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 CORPORATE LEADERSHIP COUNCIL ® NOVEMBER 2007
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KEY FINDINGS
Goal Setting Design and Implementation

Although the leaders of many organizations understand the critical role goals play in creating and realizing business strategy, the
process of goal setting often remains ambiguous. This research piece presents the business case for strong organizational goal
setting and outlines key theories and strategies, which can enable organizations to create effective goals.

THE B USINESS CASE FOR SETTING GOALS

Goal setting is the core of both an individual’s and an organization’s self-management because it creates discontent with present
performance. Goals can thus have a direct impact on the performance and growth of a company. The following is a listing of the
critical facets of goal setting that have implications for employees and organizations:1

§ Goal setting affects choices and gives direction to pursuits

§ Goals increase effort, prolong persistence, and encourage employees to search for appropriate strategies to attain goals
§ Goals provide meaning to an otherwise meaningless task
§ Goals are regulatory mechanisms for monitoring, evaluating, and adjusting behavior

In particular, research indicates that setting and committing to specific, challenging goals has a positive effect on performance.
Challenging goals lead to greater effort, focus, and performance success than easy goals. Furthermore, specific goals provide
an objective and unambiguous basis for judging one’s effectiveness.2

THE NATURE AND PREVALENCE OF ORGANIZATIONAL GOAL S ETTING

Given the importance of goal setting and its impact on organizational growth and performance, it follows that many companies
include goal setting measures in their core functions . The Chartered Institute of Personnel and Development conducted a
Performance Management survey in September 2005 that polled organizations regarding their current engagement in goal
setting strategies and techniques. The statistics below detail the most important prevalence findings uncovered by this survey: 3

§ 62% of companies polled conduct an objective setting and review process

§ 82% of companies who conduct objective setting process believe it to be effective
§ 78.9% of respondents link team and organization objectives
§ 44% of com panies polled use cascading goals from central business strategy to link their objectives

This data bolsters the argument for implementing goal setting efforts in all organizations with the support and initiation of
executive-level leadership.

GOAL S ETTING THEORY

Goal setting research identifies two principles that are primary to goal effectiveness within an organization. These central tenets
of goal setting are detailed in the following figure:4

Figure 1: The Core Principles of Effective Goals

Principle Description
Goals must contain essential Goals should be specific and of a reasonable degree of difficulty in order to
characteristics in order for maximize the effort and persistence an employee puts in to his or her work
employee motivation to be high
Employees must strongly accept
Goals are most effec tive when personal and organizational values are aligned
established goals

Essentially, goal setting theory includes both the design and implementation of goals. These categories are expanded upon in
the following section:

 2007 Corporate Executive Board. All Rights Reserved.

Catalog Number: CLC13505
 CORPORATE LEADERSHIP COUNCIL ® PAGE 2
GOALSETTING D ESIGN AND IMPLEMENTATION KEY FINDINGS

GOAL S ETTING THEORY (CONTINUED )

Components of Goal Design

Research indicates that the best means of achieving goals is to spend significant time and effort in planning and creating them.
Many individuals and organizations utilize the concept of SMART goals in the goal setting process. This framework suggests
that goals should be Specific, Measurable, Attainable, Realistic, and Timely. 5 While the SMART framework aids in the basic
creation of goals, the implementation of the characteristics detailed in the figure below enhances and refines the relevance and
utility of goals:6,7

Figure 2: Critical Characteristics of Well-Designed Goals

Characteristic Description Implications

Super-ordinate goals create cooperative
interdependence amongst employees.
Super-Ordinate Goals Exist Goals should be broad and overarching in Employee interests become positively and
order to unite employees . mutually beneficial, causing them to work for
the benefit of the company as a whole.
Goals should be challenging, but made more Sub-goals help reduce errors in a dy namic
Big Goals Are Broken into
attainable by breaking the broad goal into environment because they allow for up-to-date
Sub-goals
sub-units . feedback.

