As companies struggle to maximize output while staying ahead of the competition, a new study from University of Colorado Denver examines the idea of ‘stretch goals’ and why audacious targets are often misunderstood and sometimes misused.
The study, co-authored by CU Denver Assistant Professor of Management Dr. Kelly E. See, was recently published in Harvard Business Review.
The article, ‘The Stretch Goal Paradox,’ examines companies setting goals that appear unattainable based on current practices, skills, and knowledge. And how some fare better than others. See and her co-authors looked at numerous companies that have set these audacious goals, trying to determine what works and what doesn’t. Stretch goals differ from ordinary challenging goals in that they display extreme difficulty and radical expectations as well as extreme novelty in their approach.
By compiling data, case studies, and media reports from companies, Dr, See and her colleagues analyzed the success and shortcomings and concluded that there are two critical factors needed to meet stretch goals. The first is that the company needs to be coming off a recent win or that it surpassed an important benchmark in its own history. This is helpful because winning affects attitudes and behaviors positively and recent wins help companies see opportunities.
The second, and maybe more important factor, is having an abundance of resources. These can range from money, knowledge, experience and people. The research shows that companies are better prepared to handle the potential failures when they have excess resources like money or emotional support.
According to See, there are many reasons this matters.
“Stretch goals are a widely used tool across many different kinds of organizations ranging from well-known companies like GE, Toyota, and Southwest Airlines to governmental agencies,” she said. “But without knowing when and how such goals work, it is difficult for organizational leaders and decision makers get a balanced picture of whether such an extreme tool will work for their organization.”
There are many examples of companies that have succeeded with stretch goals such as Southwest Airlines and Colorado’s own DaVita. Both saw the need to explore dramatic changes using stretch goals in order to grow, succeed, and stay on top. However, companies such as Blockbuster, Kodak, and Walmart are examples of businesses that either failed at stretch goals, or were complacent when stretch-goals would have propelled them forward.
With not every company poised to have successful stretch-goals, there are smaller steps they can make toward change. The researchers said pursuing small wins builds confidence and momentum. And they noted that building excess resources by eliminating inefficiencies and enhancing current resources can increase overall performance.
When not used properly, putting stretch goals in place can be risky.
“In truth, most organizations are not well-suited to pursue stretch goals, and the risks will outweigh the benefits,” See said. “In our research, we wanted to provide some guidelines as to where managers should be able to tailor their practices to conditions most likely to lead to positive outcomes.”
The study’s co-authors are Sim B. Sitkin at Duke University’s Fuqua School of Business and C. Chet Miller of the Bauer College of Business at the University of Houston.