The Folly of Stretch Goals

Let's dispense, once and for all, with the managerial absurdity known as "stretch goals." While it's true that renowned psychologists Edwin Locke and Gary Latham described goal setting as "the most effective managerial tool available," it's also true that no less a thinker than W.E. Deming insisted that companies, "Eliminate management by objective." In my opinion, there can be no such debate over the lack of usefulness of stretch goals. Here's why.

Stretch goals can be terribly demotivating. When stretch goals seem overwhelming and unattainable, they sap employees' intrinsic motivation. The enormity of the problem causes people to freeze up, and the extrinsic motivator of money crowds out the intrinsic motivators of learning and growth.

In his classic article, "Small Wins," psychologist Karl Weick argued that people often become overwhelmed and discouraged when faced with massive and complex problems. He advocated recasting larger problems into smaller, tractable challenges that produce visible results, and maintained that the strategy of "small wins" can often generate more action and more complete solutions to major problems because it enables people to make slow, steady progress.

In their recent book, The Progress Principle, Teresa Amabile and Steven Kramer build on the same argument and clearly demonstrate how even the smallest, most mundane steps forward — for example, achieving clear consensus in a meeting — can motivate and inspire workers. Ever wonder why people will so often write down an item they've already completed on their to-do list? It's so that they can have the satisfaction of immediately crossing it off and experiencing the sense of progress.

Stretch goals have a dangerous tendency to foster unethical behavior. In the early 1990s, Sears gave a sales quota of $147 per hour to its auto repair staff. Faced with this target, the staff overcharged for work and performed unnecessary repairs. Sears' Chairman at the time, Ed Brennan, acknowledged that the stretch goal gave employees a powerful incentive to deceive customers.

In his latest book, Toyota Kata, Mike Rother makes an important distinction between a traditional metric-based outcome (or stretch goal) and a "target condition." A stretch goal is most often an outcome metric, and is influenced by so many variables that systematic, scientific improvement isn't possible. A "target condition," by contrast, describes how we want a process to function — and that description requires that you understand the current condition deeply enough to know where to begin your improvement efforts.

Take the aforementioned Sears example: $147 per hour of revenue per person is an outcome metric that's influenced by a huge number of factors. Perhaps the service staff spent an inordinate amount of time looking for parts, so it took them twice as long as necessary to do a repair. Or perhaps the process of getting customer information and relaying that to the mechanics took such a long time that mechanics couldn't work on enough cars during the day. Or perhaps Sears' reputation was only for simple repairs, and customers would only bring their cars in for low-priced oil changes. Who knows? Without sufficient knowledge of the current condition, there's no way to make intelligent progress towards the ultimate goal of being a profitable contributor towards Sears' growth.

However, setting a target condition with knowledge of the current state means solving a problem that will inevitably lead towards increased revenues. In Sears' case, that might mean changing the layout of the shop and the way parts are supplied so that mechanics could take care of customers faster.

Finally, stretch goals can also — tragically — lead to excessive risk taking. Enron rewarded its executives with large bonuses for meeting specific revenue goals, irrespective of the profitability or the riskiness of the moves. Although the final book hasn't been written on sub-prime mortgages and the ensuing banking crisis, we do know that stretch goals played a large role in putting the investment banks in serious jeopardy.

Focusing on small wins in combination with process improvement will drive your organization forward without the negative consequences of stretch goals. However, this approach requires a willingness to abandon the "ready, fire, aim" approach to problem solving. The heavy lifting has to be done at the outset — a deep understanding of the current condition is a prerequisite for true improvement. This approach also requires a subtle — but critical — shift in focus from improving outcome metrics to improving the process by which those outcomes are achieved.