Do stretch goals work?
  • leadership
  • Blog post

Do stretch goals work?

You’re setting goals for your team. Should you also include a stretch goal?

Seems like a good idea. What’s wrong with asking people to push themselves a little harder?

But stretch goals are widely misunderstood and widely misused. They’re not really about getting a little more out of people. They’re designed to break things.

First, a history lesson…

In their original incarnation, stretch goals were an idea pioneered by Jack Welch at GE. And they were much different from what usually passes for a stretch goal today.

The idea was to drive profound disruption with a goal that seemed impossible, had never been met and that nobody knew how to achieve. By definition, it was a goal that couldn’t be accomplished through incremental change or tweaking existing processes. For example, certain divisions at GE had never seen operating margins in the double digits. Such margins weren’t possible, most people said, given the realities of the industry and the business. So GE set a goal of 14% margins. They had no idea how to accomplish it, but they committed to it. Publicly.

That forced the divisions to rethink their entire businesses. Challenge all assumptions. Completely reinvent themselves.

It worked for GE.

It’s worked for others as well. Toyota set a stretch goal of improving fuel economy by a factor of two. It got the Prius. Southwest Airlines set a stretch goal of ten-minute turnarounds at the gate. It accomplished the goal by throwing out its existing gate procedures and building new ones based on what pit crews in auto races did.

You can see the issue. These are goals designed to be 100% disruptive.  That’s above the pay grade for most front-line or midlevel managers. And it’s also extremely risky. Everyone likes the success stories, but there are probably many more examples of failed revolutions. Yahoo and Sears come to mind.

Researcher Sim B. Sitkin from Duke University has looked at stretch goals and found that they really need two conditions to succeed: (1) a track record of recent successes and (2) “slack” resources – that is, excess resources that can be deployed against the problem. But guess what? In most cases, organizations with high performance and excess resources are unlikely to feel the need for radical disruption – because things are going pretty well.

The organizations most tempted to upset the apple cart are typically ones with low performance and constrained resources. They look at a stretch goal as a Hail Mary pass that can save their struggling business.

But, Sitkin says, these are the organizations that can least afford the risks of taking on a radical goal. If the organization is struggling and people are presented with a seemingly “impossible” goal and told it’s do or die, the goal is likely to be demotivating, not motivating. You’ve created a crisis, and you get all the negative emotions that accompany one. People are paralyzed. They’re worried about survival. They get pessimistic. They stop trying. They jump ship.

In this situation, Sitkin suggests, the better strategy is to dig yourself out first. Pursue small wins to get out of the hole, then look at more ambitious goals.

Little stretches

There’s another kind of stretch goal, which is the kind most people think of – a modest stretch above the original goal. If the goal is to increase sales by 10%, for example, you’d set a “stretch goal” of, say, 15%.

That’s not really a stretch goal in the original sense. It’s what sometimes is called a tiered goal, or a banded goal.

The jury’s out on whether they work. One study found that they work in the short term, but there can be a backlash if people see them as a way to, in effect, speed up the production line. We’ve all seen this: If you hit your stretch goal last year, it becomes this year’s baseline, with a new stretch goal on top of that.

What’s the point?

Keep in mind that the real purpose of goal setting is to drive behavior. An effective goal is all about focus. It helps people make good decisions about where to spend time, effort and resources. If the goal is to increase sales by 10%, or reduce turnover by 50%, or cut energy costs by $250,000, then you stay focused on the things that increase sales, reduce turnover or cut energy costs. And you avoid doing things that don’t advance the goal.

To maintain that focus and clarity, goals need to be simple. Stretch goals introduce complexity. And as the rules get more complex, it’s harder to see how they influence behavior. If I have a goal to increase sales 10%, will I do anything differently if you add a tiered goal to hit 15%? Does the additional goal affect my behavior in any meaningful way? Do I use one set of behaviors to hit 10% and then switch over to some other set of behaviors once I hit that goal? Or if I don’t have that tiered goal, do I stop doing those behaviors when I hit 10% and take the rest of the year off?

Most people don’t work that way. If the behaviors are creating success, you keep doing them, even after you’ve hit your goal.

In addition, as complexity increases, there’s a risk that people get more fixed on the rules of the game than on the underlying behavior. That can result in less-than-optimal behavior, like padding the numbers or sacrificing long-term values for short-term goals.

So when it comes to goals, keep them simple. Simple goals tell us what to do.

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