.
Below are the three biggest challenges I have witnessed in goal setting:
- Goals are vulnerable to unethical and risky practices like sandbagging and steamrolling. Sandbagging occurs when managers manipulate sales demand and product supply to guarantee the likelihood of hitting the target. Some industries like consumer goods, IT and professional services are rife with this type of behavior. Sandbagging can lead to unnecessary customer purchases, missed sales, and extreme discounting. In other cases, overly aggressive managers can resort to steamrolling (i.e. the over zealous pursuit of the goal), resulting in risky business decisions and internal conflict.
- Flawed goals are used. Goals that do not directly impact key business drivers like revenue, cash flow or profit can focus management efforts and resources in the wrong places. For example, customer satisfaction measures tell a firm how happy a customer is but not whether they will remain a customer or refer you to a prospect. Moreover, imperfect goals can shift management attention away from more important but difficult to measure goals like boosting productivity.
- The targets are seen as illegitimate by the organization. Illegitimate goals can arise from weak intellectual, historical or market rationales as well as management hubris. In fact, I have witnessed leaders choose a goal solely because it sounds impressive – also known as the BHAG or big hairy audacious goal. Furthermore, goals can be too specific or too broad rendering them ineffective as targets. These factors can easily retard employee motivation and performance as well as degrade organizational performance.
Given the challenges, should goals be used in every situation? No, according to new research recently published at Harvard Business School. The study suggests that goal setting in every situation can be counter productive, significantly hindering business and individual performance. The researchers contend that: “…the beneficial effects of goal setting has been overstated and that systematic harm caused by goal setting has been largely ignored.” Many of the problems identified in the study are noted above. The authors recommend 10 questions managers should ask themselves before engaging in the goal setting process.
Used wisely, goals can inspire employees and improve performance. Executives should consider whether the harmful effects of goal setting outweigh the potential benefits. If employed, goal setting must be used carefully and sparingly, not as a standard remedy to increase productivity and change behavior.
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