When Goal Setting Goes Bad
If you ever wondered about the real value of goal setting in your organization, join the club. Despite the mantra that goals are good, the process of setting beneficial goals is harder than it looks. New research by HBS professor Max H. Bazerman and colleagues explores the hidden cost when stretch goals are misguided. Key concepts include:
- "Learning or mastery" goals probably lead to better effects than strict "performance" goals.
- Good people with the best of intentions can focus so much on a stretch goal that they fail to recognize how it leads to unethical behavior and/or excessive risk-taking.
- Goal setting is easy to implement and measure. But do not underestimate or ignore undesired results.
It's the rare manager who doesn't partake in quarterly or annual goal-setting exercises. And woe to those who don't make their goals SMART (Specific, Measurable, Attainable, Realistic, Timely).
But do these goals really work? Researchers from four top business schools have collaborated to show that in many cases goals do more harm than good. Worse, they can cause real damage to organizations and individuals using them.
"We argue that the beneficial effects of goal setting have been overstated and that systematic harm caused by goal setting has been largely ignored," the researchers conclude. Bad "side effects" produced by goal-setting programs include a rise in unethical behavior, over-focus on one area while neglecting other parts of the business, distorted risk preferences, corrosion of organizational culture, and reduced intrinsic motivation.
One example: the explosive Ford Pinto. Presented with a goal to build a car "under 2,000 pounds and under $2,000" by 1970, employees overlooked safety testing and designed a car where the gas tank was vulnerable to explosion from rear-end collisions. Fifty-three people died as a result.
Used wisely, goals can inspire employees and improve performance, the authors agree. But goal setting must be prescribed in doses, not as a standard remedy to increase productivity. They even offer a warning label and list 10 questions managers should ask themselves before starting goal setting.
The working paper, "Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goals Setting," was authored by Lisa D. Ordóñez, Eller College of Management, University of Arizona; Maurice E. Schweitzer, Wharton School, University of Pennsylvania; Adam D. Galinsky, Kellogg School of Management, Northwestern University; and Max Bazerman, Harvard Business School.
We asked Professor Bazerman to explore in more depth some of the paper's findings.
Sean Silverthorne: So, are you against incentives and goals?
Max Bazerman: No, my coauthors and I are not against incentives. We believe in incentives. And each of us has found goals useful in limited domains. But we are concerned about the simple specification of stretch goals that permeates the goal setting and management by objectives literature.
Q: How can goal setting go wrong?
A: When people focus on a specific stretch goal, and fail to perform other valued activities that are needed by the organization, goals are failing. This is what Staw and Boettger found many years ago.
When employees care exclusively about reaching a goal, and bad things can happen if they fail, cheating goes up. This is the most important result in the goal setting literature—found by my coauthors Lisa Ordóñez and Maurice Schweitzer.
Q: Are goals by themselves a problem, or is it the way we use them?
A: When we can so easily predict the dysfunctional behavior that will ensue, I would argue that it is the goals themselves. Far too often, people want to blame the individual. But when organizations and governments create dysfunctional systems that can be predicted to lead to bad behaviors, I see the problem starting with the dysfunctional system. And I see the creating of optimal systems as a key leadership function.
Q: Specifically, what is wrong with managers designing stretch goals for employees to expand their knowledge or capabilities?
A: If you know the exact specific behaviors you want, stretch goals may be just fine. But, if you want employees to engage in other pro-social behaviors (e.g., helping others in the organization) and/or to act ethically, you need to be a lot more careful than simply providing a stretch goal.
Additionally, there is a growing set of research that shows "learning or mastery" goals have much more positive effects on performance and internal motivation than "performance" goals.
Q: Your paper is rife with examples of goals gone wild, everything from overcharging by Sears auto mechanics, to disappearing New York cab drivers, to Enron. Do you see goals as a contributor to our current economic collapse?
A: There are lots of culprits, which certainly include dysfunctional reward systems. And I am sure that goals played a role. But I certainly do not mean to blame the crisis on a set of specific goals.
Q: One side effect of goal setting that your team identified is a rise in unethical behavior. Example: Your paper mentions that Bausch & Lomb employees falsified financial statements to meet earnings goals. I know bounded ethicality is an area of study for you, so could you explain a little more the correlation between goals and unethical behavior?
A: Sure! The majority of my recent work is on bounded ethicality, or the ways in which even ethical people engage in unethical behavior without their own awareness. Thus, many good people engage in sexist behavior without knowing that they are doing so. Or they claim credit based on the false belief that their role on the team was more important than reality would dictate. And they are affected by conflicts of interest without knowing that conflicts of interest affect them.
Similarly, good people can focus so much on reaching the stretch goal that they fail to realize how this has dumped other work on their co-workers, led the company to accept mortgages that are too risky, etc. This behavior prompted by stretch goals is leading to unethical behavior, without the knowledge of the protagonists of the unethical action—or what we call bounded ethicality. Also, Adam Barsky theorizes that focusing on goals actually distorts our perception of what is unethical behavior so that we are less likely to consider the ethical implications of our actions.
Q: If goal setting is so pernicious, how did it become such an embedded, accepted (and for publishers, profitable) practice?
A: It is easy to implement. It is easy to measure. It is easy to document successes. And in laboratory experiments, it has been shown to be extremely successful at improving the measured behavior. Lisa, Maurice, Adam, and I simply argue that goals have gone wild in terms of their impact on other unmeasured outcomes. When we factor in the consistent findings that stretch and specific goals both narrow focus on a limited set of behaviors while increasing risk-taking and unethical behavior, their simple implementation can become a vice.
Q: When are goals appropriate, and what ingredients should be included?
A: Goals are appropriate when you know exactly what behaviors you want, you aren't concerned about secondary behaviors, and unethical behavior is not a big risk. In other cases, you still might want to use goals, but we recommend doing so with caution, and our paper discusses the needed steps to take (e.g., strong leaders who model appropriate behavior, oversight to prevent unethical behavior, etc.).
Q: One of the most famous stretch goals was delivered by President John F. Kennedy: "I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth." Good goal?
A: It was excellent for motivating behavior. It was a stretch goal that got us going. And as a side effect, it increased training and funding in the sciences. It may have also increased the degree to which the United States and the Soviet Union spent limited funds on mutually unhelpful defense expenditures. So, I think the answer is in the eyes of the beholder. Personally, I think society might have better spent the extra funds that went to NASA.
Q: If not goals, what?
A: Creating environments where people want to achieve, where they want to help the organization, and where they want to do so in an ethical manner. Research shows that an even stronger effect than goals is intrinsic motivation, having individuals do an activity because they find the work rewarding in and of itself. Given that goals can undermine this intrinsic value of work, sometimes the best solution is no specific stretch goal at all or at the very least mastery or learning goals.
I do not need someone to set a stretch goal for me. I am happy to help make HBS, Harvard, and the broader society a better place. And if I do not want externally imposed stretch goals, and believe that I do not need them, I think there are many others out there in the same condition.
To read more:
Ordóñez, L.D., Schweitzer, M.E., Galinsky, A.D. & Bazerman, M.H. Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting. Academy of Management Perspectives, in press.
Schweitzer, M. E., Ordóñez, L., & Douma, B. (2004). Goal Setting as a Motivator of Unethical Behavior. Academy of Management Journal, 47(3), 422-432.
Staw, B. M., & Boettger, R. D. (1990). Task revision: A neglected form of work performance. Academy of Management Journal, 33(3), 534-559.