Goals that are high and specific are difficult to Punishing failure discourages risk-taking, even
Failure to Attain Goals Is Not
attain. Because failure is inevitable, it should though failures and false starts are necessary
Punished
not be unduly punished. precursors to success.

Goals should be seen as a challenge rather Research indicates that seeing goals as a
Goals Are Positively-Framed than a threat. threat decreases employee performance
towards that goal.
Goals should be actionable in order to clarify End-result goals are important but not doable.
Goals Are Cause-Oriented actions necessary to achieve goals. Employees need instructions and methods for
action built into goals.

Implementation of Goals

After effective goals have been created, organizations must focus on honing the methods with which they attempt to
implement and achieve stated goals. Although having goals is the first step toward performance success, results are
only realized when measurable progress is made. The following figure highlights some key characteristics of
successful goal implementation programs:8,9

Figure 3: Critical Characteristics of Well-Implemented Goal Setting Programs

Characteristic Description Implications

Evaluate major goals monthly, others
Goals Are Continuously Set Goal setting is an evolving process, not an quarterly, and establish interim deadlines.
activity to be undertaken just once per year.

Goal Setting Programs Goals are selected and prioritized using a Without an explicit goal pursuit methodology in
Incorporate Methods for Goal systematic method. Targets and action plans place, goals are entirely ineffective and
Pursuit are also set in this manner. inefficient.

Goal setting should involve communicating to

Setting clear targets is a key component of
Goal Setting Is Cooperative all stakeholders what the achievement of the
clarifying goal setting intentions and
goal will mean for the individual and for
encouraging widespread buy-in.
the company.
Goal setting should include creating visible Use several methods of communication
Goals Are Omnipresent reminders of goals and plans for instead of simply one tactic that might be
pursuing them. ignored. The use of technology is important.
Goals should be measurable and goal progress
If data is not available to measure progress
Goals Are Measured with should therefore be able to be tracked and
and actual results of a goal, the measure, and
Data supported by an organization’s information
therefore the objective, has little utility.
technology.

 2007 Corporate Executive Board. All Rights Reserved.

 CORPORATE LEADERSHIP COUNCIL ® PAGE 3
GOALSETTING D ESIGN AND IMPLEMENTATION KEY FINDINGS

CASE PROFILE: IMPROVING THE GOAL S ETTING P ROCESS AT M ICROSOFT

The Challenge—Microsoft’s Performance Management (PM) system review team conducted an audit of employee annual
performance review forms and confirmed leadership’s suspicions that the rigor of Microsoft’s goal setting process had
diminished. Almost 25% of employees lacked specificity in their goals, and over 50% of employees had written immeasurable
objectives. After conducting focus groups to follow up on these issues, the PM team discovered the following reasons for the
lack of rigor in goal setting:10

§ The rate of change of the company made it difficult to set specific goals that fit business needs for an entire year
§ There was no consistent process for goal alignment and cascading throughout the organization
§ Managers lacked training in setting goals
§ Many goals were assigned from the top, with little or no discussion or explanation by managers

The Solution—Microsoft undertook efforts to change both the definition and the implementation of goals across the
organization. The following actions and activities are the most integral aspects of Microsoft’s solution to its goal setting
challenge:11

§ Re-Name Goals as Commitments—Microsoft’s PM review suggested that employees had come to view goals as
aspirations, rather than genuine commitments. By changing the wording of objective setting language, company leaders
believed employees would assume greater levels of accountability for the commitments they made.

§ Agree to Success Metrics for Each Commitment—Commitments were required to include an explanation of how they
would be enacted, in addition to what was being promised. The execution plan includes significant milestones across the
fiscal year.

