Setting business goals

A report today on the Irish Times website about the VW emissions scandal finds the major catalyst which led to a ‘chain of mistakes’ was the introduction of tough emissions regulations in the USA. The company had introduced a big push on diesel sales with presumably some pretty tough sales targets. The Irish Times report tells us that “Engine developers could not find a way to meet permissible means to comply with tough US emissions regulations, at least in the timeframe and budgets available. That led to the installation of the cheat software that could determine whether a vehicle is on the road or a test bench.” VW’s Chairman is reported by the Guardian to have said that “engineers had installed defeat devices in diesel engines after realising they could not hit emissions targets by permissible means”.

We don’t have to look far to see examples of stretch targets being pinpointed as the cause of unethical behaviour. The sales person who brings forward an order to meet quarter-end figures, the lawyer who overstates hours spent on a client’s file to meet billing targets, the acceptance of risky mortgages to meet lending targets. In the auto industry two famous cases stand out. The fraudulent behaviour by Sears auto mechanics in doing un-needed work on customers’ cars in order to meet performance quotas is outlined by Lynne S. Paine in her seminal 1994 HBR article on organizational integrity. The famous case of the Ford Pinto, made to a strict price and weight target is often referenced in the business ethics literature. A saving of only a few dollars on the car’s fuel tank resulted in many deaths and horrendous injuries.

So tough targets appear to be potentially problematic. But I think we’d all agree that we need targets to push ourselves to achieve. Most of us know the great feeling of having managed to make a difficult target. It’s exciting, it gets the adrenalin going and it builds confidence in our own abilities, setting us on course to do even better. As managers we need to set targets to ensure the business achieves what is required. A world without targets would not get us where we need to go. Why else the time and effort being put into the COP 21 goals? So what dangers do we need to be aware of as managers when we are setting goals for our businesses?

Over emphasis on a specific goal – Targets are often set as a response to a particular business need such as meeting a deadline date or improving financial performance, maybe even with a view to saving the company which makes goal achievement even more urgent. The danger here is that we become over focused on a narrow target rather than considering the broader impact on the business. Ask yourself if you are over-simplifying the target without fully considering what you want to achieve e.g. increase sales of diesel models this year rather than maintaining brand reliability and trust which will in turn yield strong sales figures.

Over emphasis on goal achievement without considering how – If the achievement of the goal becomes the main focus it’s easy to lose sight of how it’s being achieved. This leads to a ‘just do it’ mentality which can be very dangerous as people can feel they have been given permission to do whatever it takes even if they cross a line. The behaviours have to matter too and we need to focus on more than a very narrow behaviour set. Behaving unethically has to be clearly and emphatically understood as unacceptable. So as managers we need to make sure we have the how we want to achieve conversations as well as the what we want to achieve conversations about targets.

Making the non-achievement of goals too scary – If we make the non-achievement of goals so scary that people feel they have little choice but to bend the rules we probably shouldn’t be too surprised when they do. Sears mechanics were reportedly scared that they would lose their jobs if they did not meet the set targets. We need to remember that scary can be a perception as much as a reality. So if people feel they might lose their jobs for example, that’s enough to influence behaviour, even if there is no actual intention to let people go.

Understanding the potential for humans to self-rationalise bad behaviour – I don’t know how many times I’ve come across bosses shocked at discovering that the employee they perceived as ‘good’ had engaged in bad behaviour. In relation to setting targets we need to understand that people can self-rationalise their bad behaviour if it leads to the ‘good’ outcome of achieving the goal. There is also evidence to suggest that people close to the achievement of a stretch target are more likely to do this than those some way off the target. So maybe you need to be thinking about the high performers and how you might unwittingly be encouraging them to rationalise doing something wrong.

Many years ago I saw examples of bad and good goal setting in action that have stayed with me ever since. In one company there was an admin team whose primary job was to process documentation. Their secondary role was to take calls from other departments with customer queries. In a push to deal with a backlog of documentation a stretch goal was put in place to encourage staff to make additional effort. A bonus was to be paid to the person who processed the greatest number of documents with the lowest error rate. Unfortunately the secondary role of the department was forgotten about. The winner of the award made massive inroads in the backlog with a near zero error rate but the rest of the team felt aggrieved that she achieved this by ignoring incoming calls that had traditionally been informally shared out and answered by all.  The target had been set to deal with a very specific problem without fully considering the broader needs of the business and the behaviours that supported that broader need.

Elsewhere, a sales manager under enormous pressure to achieve his target thought about the behaviours he needed in his team to have any chance of success. The economic environment was tough, he had a mix of very experienced sales people who were close to achieving their individual targets and very new sales people who were nowhere close to theirs. He saw the danger that the experienced people could achieve their own target and then stop bothering and that the inexperienced ones would just give up altogether. So he put an extra team incentive in place – every team member would get an additional smallish bonus if the overall team target was achieved. The experienced people had a reason to overachieve and to help out their less proficient colleagues. The people who had no hope of getting their individual targets could still get some bonus by bringing in sales and of course the added advantage was that they built some pride and confidence in what had appeared to be a pretty hopeless situation. In the first situation the culture of the department was badly damaged, in the other a stretch target built and cemented a culture of team work and shared success in a department that was traditionally populated with people focused on individual success.  Oh, and they smashed their target contributing to the success of the business even under difficult trading conditions.