Thursday, 5 February 2015

Stretch or Stress: Setting hard targets in an organisation

With 2015 now well and truly with us, depending on when your financial year starts, you are either just settling into the new one or you are busy closing off this financial year and thinking about the next one. In either case, your personal and organisational objectives will be probably being foremost in your thoughts.

It is therefore not really surprising that a company I work with recently asked: “What is the best way to motivate our people, reward them for high performance and ensure they remain focussed on the objectives of the company? Should we use stretch targets?”

So what is a stretch target?

It is a target that may seem impossible within the existing capabilities of an organisation (i.e., current practices, skills, and knowledge) and therefore may have a very low chance of success without a significant change in one are more of those capabilities. (Sitkin et al 2011, p. 547)

Steve Kerr [1], former Chief Learning Officer at General Electric and Goldman Sachs, said of stretch goals, “If done right, a stretch target . . . gets your people to perform in ways they never imagined possible. It’s a goal that, by definition, you don’t know how to reach. Stretch targets are an artificial stimulant for finding ways to work more efficiently. They force you to think out of the box.”

However the task of ensuring that stretch goals are actually attainable, if difficult, is by its very nature something that creates the very real danger of setting a goal that is actually impossible and therefore something that demotivates rather than inspires.

In 2009 Harvard Business School published, “Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting” (Ordóñez et al 2009) [2] In this paper they argue that if goals are too challenging, they can foster bad behaviour and stress.

“Proponents of goal setting claim that a positive linear relationship exists between the difficulty of a goal and employee performance. Specifically, they argue that goals should be set at the most challenging level possible to inspire effort, commitment, and performance—but not so challenging that employees see no point in trying. This logic makes intuitive sense, yet stretch goals also cause serious side-effects: shifting risk attitudes, promoting unethical behaviour, and triggering the psychological costs of goal failure.” (Ordóñez, et al 2009, p. 9)

In 2011 another paper this time from MIT Sloan School of Management entitled, “Stretch Goals and the Distribution of Performance” (Sterman et al 2011) [3] explained how performance in a group could be skewed by stretch goals.

“Ambitious, stretch goals are intended to improve performance by disrupting complacency, promoting new ways of thinking, stimulating search and innovation, energizing employees, and guiding effort and persistence…by definition, stretch goals are difficult to achieve and, therefore, lead to substantial and persistent attainment discrepancies, which can have dysfunctional effects….performance below aspirations increases the probability of risky organizational changes and risk taking more generally.” (Sterman et al 2011, p. 2)

Therefore stretch objectives are not for everyone or every organisation.

A broader approach to goal setting can be to use 'regular' goals coupled with stretch goals so that those not able to ‘see the new innovative answer’ to the stretch goals are still able to achieve a reasonable reward (e.g. bonus level) through their satisfactory achievement of regular goals. Innovation and creative thinking is then rewarded via the stretch goal while high performance and fiscal efficiency is recognised through regular business targets and goals. On the downside, those employees using a creative and innovative approach will likely see greater reward levels than others who perhaps work just as hard but are not able to think up new and innovative solutions to problems.

In a business where creativity and innovation are core, this type of goal system will drive what will be seen as 'good corporate behaviour'. However in organizations where it has not been explicitly stated that creativity and innovation are core to the organization this policy can create dissatisfaction and can de-motivate people who believe they are working hard but see their reward level reduced. We should also be aware that sometimes an organisation may publicly trumpet their embracing of creativity and innovation but then not create the right environment.

The Academy of Management Review in 2011 published a paper, “The paradox of stretch goals: Organisations in pursuit of the seemingly impossible.” (Sitkin et al 2011) [4]

“Stretch goals motivate high performance by mandating creativity and assumption-breaking thinking”. (Sitkin et al 2011, p. 545)


Interestingly, in this paper the chance of success is specified as low: “We define a stretch goal as an organizational goal with an objective probability of attainment that may be unknown but is seemingly impossible given current capabilities (i.e., current practices, skills, and knowledge). Because we define stretch goals in terms of an unknown yet seemingly impossible (i.e., 0 per-cent) probability of attainment, we depart markedly from the focus in organizational behaviour research on challenging goals, which have a nonzero (typically, 10 percent) probability of attainment.” (Sitkin et al 2011, p. 547)

It is certainly my experience that, if well thought-through and carefully set, stretch goals and targets can drag a business out of complacency and non-innovative thinking.  However if those who have these targets imposed upon them are not capable of creative and 'out-of-the-box' thinking, the result can be stress for the individual and a lowering of performance in the business. In the worst case scenario individuals may be driven to taking unacceptable risks and unethical behaviours, as in the flawed development of the Ford Pinto in 1970. (Ordóñez, et al 2009, p. 4)

Back in 2003 the Fuqua School of Business at Duke University published a paper, “Motivating Performance with Challenging Goals” (See et al 2003) [5]. In this they clearly stated how challenging goals may have different effects on those with intrinsically different abilities.

“Goals set at high levels of difficulty may stretch the performance of individuals with higher ability (potentially bolstering average performance) but also demotivate a significant majority of individuals”. “Because goals serve as reference points, goal setting fundamentally changes the psychological value that people attach to various levels of performance, and this in turn affects motivation.” (See et al 2003, p. 6)

It is therefore essential that the range of ability levels of individuals in an organisation be taken into account when goals are set.
“Paradoxically, low performers who are extremely committed to a high goal may actually perform worse than they would have performed if they had tried for a lower goal.”  (See et al 2003, p. 26)



Stretch targets and goals must be carefully managed and are certainly not for all. Perhaps they should come with a health warning, as advocated in the Harvard Business School paper.



                               Figure 1. “Goals Gone Wild”, Page 17 (2009)





References:

People

1. Dr. Steve Kerr is Chancellor University’s Provost. He was a managing director and chief learning officer at Goldman Sachs from 2001 to 2006.

Papers

2. Ordóñez, L, et al 2009, Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting, Harvard Business School, working paper 09-083

3. Sterman, J, et al 2011, Stretch Goals and the Distribution of Performance, Sloan School of Management, MIT

4. Sitkin, S, et al 2011, THE PARADOX OF STRETCH GOALS: ORGANIZATIONS IN PURSUIT OF THE SEEMINGLY IMPOSSIBLE, Academy of Management Review, Vol. 36, No. 3, 544–566

5. See, K, et al 2003, Motivating Performance with Challenging Goals, Fuqua School of Business, Duke University


List of illustrations:


Figure 1. Goals Gone Wild 2009, Page 17  [Image] At: http://www.hbs.edu/faculty/Publication%20Files/09-083.pdf (Accessed on 30.01.15)






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