The advantage of setting goals in organizations is that attention and effort are thereby focused on important objectives and tasks with the likely result of higher performance. However, there are a number of pitfalls in setting goals in organizations and these pitfalls need to be understood so they can be avoided as far as possible. One major potential problem is when an important functional area or department like sales employs goals to optimize sales and therefore sales executive compensation, but in the process undermine other aspects of corporate health like profitability. Such an outcome is known as “suboptimization” because only the subsystem (sales) is optimized for its narrow values, to the detriment of the overall organization.
The Case for Setting Goals in Organizations
Goal setting theory and research has found over the past 40 years strong links between setting specific and challenging but attainable goals and high performance. As long as people are committed to the goals set, receive objective, reliable feedback on their performance, and task complexity is not a problem, the setting of goals has been found to focus attention on what’s important and to motivate people to put forth greater efforts and persistence in pursuit of challenging goals.
Practitioners have developed an acronym to help guide the setting of goals: SMART, which represents these attributes of effective goals:
- Specific, because general or vague goals don’t work as well
- Measurable, so progress and achievement can be monitored
- Attainable, or performance will decrease
- Relevant, to important organization or personal needs
- Time-based, with a reasonable deadline and/or milestones to keep efforts going
Main Pitfalls of Setting Goals in Organizations
In 2009 there was a major attack in the management literature on what was perceived to be a neglect or understatement of potentially serious harmful effects of setting goals. A debate is ongoing between the main developers and advocates of goal-setting theory, E.A. Locke and G.P. Latham on the one hand and four academic critics on the other: L. Ordonez, M.E. Schweitzer, A.D. Galinsky, and M.H. Bazerman.
The references cited below are the three articles this debate has generated so far. Even advocates of goal-setting theory have recognized that there are limitations and pitfalls involved in goal setting, including:
- Goal conflict — for example a manager with a personal income maximizing goal that is in conflict with corporate goals
- Wrong framing — or the formulation of goals in such ways that they are perceived as threatening and there by hinder performance
- Riskier strategies — when goals are difficult to achieve some managers or employees may pursue high risk strategies to achieve them. If such risky strategies fail, the organization can suffer.
- Unethical behavior – Goals with large rewards or serious penalties can easily motivate dishonest behavior to achieve them.
The limitations above are serious enough, but the critics of goal-setting theory go further; they believe that the following areas merit much more research to measure potential problems in goal setting:
- Links to unethical behavior
- Links to excessive risk taking
- Links to judgment
- Goals being too narrow, causing important factors like safety to be neglected
- Too many goals, leading to a focus on those easiest to meet
- Inappropriate time horizons jeopardizing long-term health by focusing too much on quarterly results
- Goals may promote competition and inhibit cooperation in an organization
These critics used as examples of goals gone wild these particular anecdotes:
- Sears’ use of goals in the 1990’s regarding hourly automotive service revenue which caused epidemic and disastrous fraud by mechanics to meet their revenue goals. Would anyone who heard about this scandal in the 90’s ever be likely to take their cars to Sears for servicing in the future?
- GM’s 2002 goal of attaining 29% market share of the car and light truck market in the U.S. (up from 28.2%), which led to further offerings of no money down an interest-free loans. This narrow goal and strategy led to financial disaster for GM as it lost money on a per unit basis (Economist Magazine, 2009).
- The U.S. Department of Housing and Urban Development’s low income lending goals for Fannie Mae and Freddie Mac were dramatically expanded during 2001-2003 from 14% to 20% of mortgage purchases coming from low and very low income families in low income areas. Many risky and unprofitable mortgage loans made as a result of these goals had a role in the 2008 collapse of Fannie Mae and Freddy Mac.
- The advocates of goal-setting theory strongly attacked the use of anecdotal stories like those above and asserted that they had no role in scholarship. But who wants to ignore such organizational catastrophes, even if the role of goal setting has not been scientifically proven?
Ways to Avoid the Pitfalls of Goal Setting
Some of the ways to avoid the harmful effects of setting goals are:
- Use goals sparingly
- Test the use of goals in subunits
- Set clear expectations of ethical behavior
- Monitor the impact of goals on cooperation and morale as well as performance
- Make sure that goals are neither to narrow nor too challenging
- Set acceptable levels of risk taking
- In some (complex) circumstances, set learning goals rather than performance goals
- A strong ethical organizational culture can also help to avoid the worst pitfalls.
Set Goals Carefully to Prevent Serious Problems
Those responsible for setting goals need to be alert to the serious pitfalls outlined above. The design of goals that motivate high performance is not easy and many potential complications need to be taken into account. Many people are expert at gaming systems that are set up, especially when financial rewards are substantial. Leaders must set a clear tone that unethical behavior will not be tolerated, risk-taking will be monitored, and that good judgment is always important in setting and pursuing goals.