One need look no further than the current financial crisis to see what disastrous effects can occur when employees are too focused on meeting “stretch” goals—and the outsized compensation that often comes with it. Whether it was underwriting gobs of subprime loans, trading piles of securitized mortgages, or “insuring” ever more toxic debt, managers the world over were paid to try and meet extraordinary results.
While the practice of setting difficult-to-reach goals is so common few question it, it is significant management problem, according to researchers writing in the February-April issue of the Academy of Management Perspectives and described in this Knowledge@Wharton issue. Letting goals run wild, write Maurice Schweitzer of the Wharton School, Lisa Ordonez of the University of Arizona, Adam Galinsky of Northwestern University and Max Bazerman of Harvard Business School, has been an issue at any number of troubled firms, from General Motors to Enron to Fannie Mae and Freddie Mac.
For example, the researchers note, it wasn’t too long ago that GM executives wore buttons with the number “29” as a constant reminder of the company’s lofty goal of reaching U.S. market share of that level. Six years later, the researchers comment, GM’s U.S. market share is below 20%, and the company faces bankruptcy at least in part due to too much emphasis on that goal. “In GM’s case the relentless pursuit of market share came at the expense of profitability,” Schweitzer noted.
The professors contend that goal setting “has been promoted as a panacea for improving employee motivation and performance” for decades but argue that it has now become “overprescribed.” Too much emphasis on goal-setting, they argue, could cause “systematic problems”—some might say they already have—thanks to a narrower focus, more risk-taking, unethical behavior, and decreased cooperation. Lowered “intrinsic” motivation is another factor—the authors believe not enough credit is given to people’s inherent desire to do a good job. We are motivated by more than money, after all.
So should executives pass up on goal-setting altogether? No, but before setting any, the researchers suggest managers ask themselves the following 10 questions (after the jump…)
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.
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