Setting organisational goals has long been regarded as a crucial way for managers to guide employee actions and improve the performance of an enterprise.
But what if these objectives are poorly implemented, or have a 'dark side' that contributes to unethical behaviour?
It's a conundrum tackled by George Shinkle, an associate professor in the school of management at UNSW Business School, and a team of co-researchers, in On Establishing Legitimate Goals and Their Performance Impact.
The research paper draws on interviews with 22 company executives and a survey conducted with 522 firms across four countries: the US, Australia, Israel and China.
The authors identify three practices associated with organisational goal-setting that lead to higher competitive performance and successful goal attainment: paying attention to goal credibility; focusing on stakeholder importance; and concentrating on communication openness.
But according to the paper, doing these three things at just an average level doesn't have much impact on businesses or organisations.
"You need to do all three at a very high level to get substantial performance improvement," Shinkle says.
The research reveals that many leaders are struggling to set strategic goals and targets, while a small proportion of managers have found the way to reduce organisational apathy and acrimony – and lessen personal anxiety – with the goal-setting process.
'Where would the Googles and the Teslas of the world be if they didn’t have a vision for themselves as companies?'
– KEVIN DWYER
The bottom line
Kevin Dwyer, managing director of Change Factory, a change-management business consultancy, believes companies can find it difficult to put their goals in context as part of a broader vision.
"A lot of organisations don't have anything other than a brand tagline – so there's nothing they can communicate to employees about what kind of organisation they want to be, and therefore say, 'these are our goals'," Dwyer says.
Another risk is that companies may zero in on financial goals only.
"But where would the Googles and the Teslas of the world be if they didn't have a vision for themselves as companies?" Dwyer asks.
"They both lost money for years, but they had a bigger, broader set of goals wrapped around their vision."
This focus on the bottom line is a key theme in the research paper, with the authors noting previous studies that link unethical behaviour to targets perceived as not being credible by those expected to reach them.
Graeme Gherashe, a director at Gherashe Consultants and a former HR executive, says strategic planning and goal setting are discussed at length in most businesses but can be "lost in translation".
While leaders may define their mission, values and goals, they often neglect to adequately communicate those objectives to key individuals, "so it's the cascading down that fails".
Even if they do articulate their goals, it tends to be on an annual basis only, rather than being a "living organic document".
And Gherashe agrees that an over-emphasis on financial goals in some companies can lead to negative outcomes.
"We encourage the dark side by almost rewarding people who achieve or over-achieve on the financials versus the soft things," Gherashe says
Shinkle cites earlier research suggesting that the more legitimate a goal, the less likely it is to be linked to a lack of ethics.
"So if you do this kind of legitimacy-building process to set your goals, you'll end up with less unethical behaviour," he says.
Dwyer adds that senior leaders also have to create clarity around corporate governance policies – and put in place any associated training or authority protocols – so employees know what is acceptable in the pursuit of goals.
"You've got to have that governance structure but also the parameters around what behaviours you'll allow for employees to reach those goals," Dwyer says.
A key message to emerge from the research paper is that successful organisations typically strive to understand their stakeholders' requirements and preferences before setting any goals.
While some may pay attention to just one stakeholder – usually the board of directors – the best companies and organisations factor in multiple stakeholders, including operating managers, shareholders and social interest groups.
'What our data shows is that firms typically don’t pay as much attention to the actors as they should'
– GEORGE SHINKLE
Most importantly, however, the paper drives home the point to leaders and managers that they will attain better outcomes if they select goals or targets that are perceived to be legitimate by the key 'actors' – typically employees – who are entrusted to deliver any desired outcomes.
"It's easy for a board of directors to want to have super-high goals, but there is a risk that you devoid yourself of touching the humans who actually have to do the work to get it done," Shinkle says.
The upshot is that while the views of all stakeholders should be taken into account, "you need to pay more attention to the actors for each specific goal".
"What our data shows is that firms typically don't pay as much attention to the actors as they should," Shinkle says.
"But you're going to have better performance by not increasing the goal to the point where the people who need to act just turn off."
Dwyer believes it's important to be able to translate all goals, financial or otherwise, to others in the organisation.
"Think about storemen and women in a warehouse. They're not selling products, so you've got to be able to think your way through these goals and how that converts into a purpose for all your employees," Dwyer says.
That requires open dialogue within the organisation.
Gherashe agrees that the communication of goals by management personnel – who are often promoted for reasons other than their communication skills – must be on the agenda if enterprises want to advance their goal-setting objectives.
Too often, he argues, internal communication does not get the right balance between financial and soft skills in goal-setting.
"Almost all internal communications talk about 'where we're going' but not the micro issues – and those micro issues are often the big rocks that make it happen," Gherashe says.
The paper concludes that many entities miss out on an opportunity to enhance performance, as well as reduce the likelihood of unethical or negative behaviour, by ignoring practices that enhance the legitimacy of organisational goals.
Shinkle believes the research takes an important initial step toward understanding how organisations can better shape the legitimacy of their goals through the three aforementioned practices – goal credibility, stakeholder importance and communication openness.
For leaders, the findings also help them navigate the pressures from different stakeholders.
As Shinkle explains: "Giving attention to goal content, the goal-setting process and the multiple stakeholders for goals builds legitimacy of organisational goals, which is critical for higher organisational performance."
George Shinkle's co-authors were professor Chris Jackson and PhD candidate Mirjam Goudsmit at UNSW Business School; assistant professor Feifei Yang from the Asia Europe Business School at East China Normal University; and associate professor Brian T. McCann from the Owen Graduate School of Management at Vanderbilt University. The study was part of a three-year Australian Research Council award.