Stretch goals can be a great way of pushing your company to excel while driving employees to think in innovative ways. But simply setting ambitious goals and expecting everything to fall into place isn’t enough. If you want to optimise your performance management system with stretch goals, follow these tips to help ensure they are as effective as possible.
When you think of your stretch goals, they need to be ambitious long-range goals that represent the ideal position you’d like to see your company reach.
Here are some examples of stretch goals from a major Asian telecommunications company:
- To be in the top 10% of its peers, based on customer satisfaction and loyalty.
- To be number 1 in terms of customer fulfillment (e.g. fastest broadband).
- To be in the top 3 employers, based on attracting and keeping the best talent.
- To be in the top 3 corporations, based on the index of corporate social responsibility (awarded annually in a size adjusted national competition).
Let’s take a look in more detail at some of the best practices used when setting stretch goals:
1. Set aspirational goals at the executive level
Setting purposefully vague goals at the executive level affords your employees the scope to channel their energies and talents in various directions. It also creates an environment where specialists from different departments are encouraged to cooperate with people of different disciplines.
Painting with broad strokes encourages both cooperation and lateral thinking within teams and from employees, raising the performance bar and building greater commitment to improvement. It’s an approach that has driven success at Toyota since 1937.
2. Use ranges for goals, not single points
Using traditional fixed-performance contracts is anathema to effective stretch goals; the top-down target-setting process is likely to encourage managers to play it safe with incremental targets and short term gap-filling, undermining your long term strategy.
As former CEO of General Electric Jack Welch observed in the 1995 Fortune article, Let’s Fly on Budgets, Bonuses and Buddy Boards, “Making a budget is an exercise in minimalization. You’re always trying to get the lowest out of people because everyone is negotiating to get the lowest number.”
Instead, avoid these shortcomings by setting expectations across a selection of potential outcomes based on ranges instead of single point goals. Focusing instead on the trajectory challenges managers and teams to stretch their performance.
3. Frame success with peer-to-peer comparisons
While many business owners and investment analysts will be keen to see profit estimates, it’s important that stretch goals are not based on fixed commitments, Success should be framed in terms of peer-to-peer comparisons, for instance above average, top quartile or top decile. Establish a list of peer companies upon which this comparison is going to be compared.
You should be willing to move away from specifics in order to break away from fixed targets within your business and encourage teams and employees to be the best in their field.
4. Enable your teams to set their own goals
Separating goal setting from the performance evaluation and rewards process liberates your teams to set ambitious stretch goals based on their specific knowledge of the requirements of a project. If they aren’t tied to a specific target, they are freed from the fear of failure and able to set more ambitious targets aligned to the stretch goals set at the executive level.
5. Allow teams to reset goals if necessary
As stretch goals are measured in relative (for instance peer-to-peer or market competition) rather than specific targets, teams have the necessary leeway to reorient their goals as required. If they have no commitment to a hard number, goals can be changed at the team level without higher authority, provided that they are continuing to improve their performance.
6. Support ongoing, relative improvement as your definition of success
By avoiding specific numbers and instead focusing on ratios and ranges, stretch goals can be framed in terms of relative improvement. Once external or peer-based benchmarks have been established, progress should be measured against them.
Steve Denning observed in his Forbes article, In Praise of Stretch Goals, “Stretch goals need to be about human excellence, not about financial targets. Financial goals bring out the selfish gene that lurks in all of us. Instead, stretch goals need to appeal to what is best in us.”
7. Break your stretch goals into digestible SMART goals
Stretch goals by themselves are a great way to orient your company along with long term goals, but to effectively implement them you’ll need to break them down into manageable sub-goals. One effective way to do this is to pair them with SMART ( Specific, Measurable, Attainable, Realistic and Timeline) goals.
Using an effective performance management system to establish and track your stretch goals in line with short term SMART goals will allow you to chart your progress in concrete, measurable steps.