Tuesday, October 27, 2009

The Case Against Goals

For years, Western management has embraced the notion that setting goals and holding people accountable to achieving them is a vital component of effective leadership. According to a BusinessWeek article published last July, goal-setting is especially important during tough economic times like we're experiencing today.

In the midst of a decade in which the world of business is undergoing significant transformation, however, I wonder why leaders still hold tightly to the traditional goal-setting process, even though it continually causes more harm than good.

Among the problems caused by assigning goals to people and tying rewards to success (and punishments to failure), include the following:
  1. Goals set for individuals often conflict with one another. As a result, goals are not consistent throughout the organization. Even though many of these goals may be met, there is little, if any, improvement in performance of the organization;

  2. Holding people accountable or tying bonuses to the achievement of goals results in "safe" goal-setting and mediocre results. People will resist committing to stretch goals if it means they could lose their jobs or bonuses if they fail. People will accept aggressive goals enthusiastically if they know their job or bonus does not depend on meeting them;

  3. When money is involved, people will pretty much do whatever it takes to meet goals set for them. Whether or not their actions are in the best interests of the company is secondary;

  4. Tying the achievement of a goal to a bonus can turn the best of team players into dictators or Lone Rangers. If you really want to transform someone into a micromanager, set a goal with a strict deadline and tie the result to a fairly large bonus.
Real World Examples

A plant manager for a small valve manufacturer was held accountable for the shipping budget and given a 10% bonus each quarter the budget was met. The budget was met every quarter during the year, but was accompanied by increases in returns, customer complaints, overtime costs, and employee turnover - all resulting from the increased pressure to ship products at the end of each quarter.

A procurement manager was given the goal of reducing the annual costs of rental equipment (the equipment was mostly used to support new gas production facilities). The operations managers, on the other hand, were given uptime goals for the facilities they managed and felt that they needed to keep the rented equipment for long periods of time after startup to handle any problems that occurred early in the process. The conflicting goals resulted in a breakdown of the teamwork between procurement and production because the achievement of the goal by one could only come at the expense of the other. Further, neither could afford to care about the other's ability to meet their goal.

A product manager was given a goal to grow the business for a certain material in Asia and South America, and was given a bonus when certain targets were hit. He met all targets during the year by lowering the price of the material, when necessary, to get orders. One of the new customers for the material was an Asian company that purchased the material at a significant discount. The VP of Procurement for a large European customer (a sister division of the Asian company) found out about the lower price and pulled the business from the supplier. As a result, the product manager got his bonus but at the expense of the European business unit's performance and the company's gross margin.

Enough Already

There are countless other examples with similar results as the above. The key is to get the entire team to focus on improvement objectives that benefit the company as a whole. In line with this, objectives should be set system wide (facility, division, company) rather than at the individual level. Also, specific targets really do not accomplish more than mediocrity when the real goal is to improve as much as possible.

Remember that it is the performance of the company - rather than the individual - that matters. Attempting to manage the company by breaking it down into components rather than focusing on the whole creates a host of problems and oversimplifies the role of a leader.

As Douglas Adams once wrote, "If you try and take a cat apart to see how it works, the first thing you have on your hands is a non-working cat." The same philosophy applies to organizations.

4 comments:

Anonymous said...

Excellent topic of discussion.

I believe the problem is tied to an overall target of maximizing a single KPI vs optimizing the synergy of the organization. Its at the heart of the mortage meltdown/TARP nonsense.

An organization can attain this synergy. If you can tap into the idealism and passion of you employees you're organization will have a deep well of morale, innovative ideas and passion to execute like most have never seen or experienced.

Its key though that the organization, team trust, role fit, etc are all in line. I've seen teams with good potential negatively impacted by a couple bad hires or misfits.

I look forward to reading more of your posts.

Leanne Hoagland Smith said...

Goals are truly the symptom here and not the problem. The problem is a lack of alignment between strategy, structure, process (systems), rewards and people. Confusion between symptoms and problems is a quite common in performance improvement.

JB Bryant said...

Your are spot on about the downsides of many goal programs! I've experienced all of them - competing goals, ‘whatever it takes’ to mark them complete for a bonus, lying/fudging reports, internal competition and distrust, etc. It’s all real. And rigid planning can hamper innovation. You are absolutely correct.

Then you wrote: "... it is the performance of the company - rather than the individual - that matters. Attempting to manage the company by breaking it down into components rather than focusing on the whole creates a host of problems..."

Our bodies are made up of parts (individuals) that function as a system (organization) too. I don't want a doctor to radiate my whole body for cancer on my toe. I don't want him treating my ear pain with spleen surgery. Organizations, like bodies, have many parts. Each one needs work effectively for the system to be effective.

The problems you described stem from diseases that manifest themselves in identifying and accomplishing goals. The problem’s not goal setting, it is irresponsible goal setting.

"Goals set for individuals often conflict with one another. As a result, goals are not consistent throughout the organization." This comes from poor leadership – poor communication and a poor attitude toward employees.

"Holding people accountable or tying bonuses to the achievement of goals results in 'safe' goal-setting and mediocre results. People will resist committing to stretch goals if it means they could lose their jobs or bonuses if they fail. " This is again poor leadership, failing to engage employees in the mission, not touching each person’s internal motivators, breeding distrust.

"When money is involved, people will pretty much do whatever it takes to meet goals set for them. Whether or not their actions are in the best interests of the company is secondary. " Same as above. All of us do - and should - place our own interests ahead of the organization's. But you can lead an organization so that it supports the individual interests of its people.

"Tying the achievement of a goal to a bonus can turn the best of team players into dictators or Lone Rangers. If you really want to transform someone into a micromanager, set a goal with a strict deadline and tie the result to a fairly large bonus. " Sounds like each person’s an island, and a bonus is tied to goals that don't need teamwork. Shame. Bonuses can be tied to goals that require people to work together - if the system breaks down, none of the employees gain. Better yet, bonuses are unnecessary - they amount to a leader saying “I don’t trust you enough to pay your whole salary. Do your job poorly and I’ll pay part of it. You’ll get the rest if you do well.” Again, this is an issue of effective leadership.

Everything you described comes from poorly defined goals and poor leadership, not from goal setting itself. An effective leader is process-driven. Leadership is about process, not personality. It emanates from an intense results-focus. Real leaders are clear about where they are headed, how to get there, and how to know when they arrive. They motivate others to channel all activities toward the destination through a well-defined process that is clearly communicated and faithfully implemented.

Yes, flexibility and adaptability are necessary... in activities, not in goals (assuming goals were defined well). It's normally action steps that are too rigidly defined. Action is the home of most variables.

Processes usually require sharply defined structure. But as you somewhat said, overly rigid action plans squelch innovation. Innovation requires a degree of freedom from structure and an extra commitment to developing employees. But Innovation is still a means to an end, must be guided by goals, and must eventually feed back into the leader’s overall process.

curiouscat said...

Good post. As you state there are many studies showing the same thing. Here is a good webcast on the topic by Dan Pink http://management.curiouscatblog.net/2009/09/21/extrinsic-incentives-kill-creativity/