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    I am now using this blog to re-post some comments I make other blogs. For my full management blog see the Curious Cat Management Blog

    Sunday, March 11, 2012

    The Potential Benefits, Risks and Folly of Stretch Goals

    Some excepts from, The Folly of "Stretch Goals", visit the link to see the full discussion:
    Jon Miller: Stretch goals are fine, but gaming the system, sandbagging, achieving the stretch goals through heroic effort, etc. are bad because this is not sustainable. In terms of excessive risk taking, this is a question of the risk-reward calculus and the person’s degree of risk aversion. It doesn’t take a stretch goal to make Enron leaders cheat when their auditors are turning a blind eye. They stole because they could, not because a leader set stretch goals for them. If the governance around the goals are solid and the downside of risk are significant, people will pursue stretch goals in a way that is not destructive. ... 
    Dan Markovitz: However, if you had the opportunity to make a HUGE bonus — millions or tens of millions of dollars — for achieving certain stretch sales targets in China, for example, you might be sorely tempted to act differently... 
    Jon Miller: But my point was that cheating is not caused by stretch goals, it is caused by poor governance around the performance and rewards process... The more interesting question is why leaders continue to set up such systems. Are they stupid? Evil? Or do such systems produce results?
    I think stretch goals are fine when people understand - they are giving scope to the effort. If I want breakthrough improvement quickly it may mean considering radical solutions. That can be helpful to shape people's vision. But there are risks. As Brian Joiner said there are 3 ways to improve figures ("results")
    Improving the system is far more difficult than the first 2. Cheating can be encouraged by managers. Stretch goals can increase this encouragement. A culture that pushes the right values and discourages the wrong ones can discourage cheating. Understanding variation is very helpful (it both dramatical reduces silly reaction to variation - the fear of those silly reactions often cause people to cheat "distort the figures or system" ).

    An understanding data is only a proxy for the real situation (the number is not real situation) is helpful as is understanding the arbitrary goal is essentially meaningless (it exists to give scope to efforts not to be met - 67.3% improvement when 75% improvement was the "goal" is not failure - an understanding of variation would assure this mistake was not made).

    The problem is many organizations are ruled by spreadsheet managers that don't understand variation, are ruled by the tyranny of arbitrary targets (bonus and promotions)... In these situations goals do often become a big part of the reason for cheating. Stretch goals can help shape the effort. The risk (and much more common result, I think) is that they result in distortions of the system and data to achieve those results.

    To answer Jon's question I think you can use goals and incentives to reach numerical targets. The risk, as Gipsie Ranny says is the organization may be ruined in the long term. But if the executives are fearful and have large enough incentives to achieve numerical targets they goals and targets can achieve the goal - but at a great cost, I believe. I believe they are more ignorant than evil (though some know the damage they are risking or causing).

    A strong management system reduces much of the potential negative consequences of targets. A big problem is those organizations that most rely on targets are those that are least protected from the risks of using them.

    Related: The Defect Black Market - Targets Distorting the System - The Problem with Targets

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