Five Steps to Setting Effective Company Goals

March 23, 2015

Goal setting is nothing new. You’ve likely been setting goals for yourself since you were a child: learn to ride a bike, graduate from high school, get a good job. Human beings are goal-oriented creatures. We like to know the outcome expected of us.

Goals can be motivating or demotivating, however. They can be used as a carrot or a stick. Although humans may respond to both types of goals, over time the stick approach tends to demotivate and demoralize, while the carrot approach tends to energize.

If you’re hoping to set goals that will motivate, consider the following:

1. Don’t be arbitrary. An assigned goal should have some basis in reality. Let’s say you’re starting to offer a new product to your customer base and you want to set a goal for sales volume of the product.

You can’t know exactly what is reasonable, but you may be able to pull information from previous product launches that will help you be reasonable in the goal you set.

Or, you may be able to find market data that indicates the amount of demand and the likely buying patterns of the customer base you’re targeting. You should be able to explain why a particular goal was chosen if you want others to get behind it.

2. Goals should follow control. It is frustrating for an employee or department to be judged by goals they don’t have the ability to influence or control. For example, if you set a safety goal for the entire company and reward or punish the entire company for the result, you’ll likely be punishing people who had no control over the incidents that occurred. (The accounts payable department doesn’t have any control over how the trucking department manages its workers.)

A more useful goal might be to judge each department separately on the safety goal. Each department can be expected to train, instruct and monitor safety that is applicable to its own area. There is some departmental control.

3. Setting goals should be collaborative. It’s one thing to decree that a goal has been set. It’s another to include those who will be responsible for achieving the goal in the process of setting the goal.

Those closest to the task often see the opportunities and obstacles more clearly than those farther removed. Discussing the possibilities can make for a more reasonable goal, and it can result in more buy-in from the employees.

Managers sometimes fear that employees will try to set the goal low so that they can more easily achieve it. The collaboration of employees and managers in the discussion can limit this tendency. Looking at trends from prior periods can also be informative to the discussion and keep everyone focused on reality.

4. Goals should encourage collaboration between departments. There are often times when one department’s goals can pit it against another department.

While “positive tension” can be a good business principle, too much tension can lead to turf wars, wasted time and energy, and poor performance overall.

For example, if your accounts receivable/customer credit department is given a challenging goal of keeping receivables low, they may work against the sales department by setting the creditworthiness scale too high, making it difficult for sales to bring in new customers.

The key, of course, is balance. Consider having departments whose goals affect each other work together to set the goals. The company needs to do well, not just one department.

5. Goals should be specific and measurable. Keeping score is one of the components of using goals. Everyone involved with the goal should know how the score will be kept and what constitutes a winning score.

If you tell the people in a department, for instance, that one of their goals is to be more accommodating to other departments, that is somewhat difficult to specifically measure. The concept may be good and the behavior change may be needed, but the goal isn’t clear.

A better goal would be to specify things like achieving turnaround time, meeting deadlines, or attending regular meetings to better understand the needs of other departments. These are specific and measurable, and they will likely yield the result of being more accommodating.

Overall, goal setting should start at the company level and trickle down to the departments that support the company’s success. Each goal should clearly lead to a desired outcome of the company overall. When the team knows the overall goal and how their department’s behavior contributes to achieving the goal, they’ll be better able to perform and reach the desired targets.