“. . . leaders assessing their companies estimated that employees were currently operating at only 70% of their potential instead of the 86% hoped for” (The Ken Blanchard Companies, 2011).
From the employee perspective: Hari looked at the goals posted on the noticeboard. “Oh, no,” he thought. “They have raised them again. We just managed to achieve the sales goals last month, and that was by selling the customers accessories that they really didn’t need. Some of the customers will not be able to pay, and those delinquent payments will be held against us. Don’t the managers know that we are in a recession?”
From the manager perspective: James saw Raj waiting in the line for a table at the restaurant. “How are things going with you?” he asked.
“Fine, except for the new goals from the head office,” he said. “I just cannot believe that headquarters sent such high goals for our region. They call this area the ‘rust belt’ for a reason, and now, with the recession, things are so bad that our representatives are making sales, knowing that the customers cannot pay for them. But it counts for our sales numbers anyway. I just hate putting customers in this situation. I think it is unethical. But what can I do? The goals are set higher and higher.”
How Does Goal Setting Work?
The job description allows goal setting to proceed, because goals clearly state how the specific position filled by an employee relates to the overall organizational and departmental goals.1 Goal setting is done both initially, when the job description is designed, again when the job holder is hired, and later, as part of the evaluation/appraisal feedback. Goals should be stretch goals, used to raise a person’s skills, knowledge, and abilities. Having this information, along with the tasks and success indicators for the job, enables the manager and employee to plan the direction of effort toward goal achievement and clarify outcomes of the job. In itself, this knowledge can be very motivating for both the manager and the employee. It shows a great deal of trust in the employee’s potential while allowing the employee to communicate concerns and resources needs to the manager.
Does Goal Setting Motivate Employees?
As discussed in Chapter 2, it is possible to create incentives that cause employees to engage their motivation—an internal process. Goal setting is a major incentive that managers can successfully use to achieve departmental and organizational goals. When employees know what is expected, they can engage motivation: amount, direction, and persistence of effort.2 However, when employees set goals with their manager, it enhances motivation and commitment by giving them some control over their work.3
Stretch goals encourage higher performance, but they should not be so high that they cannot be achieved, because employees will become discouraged and lose their commitment to the organization. Stretch goals should allow the manager to equip and train employees to achieve the goal and increase their skills, knowledge, and/or abilities. This, in turn, creates a positive organizational culture that revolves around socialization, encouragement, and productivity using both monetary and nonmonetary incentives.
As seen in both practice and the academic literature, employees will be more willing to focus on their successes if they are motivated through goals, objectives, and plans in the organizations. If they also integrate their personal goals and objectives into the goals and objectives of the organization and/or department, work becomes easier, enjoyable, and straightforward. Knowing the goals and objectives of the organization and/or department decreases the uncertainty and fuzziness in the organizational settings for employees. The more they know about the details of the organization’s future plans, the more motivated they will be toward achieving the goals and objectives. In this way, the organization can work with natural human instincts and motivations.
How Can We Set Goals with Our Employees?
“With” is emphasized here. Work and the environment of the work should be considered a psychological contract between employees and managers. This means that there are certain assumptions that employees make about how they will be treated and the work that they will do. Managers also have assumptions about how they will treat their employees and the work that the employees will do. Trust is created when assumptions are proven true.
The problem occurs when these assumptions or expectations are not met. As a simple example: If the employee expects to be sitting at a desk doing paperwork, but the manager expects the employee to go work in the hot, dirty warehouse, there will be problems created through distrust. As a goal example: If the employee has one set of organizational or departmental goals, but the manager has a different set of goals that he believes the employee should achieve, there will be problems created through violation of expectations—distrust.2,4
Therefore, organizational and departmental employee goals should be developed based on organizational and departmental mission, vision, and strategies. While the mission states what the organization and department wants to achieve and its role in society, vision clearly expresses future achievements and directions.2 The mission and vision provide an overarching framework for the organization.1 Strategies are developed from the mission and vision; they are “the ideas, decisions, and actions that enable a firm to succeed.”5
Employees need clear performance expectations. They also want to see how their specific job goals are aligned both with the overall goals of the organization and with their own personal goals.1 In setting goals, employees need to be encouraged to ask two specific questions during the goal setting process: What is my role in supporting the department and organization? and How can my personal and job goals contribute to the departmental and organizational goals?
