The idea of stretch goals can be incredibly alluring for business leaders and people managers. Their “oh-so-simple” premise suggests that pushing people to dream bigger and shoot for the stars will inevitably lead them to innovate and outperform what they’d previously imagined possible.
Unfortunately, sparking an unfathomable business success is never a very simple task at all. Companies use stretch goals for different reasons and under different circumstances, yet most proponents of stretch goals point to the same success stories in support of them.
It’s important then, that when considering stretch goals, we first understand their true purpose, know the pros and cons of the strategy, and the conditions when they work best.
The case for stretch goals
When performance expectations are set at near-impossible levels, previous techniques, frameworks and routines won’t do. Creative approaches and new ways of learning are required. This can take companies to new heights or shake them out of a rut.
When Southwest Airlines were struggling to stay in business, they calculated their planes would need ten-minute turnaround times at airport gates to operate efficiently enough. Many Southwest staff, Boeing, and the Federal Aviation Agency thought this to be impossible, but by taking an entirely new approach inspired by race-car pit crews, it was achieved.
There are more high-profile success stories, including Toyota, Motorola, 3M and the most famous of all, General Electric. GE’s legendary former CEO, Jack Welch, can potentially lay claim to coining the term. In 1999 he explained the management philosophy underlying stretch goals: “It essentially means using dreams to set targets – with no real idea how to get there … If they don’t have the team operating effectively, you give them another chance. If they fail again, you hand the reins to another person. But you don’t punish for not meeting big targets. If ten is the target and you’re only at two, we’ll have a party when you go to four. When you reach six we’ll celebrate again. We don’t waste time and money budgeting 4.12 to 5.13 to 6.17.”
The most important takeaway from these examples should not be that stretch goals work without fail. Instead, they provide a definition of what a stretch goal is and what it’s not. A stretch goal is not looking at this quarter’s sales goals and doubling them, in an attempt to drive employees to work harder and longer. A real stretch goal is impossible to hit by doing more of the same. It requires thinking differently, revolution not evolution, qualitative not quantitative change.
The case against stretch goals
The most common problem with stretch goals is their potential to become extremely demotivating. If a breakthrough doesn’t come and teams or entire organisations begin to feel the incredible difficult these goals present, it’s easy for confidence and moral to be lost.
Spurring employees to search for radical new approaches and solutions requires that they wholeheartedly buy into the stretch goals, they cannot be viewed as optional or negotiable. However, this belief risks causing panic and chaos, which can not only halt progress towards the new goals, but it also derail existing operations. These circumstances can also foster unethical behaviour, as Daniel Markovitz points out in The Folly of Stretch Goals.
“In the early 1990s, Sears gave a sales quota of $147 per hour to its auto repair staff. Faced with this target, the staff overcharged for work and performed unnecessary repairs. Sears’ Chairman at the time, Ed Brennan, acknowledged that the stretch goal gave employees a powerful incentive to deceive customers,” Markovitz explains.
From Enron to the subprime mortgage crisis, history is rife with people taking shady (or outright illegal) paths towards hitting audacious targets.
The paradox of stretch goals
Why do some businesses enjoy amazing success with stretch goals, and others suffer serious damage? Interestingly (or perhaps alarmingly) thorough studies are few and far between. It’s highly possible an “observational bias” exists around stretch goals: Success stories garner praise, headlines, and a place in our memories. Failures disappear (potentially with companies) and are rarely heard of.
Many would love to emulate the iconic Jack Welch, but how can we know if our organisations have that potential? Sim Sitkin of Duke University argues that there’s a paradox in the use of stretch goals: organisations that are most likely to benefit from them are less likely to use them, whereas those who often do, are the least likely to benefit.
The research finds that companies already performing strongly will build up a buffer of “slack resources” as insurance against future slowdowns. In these circumstances stretch goals have the greatest potential for success. With good resources allocations IBM in the 1960s, General Electric in the 1980s, and Toyota in the 1990s were well prepared for radical change. Yet for most businesses, satisfactory performance is often a call for continuity rather than a rallying cry for radical change.
Stretch goals are more often seen in struggling businesses, and frequently represent an act of last resort. (The business equivalent of sending your goalkeeper up field on a last minute corner kick, or the “Hail Mary” pass in American football.) Already underperforming and with scarce resources, stretch goals can push organisations further into jeopardy when hunkering down and focusing on “small wins” would be more suitable.
In more recent times, the luster of stretch goals has faded which is undoubtedly healthy. While more conventional goal-setting methods (OKRs, SMART, etc.) handle short term objectives, vision and mission statements have become the in vogue approach to articulating an organisation’s true north, offering inspiration without the risk. Whether audacious stretch goals have a role to play in your organisation should only come down to careful consideration of existing momentum and capacity – fine judgement which cannot be swayed by anecdotes and management folk law.