Item: Not too long ago, GM executives wore buttons bearing the numeral "29" as a constant reminder of the company's lofty goal of 29% US market share. Today, a little over six years later, GM's US market share is below 20% and sinking.
Item: As recently as the fall of 2006, a press release from the US Department of Housing and Urban Development trumpeted the success of Fannie Mae and Freddie Mac in exceeding HUD's "affordable housing" goals for the previous year, including goals for "special affordable families."
What do the two items have in common, beyond eliciting today a similar sense of irony and sadness? In both instances, goal-setting was allowed to get out of hand, according to one of the authors of an article in the current issue of Academy of Management Perspectives.
"Although both the auto and housing crises are complicated, overly narrow goal-setting has been a serious problem in both," comments Maurice E. Schweitzer of the Wharton School, who collaborated on the article with Lisa D. Ordonez of the University of Arizona, Adam D. Galinsky of Northwestern University, and Max H. Bazerman of Harvard Business School. "In GM's case the relentless pursuit of market share came at the expense of profitability," Schweitzer continues. "In the case of the collapse of Freddie and Fannie, the aggressive pursuit of highly specific performance goals in home-buying came at the expense of fiscal discipline."
Moreover, as the article makes clear, faulty goal-setting was a major factor in the last recession also, most obviously in the fate of Enron, which experienced both rapid financial success then spectacular failure by setting ambitious goals based on sales volume instead of profit. In the authors' words, "Even during Enron's final days, Enron executives were rewarded with large bonuses for meeting specific revenue goals...By focusing on revenue rather than profit, Enron executives drove the company into the ground."
In the search for villains that seems an inevitable part of recessions, here is one place where the guilty can argue that they were acting in accordance with best management practice. As the professors put it, "For decades, goal-setting has been promoted as a panacea for improving employee motivation and performance in organizations...In this article, however, we contend that goal-setting has been overprescribed. In particular, we argue that goal-setting has powerful and predictable side effects. Rather than being offered as an 'over-the-counter' salve for boosting performance, goal-settling should be prescribed selectively, presented with a warning label, and closely monitored."
They even suggest a warning label:
Goals may cause systematic problems in organizations due to narrowed focus, increased risk taking, unethical behavior, inhibited learning, decreased cooperation, and decreased intrinsic motivation.
Use care when applying goals in your organization
The authors suggest 10 questions to ask before setting goals, along with possible remediations:
1) Are the goals too specific? They should be comprehensive and include all of the critical components for firm success.
2) Are the goals too challenging? Provide skills and training, and avoid harsh punishment for failure.
3) Who sets the goals? The process should be transparent and involve more than one person or unit.
4) Is the time horizon appropriate? Short-term efforts to reach the goal should not harm investment in long-term outcomes.
5) How might goals influence risk-raking? Be sure to articulate acceptable levels of risk.
6) How might goals motivate unethical behavior? Multiple safeguards may be necessary.
7) Can goals be tailored for individual abilities and circumstances while preserving fairness? Strive to set goals that use common standards but also account for individual variation.
8) How will goals influence organizational culture? Consider setting team-based rather than individual goals.
9) Are individuals intrinsically motivated? Avoid setting goals when intrinsic motivation is high.
10) What type of goal is more appropriate, performance or learning? In complex, changing environments, learning goals may be more effective than performance goals.
In view of the many ways goal-setting can go wrong, why have "hundreds of experiments" failed to sound the alarm? Most research, the authors offer, "has been conducted in simple, well-specified domains with well-specified performance measures... While [we] are enthusiastic supporters of lab research, we argue that goals cause the most harm in complex, natural settings when outcomes are interdependent, monitoring is difficult, and cheating is possible."
The article, entitled "Goals Gone Wild: The Systematic Side Effects of Overprescribing Goal-Setting," is in the February-April issue of Academy of Management Perspectives. AMP is published quarterly by the academy, which, with about 18,000 members in 103 countries, is the largest organization in the world devoted to management research and teaching. The academy's other publications are the Academy of Management Review, Academy of Management Journal, and Academy of Management Learning and Education
- Media Coverage:
- BusinessWeek.com. Beware the harmful effects of goal-setting. (Saturday, April 04, 2009).
- Economist.com. Shooting at Goals: Why Setting Performance Targets Can Backfire. (Tuesday, March 10, 2009).
- LesAffaires.com. Des objectifs qui ratent leur cible. (Thursday, April 23, 2009).
- Management Today. Why excessive goal-setting is bad for business. (Monday, June 01, 2009).
- SHRM Online. Dysfunctional Goal-Setting: All Too Common?. (Wednesday, March 18, 2009).
- The Boston Globe. Ready. Aim...Fail. (Sunday, March 15, 2009).
- The Globe & Mail. The Goal: To Set Goals that Really Can Be Met. (Friday, March 20, 2009).
- The Observer. This isn't an abstract problem. Targets can kill. (Sunday, March 22, 2009).
- Third Sector (UK). News from the office -- a weekly briefing. (Tuesday, March 17, 2009).