Goal setting is the basis for participative and proactive management. It is a major part of the psychological contract between employees and managers.1 However, managers tend to give less emphasis to the goal setting process in performance evaluation, which may result in destructive consequences. Goal setting is essential in Performance Leadership™.
Goal setting allows employees to maximize their time and energy, while helping managers maximize the use of scarce company resources, including human resource skills, knowledge, and abilities.1 Goals drive performance, and performance feedback should focus on how employees achieved their goals. Goals may be very broad and diverse. For example, goals may be related to higher level performance indicators such as customer satisfaction, market share, and profit, as well as functional level performance indicators, such as amount and quality of production.
Upper level organizational plans should be monitored and evaluated to ensure and determine their success.1 However, managers often leave goals to chance, rather than defining exactly what is needed for their department and for individual employees. The flow of goals should be from the mission and vision of the organization, with reference to the explicit objectives that the organization, and then the department, have set, to the employee’s goals. The flow should be clear and explicit to the employee. If the organizational mission and vision are to provide healthcare, then goals must be organized toward that purpose.
Another source of goal setting is team goals. These can be used for shaping individual member performance goals. If the employee is a member of a team, then team-wide goals should be associated with individual goals in order to increase employees’ awareness of the goals and individual performance. Sometimes, using team goals allows the focus of the employee to exceed the individual goals to those of the team, even though the individual employee’s contributions are unique.1
What Is the Best Way to Set Goals?
Establishing clear performance expectations and showing each employee how her goals are aligned with the overall direction of the organization are excellent ways to begin this process.1 Goal setting is the groundwork for participative management.2 Goal setting should be seen as a process of signing a contract between employees and managers. However, less importance is often given to goal setting process in performance management, which may result in destructive consequences.
Goal setting is a fundamental step of performance management, because it drives performance. Goals drive performance and allow a results-oriented approach to management and leadership. They may be focused on broad, organization-wide goals or on very narrow, workgroup goals. One organization-wide goal might be an increase in market share, and the employee might be responsible for helping reach that goal. One workgroup goal might be to complete a project within a given amount of time. Goals covering the broad range of the organization are necessary.
The method of goal setting most often used is management by objectives or MBO, first used by Peter Drucker6 in 1954, and further examined and developed by others.7 Although an older process, little has been developed to replace it. MBO goals must be collaboratively obtained by consultation between the manager and the subordinate. Goals are set at a challenging, but obtainable level with the employee. They are consistent with the departmental and organizational goals, which the manager understands.8 Analysis of goal achievement becomes a major part of the Performance Leadership System.
One of the Eastern management approaches, Hoshin Kanri or Policy Deployment, has been widely used among Western companies.9 The main idea behind Hoshin Kanri is to determine corporate-wide goals and departmental (functional) goals are shaped based on the company-wide long-term goals. Individual employee goals in the departments are set to reach departmental goals and objectives. The system is built on a cascade system, that is, lower level’s goals and objective are perceived as resulting from strategies at the upper management level. This process is, termed catch-ball, integrated into performance management systems as well. At the end, employee goals can be considered “performance goals.”9
The process of formulating strategy in Hoshin Kanri differs among companies based on size, structure, and leadership style. They9 also warn that the process of developing targets, the development of means, and the deployment of targets and means are crucial parts of Hoshin Kanri. The measurement system focuses on processes and results, cross-functional communication, and planning outcomes integrated with daily activities.9 How this method is implemented is totally dependent upon performance management systems. Hoshin Kanri requires organizations to determine 5-year vision, 1-year plan, and deployment of plans to the departments, and this system fits well with the Performance Leadership System.
Whatever process is used, the key to goal setting is doing this with the employee, that is, having the employee fully engaged in the process.10 In cases where the employee is not fully involved, this approach will fail. If the employee is fully involved, goal setting should include11 (1) specific and measurable performance goals, (2) development plans, (3) measurement criteria, (4) time expectations, and (5) plans for frequent and timely communication between the manager and the employee.
Performance goals should be SMARTER goals: they must be specific, measurable, achievable, relevant, time dependent, ethical, and resourced. An example of a format is shown in Exhibit 5.1. Many overlook the value of setting time expectations for completing a goal, even though it is part of the SMARTER goal format. Setting reasonable time expectations can be motivational, and timely completion of one task often necessary for other employees and manager to complete their tasks.11 To use goals as an evaluation tool, the jointly developed performance goals are examined to determine:
• Whether the goals have been reached,
• What circumstances inhibited the goal achievement, and
• The development of the next set of goals.
