The Economist: Management by goal-setting is making a comeback, its flaws supposedly fixed

 

THINK of it as the workplace equivalent of the Fitbit or Nike FuelBand: a way to set your goals and monitor your progress, and to share the journey with colleagues, who will cheer you on and give you a helpful nudge whenever you fall behind. Or, for the more sceptically inclined employee, think of it as a way to make the big boss even more like Big Brother.

“Quantified work” is the vision of BetterWorks, a Silicon Valley startup that aims to bring “goal science” to offices everywhere. Its software lets groups of employees collaborate in setting each other’s objectives. Everyone can see how everyone else is doing, by means of a smartphone app. This sort of collegial, real-time performance measurement has already been introduced at some of the Valley’s most prominent firms, such as Google, Twitter and Intel. BetterWorks’ version is so far being used by 50 businesses, from Vox, a media company to Kroger, a grocery chain.

“The traditional once-a-year setting of employee goals and performance review is totally out of date,” says Kris Duggan, one of BetterWorks’ founders. “To really improve performance, goals need to be set more frequently, be more transparent to the rest of the company, and progress towards them measured more often.”

Working out how best to set targets for employees has long been an obsession of management thinkers. In 1954 Peter Drucker came up with a theory of “management by objectives”. He proposed that bosses should set the company’s overall goals and then, in discussion with each worker, agree on a subset of goals to align what they were supposed to do with the goals of the firm. Drucker believed that these goals should be SMART (specific, measurable, actionable, realistic and time-sensitive). His idea was briefly the height of corporate fashion. Yet its results were often disappointing and even Drucker lost some of his enthusiasm for it. One problem was that it was too bureaucratic. Another, according to today’s management thinkers, was that Drucker focused only on outcome goals (say, increase sales by 20% a year), whereas the ideal outcome is often uncertain. It is sometimes better to set workers indirect goals, such as gathering data, that will point to what the final objective should be.

There is nonetheless a wealth of evidence that setting well-designed objectives does improve employees’ performance. There have been more than 1,000 academic experiments in goal-setting, of which over 90% have produced positive results, says Gary Latham of the University of Toronto. If so, it must surely be one of the most tested, and proven, ideas in the whole of management theory. The studies show that an employee with a goal that is clear and simple, and challenging yet attainable, will perform better than one whose only instruction is to do as good a job as possible. Among other things, such a goal helps an individual or team to focus, to evaluate performance, to assess whether to maintain or change course, and to enjoy a sense of achievement when they succeed.

Recent evidence also supports Mr Duggan’s argument that it pays to set goals more frequently than once a year. A study of big companies by Deloitte, a consulting firm, found that those which set goals quarterly were nearly four times more likely to be in the top quartile of performers. (It also found that more than half of senior executives have their goals revised in the course of the year, but only one-third of middle managers do so.)

Then again, there is also ample evidence of the nasty consequences that can follow when employees are given poorly chosen objectives. For instance, a recent study by Mr Latham and others found that managers who believe they have been set a goal that is unattainable are more likely to abuse their subordinates. “It’s like taking out your frustrations by kicking the dog,” he says.

It can be hard to judge the dividing line between goals that are suitably stretching and ones that are excessively demanding, says Max Bazerman of Harvard Business School. He was one of the authors of a 2009 study in failure, “Goals Gone Wild”, which found several adverse side-effects of poor objective-setting. These included employees neglecting important matters that happened not to be included among their goals; the corrosion of a workplace’s internal culture; reduced motivation among employees; and the temptation to indulge in unethical or risky behaviour. For example, an hourly revenue goal for car-repair workers at Sears in the 1990s led to systematic overcharging, often for work that was not needed. A goal of getting the Ford Pinto to market by 1970 led to the car being launched in a hurry without safety checks that might have revealed a deadly tendency for it to burst into flames in accidents.

Measured response

Mr Duggan argues that the BetterWorks system, by letting everyone in a firm see everyone else’s goals, harnesses crowdsourcing to ensure that the objectives are neither too hard nor too easy. Goal-setting should also be separate from performance reviews that influence salary and bonuses, he says, to give workers permission to test themselves and sometimes to fail. Google expects its goals to be met only 60-70% of the time, for example.

Letting employees set and monitor their goals in collaboration, and giving them licence to fail occasionally, may well be feasible at young, innovative firms, such as Google, with a high-performance culture. It is harder at businesses where staff are disengaged and managers less open to experimentation. And even Google sometimes gets its goals in a twist. Reports on its recent decision to withdraw Google Glass temporarily from the market suggest that the wearable computer was launched too soon. Sergey Brin, one of the firm’s founders, was said to have insisted on pressing ahead, despite his engineers’ protests that they could not make the product good enough by his deadline. Even the most motivated and dedicated workers may fail to meet their goals if the boss demands the impossible.

Check out the full article on The Economist, here.