New Research on When to Use Stretch Goals to Improve the Bottom Line!

When should a company use ambitious, stretch goals (sometimes called “Big, Hairy, Audacious Goals” or “BHAGs”), and when is it better to improve incrementally?  New research on goal setting is providing important guidance that can significantly improve a company’s bottom line, increase innovation, and perhaps save its very existence.

Let’s be clear, goal setting improves performance much more than simply telling employees to “do their best.” The higher the goal, the higher the achievement, unless the work is physically impossible to do.[i]

Goal setting practices should be vetted with higher levels of management, experts, and the employees themselves to be sure they lead to goals that are achievable, aligned with top management strategies, and do not create unexpected, and dire consequences.[ii]

Research dating back as far as 25 years has established that overly aggressive goals can create a narrow focus, which leads to undesired consequences,[iii] such as achieving high revenue at the sake of desirable profit levels.

Other negative effects of overly aggressive goals include:

  • Discouraging effort toward goal achievement if the chances of success are too low
  • Poor morale
  • Careless risk taking
  • Unethical behavior that may lead to violations of company policies, laws and regulations
  • Employee turnover

Adding to this caution is new research from neuroscience showing that, when a manager assigns a team a difficult but achievable job, the moderate stress of the task releases neurochemicals, including oxytocin and adrenocorticotropin. These neurochemicals intensify peoples’ focus and strengthen social connections. When team members need to work together to reach a goal, brain activity coordinates their behaviors efficiently, but this works only if challenges are attainable and have a concrete end point. Vague or impossible goals cause people to give up before they even start.[iv]

When should a company use ambitious stretch goals?  Long standing research suggests that organizations should use “big idea” learning objectives rather than performance goals in complex and uncertain situations. Innovation, for example, involves great uncertainty about outcomes. Innovators thrive in learning environments that put an emphasis on experimentation and failing “fast, furiously and often.”[v]  For innovators, the question becomes, “What is tomorrow’s experiment?” Employees in innovative environments should have a compelling vision to work toward learning goals, rather than well-defined incremental goals.

Innovative companies benefit even more when top management sets the strategic direction for “big idea” innovations. Research shows that companies are more successful in achieving their big idea innovations when they make incremental investments in their innovation capability and culture, organizational learning, employee training, and knowledge management systems. They also need to develop strong external ecosystems.[vi]

New research by Sim Sitkin, C. Chet Miller, and Kelly E. See published in The Harvard Business Review provides guidance for when companies should use incremental goals or ambitious stretch goals.[vii] According to this research, only a small percentage of companies that adopt ambitious stretch goals succeed in meeting them. Companies that try stretch goals and fail are usually already in financial trouble and are desperate. In effect, they are betting the farm. The authors conclude that these companies are better off with incremental goals that help stabilize the company and build morale and confidence.

The authors speak to the stretch goal “conundrum.” In sharp contrast to struggling companies, companies with strong performance and abundant resources often avoid stretch goals because their success has made them risk-adverse. What these companies really need to do instead is double-down on their success, push themselves, and invest their resources in ambitious stretch goals.

Examples of companies that have doubled down on their successes include Southwest Airlines and DaVita.  Southwest Airlines achieved a ten-minute turnaround at airport gates in part by benchmarking NASCAR pit crew practices.

DaVita provides kidney care and manages and operates independent medical groups. 90% of its patients are in government programs that do not fully cover the cost of care. DaVita created a pioneer team that radically improved the efficiency and effectiveness of its many processes. When DaVita started, they had no idea how to do this. After four years, they achieved savings of $60 million. More importantly, they achieved significant improvements in patient hospitalization rates and employee satisfaction.[viii]

What successes have your company had with ambitious stretch goals? Join the conversation.

Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne. He consults on innovation, talent management, developing agile leaders and teams, and other strategic initiatives. Questions? Please e-mail Victor at victorassad6@gmail.com or visit www.victorhrconsultant.com. For innovation visit www.innovationone.io.

[i] Edwin A. Locke and Gary P. Latham, A Theory of Goal Setting and Task Performance, Prentice Hall College Division, January 1, 1990.

[ii] Ibid.

[iii] Lisa D. Ordonez, Maurice E. Schweitzer, Adam D. Galinsky, and Max. H, Bazerman. (2009). “Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting.”  Harvard Business School. Working Paper 09-083.  Retrieved from http://www.hbs.edu/faculty/Publications%20files/90-083.pdf.

[iv] Paul J. Zak (Jan-Feb., 2017) “The Neuroscience of Trust: Management Behaviors that Foster Employee Engagement,” The Harvard Business Review.

[v] Stephane Thompke, (2003) Experimentation Matters.  Cambridge, MA: Harvard Business Review Press.

[vi] Dr C. Brooke Dobni and Dr. W. Thomas Nelson, Jr. (2013) Innovation Nation? Innovation Health Inside the Fortune 1000. Available for free at InnovationOne.US; and Dr. C. Brooke Dobni, (2011), “The relationship between innovation orientation and organisational performance,” The International Journal of Innovation and Learning, Vol 10, No.3 Pages, 226-240.

[vii] Sim B. Sitkin, C. Chet Miller, and Kelly E. See (Jan.-Feb. 2017) “The Stretch Goal Paradox: Audacious Targets Are Widely Misunderstood—and Widely Misused,” The Harvard Business Review.

[viii] Ibid.

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