SMARTER Goal Template
Source: Adapted from: https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=SMARTER+Goal+template
What Might Be some Unexpected Consequences of Goal Setting?
Goal setting is individual, but it can also be team-based, as previously discussed. However, if employees are to be evaluated individually, then the individual goal setting must take priority. If goals require internal competition (within the work group, department, or organization), the manager risks setting up a tournament, where there are rewards for winners and penalties for losers. One example is when sales goals are set by dollar amount for the entire department, without considering the different workloads of the individuals. For example, if selling food services, those selling to larger institutions would have less work to outsell those employees who deal with many smaller institutions. When this happens, individuals consider the tournament to be unfair, and often resort to backbiting, back stabbing, and other unethical behaviors to achieve results.
Another problem will develop when the consequences of the goal or its measure has not been thoroughly examined. For example, one of the major causes of the bank failures in 2008 is goal of quantity (number) of loans as opposed to quality of those loans (repayment ability of the borrower or the nature of the collateral). When a number of any kind is given as the sole goal, often the quality can be overlooked by employees, or even deliberately undermined, as the employees’ focus is on the number. If a manufacturer stated that a certain number of items should be produced in 1 day, the manager would find that the number was produced, but the quality would likely be low. In addition, no more and no less of the number stated would be produced, because if more were produced (called rate busting), the goal would be set higher next time. You get what you reward, so be careful in setting goals.
Example 5.1
“I’ve been looking at the goals that Cara set for the next quarter,” Kadin said to Luke. “Do you think that our group can achieve them?”
“I’m not sure,” said Luke. “If Noah and his crew are unable to keep the machines in working order, we are going to have real problems in reaching them.”
Noah walked by just as Luke mentioned the maintenance of the machines. “It’s the heat on the factory floor,” he said. “When the machines are exposed to high temperatures, they overheat and break down. I’ve been talking to the top management team about air conditioning this area for the machines. The payback would be tremendous, but he considers the quantity and quality of the output to be a personnel problem, not a technical one.”
“We know you do your best,” Kadin said. “But how can we produce the quantities and quality required when the heat is 120 degrees? The machines break down several times each shift. It’s hard on the humans, too!”
What Is the Problem Here? How Can Performance Leadership Help in this Situation?
Clearly, the manager and the employees have a different perspective on the problem. But goals must be set realistically, with margin for nonattainment for reasons beyond the employee’s control. Otherwise, managers lose their best employees as they exit or neglect their jobs, knowing that they can never achieve the goals.
During goal setting, the job analysis and job description are essential. An evaluation of resources needed and available, as well as environmental roadblocks must be assessed. In this way, managers can keep their best employees on track achieving reasonable and jointly set goals, while clearly identifying those who are not on track. It cannot be overemphasized: Goal setting is done with employees in a collaborative environment, whether MBO or any other system is used.
Note: The air conditioning payback is based on a true story, as are all of the examples and perspectives. In one factory, introducing air conditioning resulted not only in a faster payback than expected in monetary terms, but substantial increases in employee engagement and productivity.
Notes
1. Mone & London, 2010.
2. Whetten & Cameron, 2016.
3. See, for example, Aplin, Schoderbeck & Schoderbeck, 1979; Bennett, 1998; Carroll & Tosi, 1973; Drucker, 1954; Latham & Yukl, 1975; Shalley, Oldham, & Porac, 1987.
4. For more discussion on the psychological contract, see: Bankins, 2015; Harrington & Lee, 2015; Hockaday, 2012; Rodwell, Ellershaw, & Flower, 2015; Shaheen, 2010.
5. Dess, Lumpkin, Eisner, & McNamara, 2014, p. 7.
6. Greenwood, 1981.
7. See for example, Carroll & Tosi, 1973; Latham & Yukl, 1975; Ordonez, Schweitzer, Galinsky, & Bazerman, 2009; Shalley, Oldham & Porac, 1987.
8. Heery & Noon, 2008.
9. Tennant & Roberts, 2001.
10. Drucker, 1954; Heery & Noon, 2008.
11. Drucker, 1954.