§ Cascade Commitments from Organization-Level to Individual—In addition to training programs for all employees on
commitment setting, Microsoft’s executives made efforts to further clarify the company’s business objectives. The figure
below details the commitment setting form that Microsoft created to align accountabilities across the firm:12

Figure 4: Goal Setting Section of Microsoft’s Performance Review Form

 2007 Corporate Executive Board. All Rights Reserved.

 CORPORATE LEADERSHIP COUNCIL ® PAGE 4
GOALSETTING D ESIGN AND IMPLEMENTATION KEY FINDINGS

B ALANCING TOP-DOWN AND BOTTOM-UP GOAL S ETTING

In addition to clarifying the process of creating and setting goals, organizations must also consider how and where these goals
originate. Specifically, organizations should address two primary questions when working towards a goal setting and
implementation program, which are detailed below:

Where Should Goals Come From?—While the research detailed in the previous sections highlights the necessity of goal
congruence at all levels of an organization, another aspect of effective goal setting involves situating objectives in an
organization’s current business context. A thorough understanding of what the organization needs to succeed forms the core of
an effective business strategy. The goal setting process is intended to drive that understanding throughout the organization and
deliver it to employees at all levels who can bring this strategy to life. Informing all organizational stakeholders about key
business strategies helps achieve the following ends:13

§ Business strategy provides the context to answer questions regarding what employees must do to achieve goals and what
will happen if these goals are not met
§ When business strategy is integrated into everything that employees do, all goals across the organization become
interdependent and therefore much more powerful

Who Should Initially Set Goals?—Many organizations disagree over whether goal setting should be a top-down, executive-led
process or a bottom -up process beginning with functional business units. The following figure highlights the evolution of the
organizational goal setting process, from previously-used top-down mandates to the recommended strategy of facilitating give-
and-take negotiations between many levels of employees :14

Figure 5: The Evolution of the Organizational Goal Setting Process

Top-Down Mandates Bottom-Up Target Setting Give-and-Take Negotiations

between All Levels

§ Although bottom-level feedback

§ Because goal setting required § Functional areas took up the task of is important, senior executives
information only top-level developing goals, which then
should facilitate the goal setting
managers were privy to, served as foundations for business-
process.
executives felt compelled to level targets, in order to remedy the
§ While executives are privy to a
make strategic calls and pass lack of holistic input. Business-level
greater level of strategic
them along to the rest of the employees then conveyed these
information than other
organization. targets to the corporate level.
employees, senior leaders can
§ The problem with this method § What made intuitive sense to front- also benefit from functional
was that it ignored the input of line employees did not necessarily experts ’ vast current knowledge.
many critical stakeholders, and work in practice given the overall
§ Instituting give-and-take
executives were often too far business context.
communication draws on an
removed from lower levels to § Executives insisted on successive expansive array of knowledge
understand how the front-line iterations of the target setting and information and is the best
creates value. process until low level goals way to inform strategy.
matched “nonexistent” corporate
expectations.

 2007 Corporate Executive Board. All Rights Reserved.

 CORPORATE LEADERSHIP COUNCIL ® PAGE 5
GOALSETTING D ESIGN AND IMPLEMENTATION KEY FINDINGS

CASE PROFILE: STRATEGIC B USINESS GOALS AT WESTPAC

The Challenge—As part of its vision to be a “great Australian company,” Westpac undertook an organizational assessment that
uncovered a need to address and embed greater discipline around the executive goal setting process. The challenge was
comprised of three key issues, which are described below:15

§ Stronger link required between individual and organizational performance—Need greater clarity into how individuals
contribute to Westpac’s broader, strategic goals

§ Greater focus needed around accountability commensurate with position and roles—Need to embed greater
accountability and more accurate objectives in individuals’ personal goals to align with, and help deliver on, annual
organizational strategy

§ Greater transparency required between strategic and other HR processes—Need to ensure greater transparency
between current processes, such as strategy creation and performance management

