In my recent column entitled "Back to basics," I emphasized the need for a carefully constructed business plan if a producer wants to increase their chances of enduring success. Indeed, a multitude of studies have demonstrated time and again that specific, challenging goals dramatically improve motivation and performance in all kinds of businesses. However, as a quartet of business school professors point out in their article, "Goals Gone Wild," being goal-oriented also carries certain risks -- and may even be detrimental to a business. Accordingly, producers should set goals for themselves, their businesses and their employees, but they should also be careful to keep the following principles in mind:
1. Goals need to be the right goals. There is no question that goals focus attention. Every manager knows that it makes sense to reward what you want. But in this context, getting what you want may not be what you really want. In the late 1990s, Enron's incentive policy rewarded employees for revenue generation. That focus, coupled the employees' ability to set prices, helped to drive the company into the ground because profitability wasn't factored into the equation. Employees were meeting their goals, but they were the wrong goals. Every goal you set needs to be the right goal.
2. Goals shouldn't be too narrow. In the late 1960s, Ford was rapidly losing market share to foreign competitors that were selling smaller, fuel-efficient cars. Ford CEO Lee Iacocca announced the specific, challenging goal of producing a new car that would be "under 2,000 pounds and under $2,000," and would be available for purchase in 1970. That goal, coupled with the tight deadline, meant that multiple levels of management signed off on unperformed safety checks to expedite the development of the car -- the Pinto. One omitted safety check concerned the fuel tank, an omission that proved disastrous because of the car's propensity for exploding in a rear-end collision. Goals that are too narrow can result in the "bigger picture" being ignored, and that's not a good thing.
3. Goals need the right time horizon. Similarly, goals that are focused too much in the short-term can be pursued to the detriment of longer term business needs. On the other hand, goals that extend too far into the future may not be sufficient to focus attention and behavior today.
4. Meeting a goal isn't really the desired destination. Some people see goals as a ceiling rather than a floor, rendering them counterproductive. A producer who hits a monthly sales goal but then takes it easy and plays golf the rest of the month isn't maximizing his or her potential.
5. Goals should be challenging, but not too challenging. If people think their stated goals are unreachable, they tend to give up. Moreover, goals that are set too high can lead to unethical behavior by people driven to meet the goal. Neither of these results is productive for a producer or a business.
6. Goals can alter risk-avoidance efforts. People driven by challenging goals may undertake imprudent risks in order to meet them, especially when a significant amount of money is involved. The collapse of Continental Illinois Bank provides an example with striking parallels to the current financial crisis. In 1976, Continental's chairman announced that within five years, the bank's lending would match that of any other bank. To reach this goal, the bank shifted its strategy toward a much more aggressive pursuit of borrowers and loans, greatly altering its risk profile. Following massive loan defaults precipitated by these changes, the U.S. government ultimately had to bail out the bank. Don't let a desire to reach certain goals lead to inappropriate risk-taking.
7. Keep your goals team-oriented. An individual who is too narrowly focused on a performance goal will be less likely to try new or alternative methods or to engage coworkers to perform a task or serve a client. Moreover, every producer wants his or her entire staff to work together to provide the best possible service to clients and to support the producer in whatever way is needed. Individual goals, especially with financial incentives, may interfere with the team approach you should seek to foster, unless team and overall business goals are also included.
Even goal-setting has an ultimate goal -- the health and growth of your business enterprise. Make sure that each and every goal within your business -- personal goals, business goals and employee goals -- is designed to achieve that result and actually works toward that result. Specific and challenging goals are a good thing, even a necessary thing in order to maximize performance and production. But remember, goals gone wild can be dangerous and counterproductive. Make sure you use them wisely.
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