Goal-Setting Problems
SMART versus DUMB Goals
How motivating is it when an executive is speaking in front of an organization and says something like, “We need to leverage cross-functional core competencies”? What does this mean? Who knows? A guideline for an effective change manager is to speak in such a way that when the speech is over, the members in the audience can then exit the room knowing exactly what actions to take that could contribute to the top-level strategy of the company. This is the rationale behind SMART goals. SMART refers to Specific, Measurable, Attainable, Relevant, and Time-Bound. An example of a smart goal for a change initiative is:
We will increase sales of product “A” (specific) by 5% (measurable) using our 2 new salespeople (attainable) to increase revenues (relevant) during the next fiscal year (time-bound).
In contrast to SMART goals, DUMB goals are Dubious, Unclear, Misguided, and Belated. Stated differently, such goals are questionable, they are “fuzzy,” they are based on faulty assumptions, and they are presented too late to be useful. DUMB goals abound in the business world today, and the acronym of goal failure may be explored one letter at a time, as follows:
“D” Is for Dubious
A dubious goal is one that is proposed that is out of character for a company, beyond the capabilities of the company, or otherwise questionable for several reasons. A typical dubious goal in the context of change management is announcing that the company is going to offer a new service for which the company has no experience. Further, the company announcing it has never offered services previously and fails to understand the implications of offering a service to other parts of the business. While it is natural for manufacturing and product-based companies to seek to improve margins by offering services, such a strategy is not without dangers. For example, consider a manufacturer who manufactures, sells, and installs wireless telecommunications equipment. It is observed by senior management that customers installing the equipment also install satellite communications equipment to aid in offering nationwide services. For senior managers, this appears to be a service for which a competitor is getting a “piece of the pie” that could otherwise go to them. A partnership was established with a satellite manufacturing and service company and the company got into the business of offering satellite services and installing them at the time of installation of the system sale. The opportunity offered not only more revenue, but recurring revenue. What could go wrong? The aspect of offering such a service that made it a dubious prospect was the fact that when a satellite service was disrupted in any way, the entire communications system, whether regional or national, would go offline. This situation would impact hundreds of thousands of customers who relied on the service. Given that the manufacturing company was not experienced at offering a real-time service that must never “go down,” the system did go down and it did so many times. What was the impact to the business? Affected customers demanded compensation, or withheld purchases or payment on previous equipment purchases. The dubious service offering was eventually scrapped as it took more time and effort than warranted, and proved very costly due to the ongoing mistakes.
Examples of the dubious goal existing outside of telecommunications. A company that manufactures heavy equipment seeks to improve its overall profitability by offering repair and equipment refurbishing services. Customers who bought new equipment could now also buy equipment refurbished from customer trade-ins. Also, customers purchasing new and refurbished equipment could send in equipment for repair, rent equipment, or purchase parts. These services offer the potential for increasing the interaction of the customer with the manufacturer throughout the lifecycle of the product. As well, service revenue could supplement revenue from equipment sales and, in addition, provide additional revenues when new equipment sales slowed. The concept of offering such services paints a beautiful picture, albeit one that is dubious. Reasons for the questionable nature of the goal could be observed shortly after the new service was launched. Clients who sent in equipment for repair or refurbish could claim that they were not satisfied with the service, dispute the bill, and withhold orders for new equipment while the dispute continued. Such leverage by clients often led to a positive outcome for the client, and a negative one for the manufacturer. To make things worse, the clients who were offered these services began to see the manufacturer as “moving in on my territory.” After all, clients of the heavy equipment manufacturer also repaired, refurbished, and rented equipment, in addition to selling parts. The backlash against the service grew, and the questionable plan to increase revenues using this service was eventually scrapped.
“U” Is for Unclear
“Tomorrow we will start knowledge management in this company.” Who upon hearing this directive from a senior executive would be prepared to act? How would change unfold from such direction? The answer is, “it depends.” The term “knowledge management” means different things to different people. Part of the reason for this is that knowledge management is a kind of management “buzzword” that is often used loosely in senior executive conversations and speeches. It is used loosely because knowledge management is not a “thing,” rather, it is many things, such as systems, processes, policies, and implementation steps. The general idea behind a concept such as knowledge management is that the knowledge that resides in the mind of employees could be extracted, documented, stored, retrieved, and institutionalized. Knowledge management is therefore an emergent phenomenon that unfolds after many different actions are taken over a period of time. There is the old saying, “He who knows, does not say. He who says, does not know.” Given that knowledge management is an example of an emergent construct, an executive who speaks of it in a simple manner is very likely not one who understands the implications of the directive. At minimum, the directive to implement an emergent construct is an example of an unclear goal.
The term “portfolio management” is another example of an unclear directive. An executive concerned about the profitability of product lines and the cost of product development may issue a directive to implement portfolio management as the basic policy underlying a proposed change in direction. The trouble with such a directive is that the term is not clear. Portfolio management can refer to the management of a bundle of financial holdings, but in this case, it is referring to product development and project management decision-making. How then would the concept of portfolio management be implemented? It depends on how it is understood by those tasked with implementing it. In practice, the term, like the term “knowledge management,” is used loosely and generally refers to various policies, procedures, and milestones for deciding what product development projects to fund, which to cancel, which to emphasize more, and which to deemphasize. In general, the directive to act upon a construct that refers to a significant number of underlying activities is an unclear directive or goal and should be avoided.