The Solution—Westpac created an objective setting framework that outlines action steps for the top 300 executives in the
organization to establish performance goals. The focus of this framework is to enable the alignment between goals at the
business unit level and the company’s strategic goals. Westpac’s goal alignment and cascading process begins with executive
objective setting. The process facilitates collaboration in goal alignment amongst executives by mandating goal alignment
sessions to share strategies across functions. Westpac’s six-step objective setting framework carries strategy from the
executive-level to individuals, summarized by the following figure:16

Figure 6: Westpac’s Objective Setting Framework

 2007 Corporate Executive Board. All Rights Reserved.

 CORPORATE LEADERSHIP COUNCIL ® PAGE 6
GOALSETTING D ESIGN AND IMPLEMENTATION KEY FINDINGS

NOTE TO MEMBERS: This project was researched and written to fulfill the research request of several members of the
Corporate Executive Board and as a result may not satisfy the information needs of all member companies. The
Corporate Executive Board encourages members who have additional questions about this topic to contact their research
manager for further discussion. The views expressed herein by third-party sources do not necessarily reflect the policies
of the organizations they represent.

PROFESSIONAL SERVICES NOTE: The Corporate Leadership Council (CLC®) has worked to ensure the accuracy of
the information it provides to its members. This project relies upon data obtained from many sources, however, and the
CLC cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, the CLC is not engaged in
rendering legal, accounting, or other professional services. Its projects should not be construed as professional advice on
any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate
professional. Neither Corporate Executive Board nor its programs are responsible for any claims or losses that may arise
from any errors or omissions in their reports, whether caused by Corporate Executive Board or its sources.

1
Latham, Gary P. and Edwin A. Locke, "Enhancing the Benefits and Overcoming the Pitfalls of Goal Setting,"
Organizational Dynamics (2006). (Obtained through ProQuest).
2
Latham, Gary P. and Edwin A. Locke, "Enhancing the Benefits and Overcoming the Pitfalls of Goal Setting."
3
Author Unknown, "Performance Management Survey Report," Chartered Institute of Personnel and Development
(September 2005). (Obtained through http://www.cipd.co.uk). [Accessed 20 October 2007].
4
Schaffer, Bryan S., "The Nature of Goal Congruence in Organizations," Supervision (1 August 2007).
(Obtained through ProQuest).
5
Dees, R. Brent, "The Power of Goals," Personal Excellence (April 2006). (Obtained through EBSCOHost).
6
Ball, James R, "Goals," Oil and Gas Investor (September 2007). (Obtained through ProQuest).
7
Latham, Gary P. and Edwin A. Locke, "Enhancing the Benefits and Overcoming the Pitfalls of Goal Setting."
8
Latham, Gary P. and Edwin A. Locke, "Enhancing the Benefits and Overcoming the Pitfalls of Goal Setting."
9
Kapel, Claudine and Catherine Shepherd, "Four Keys to Goals and Performance," Canadian HR Reporter
(23 February 2004). (Obtained through EBSCOHost).
10
Shaw, Karyll N., "Changing the Goal-Setting Process at Microsoft," Academy of Management Executive
(November 2004). (Obtained through EBSCOHost).
11
Shaw, Karyll N., "Changing the Goal-Setting Process at Microsoft."
12
Shaw, Karyll N., "Changing the Goal-Setting Process at Microsoft."
13
Kapel, Claudine and Catherine Shepherd, "Four Keys to Goals and Performance."
14
Humphreys, John, "The Dysfunctional Evolution of Goal Setting," Sloan Management Review (Summer 2003).
(Obtained through http://sloanreview.mit.edy/smr/issue/2003/summer/14/). [Accessed 25 October 2007].
15
Corporate Leadership Council, Westpac: Aligning Executive Performance Objectives with Strategic Business Goals,
Washington: Corporate Executive Board (July 2004).
16
Corporate Leadership Council, Westpac: Aligning Executive Performance Objectives with Strategic Business Goals.

 2007 Corporate Executive Board. All Rights Reserved.