Unclear goals in change management also include those that create organizational structures that lack enough detail for their operation. An example of this includes a product design group that came to the realization that the procurement of parts, labor, and software applications included both business and technical management concerns. On the one hand, achieving the lowest cost possible is a typical business goal of a purchasing group. Realizing this goal often requires that the final vendor selection be delayed for as long as possible so that many players compete against each other so that the price is reduced. On the other hand, engineering is motivated to select the vendor as soon as possible so that design work may begin immediately. Senior executives seeing the need to closely manage such process seek to change the purchasing process and does so by establishing two procurement groups, one in engineering and one in business operations to ensure that both sets of issues are addressed. The new organization is announced, and the problems begin. Why? Although a new organization was established, the directive to establish the new organization was unclear due to the lack of detail regarding how it should operate. For example, the scope of responsibility and authority was not clearly defined, and neither were the boundaries of each organization. Further, it was unclear which purchasing group, if any, had the final authority to make the final vendor selection and announce it to the vendor. The lack of clarity regarding how the new organization was supposed to work together led to intense conflict. The conflict became even more significant after the ongoing anxiety and problems were raised to the senior executive level who added even less clarity by stating “you guys just work it out.”
“M” Is for Misguided
The CEO of a company steps up to the microphone on stage and kicks off the annual all-hands meeting that the goal of the company is to achieve a 10 percent share of the global market. The achievement of such a goal would be stunning, particularly given that the company currently has far less than one-tenth of 1 percent of global market share. Presenting a stretch goal as a means for revitalizing the company is a reasonable idea. However, a directive that “stretches” too far, too fast could be said to be misguided. There is the old saying, “bend, but not break.” A misguided stretch goal may in fact “break.”
Misguided goals do not have to be big stretch goals to be misguided. In fact, apparently small goals may carry the company off-course for many reasons. An example of an apparently small goal is a CEO who states that “… the global market for this product is one billion units annually ... and if we achieve only 1% of this market, we will all be rich!” The one percent figure would appear to be a relatively small and achievable goal. However, it is not for a company who currently holds less than 1/10,000 of one percent of the global market. The apparently small goal is misguided for two reasons:
- The apparently small goal is actually a very large goal that is likely unattainable.
- Large markets attract significant competition whereby profitability often gets competed away.
Another old saying is that “niches have riches.” Unlike a small underserved market, a very large market for which one company is attracted may be appealing to many players. The resulting competition makes capturing a piece of the pie quite difficult, particularly for small existing players who are not well established in the marketplace. In addition, the established players with existing large market share will very likely implement strong barriers to entry for newcomers by making it easy for existing customers to keep buying from legacy suppliers thereby keeping switching costs high.
Finally, it is also misguided to seek to change the company by promoting a move into a new market with a new product. The least risky ventures are those involving existing products and existing markets. The difficulty and risk associated with entering new markets with new products are easily underestimated. There is the old saying that “the less the company knows about something … the more attractive it appears to be.” One case in point may involve a company who manufactures engines and hydraulics making the decision to enter the heavy equipment business within the construction industry. After all, such an industry uses the components currently manufactured by the existing company. How difficult could it be to take the components currently being developed and manufactured? All it would take is to encase existing components with steel, bucket loading devices, and wheels. What is wrong with this picture? Embarking on change by making the decision to enter this new market without previous experience is misguided for many reasons. The first issue to be missed is the fact that the use of heavy equipment within the construction industry is often dangerous—safety concerns, testing, and approvals about. An accident with such equipment could easily lead to lawsuits. The second concern is the barrier to entry of newcomers. Sales of construction equipment often are made to rental companies who rent machines to construction firms. After 3 years of renting the equipment to customers, the rental companies trade in the equipment for substantial discounts on new equipment. It is often difficult and costly for newcomers to break that virtuous revenue cycle of purchase, rent, and trade-in enjoyed by customers of legacy suppliers. Further, rental companies have long-standing relationships with manufacturers. The industry does not turn on technological expertise, but rather on relationships and trust. Breaking the relationship bonds between clients and legacy suppliers is a long and winding, and expensive, road. Assuming that the industry is “ripe for the picking” because the technology is not challenging is therefore seriously misguided.
“B” Is for Belated
There is the old saying that “not making a decision … is in fact a decision.” This saying may be forgotten at times by executives who are not able to make a move until all aspects of a plan are thoroughly analyzed so that “all pieces of the puzzle” appear to fit together. The endless delay in decision-making is sometimes referred to as “analysis paralysis” and is therefore a cause of delayed or belated decision-making. The problem with belated decisions is twofold. First, life does not come to a halt while the organization waits for an executive decision. The internal life of the organization as well as the events within the macroenvironment continue unabated. Second, a plan is only a plan; therefore, no matter how complete or sophisticated it may be, when the plan meets reality it will rarely go as planned. This was recognized by one of the great military planners of World War I Helmuth von Moltke who is known to have said, “No battle plan ever survives contact with the enemy.” The lesson here is that a decision made too late may not only no longer be valid, but the plan associated with the decision might not work as expected anyway. History provides several categories of examples of companies who did seek to change, but the attempt came too late to make a difference. Examples include major retailers who responded too late to the rise of e-commerce, film manufacturers who waited too late to “go digital,” or video rental stores who waited too late to shift to streaming services. Today’s good idea for change may be tomorrow’s failed attempt at becoming something better.
Don’t Be DUMB
Prior to issuing a change directive, a new policy, or just a new idea, it is highly recommended that executives or change managers test the idea first to learn how DUMB. the policy is. If the policy is a stretch goal that few employees will accept, if it is so unclear that it cannot be implemented, or if it is “wrongheaded” or just too late, chances are that it is a DUMB move that is likely to lead to the failure of the proposed change (Figure 6.1).
Figure 6.1 SMART versus DUMB
Pointers for how to fail:
- Advocate for questionable, out of context change initiatives.
- Promote the adoption of practices loosely defined by buzzwords.
- Pursue markets because they are large.
- Implement a new organizational design without explaining how it is supposed to work.
- Enter a new market with a new product.
- Analyze a change decision until the opportunity has passed.