Setting Goals: Good vs Bad Goals

This is part 2 of our series on Setting Goals, previous segments are available in our archives.

One of the hardest things about setting goals is that good goals and bad goals can be easy to confuse if you aren’t careful. Before we go any further, let’s define the difference between good and bad goals.

Bad Goals… are easily manipulated, unclear or open to interpretation.

Good Goals… encourage good behavior, are clearly written and are measurable by anyone.

It might surprise you that one of the key differences between good goals and bad goals is whether they are easily manipulated or open to interpretation. When it comes to pursuing goals, human behavior drives us to try and achieve those goals in any way we can. While I am sure your team would not resort to lying or illegal activities, there are many gray areas that can be tempting to pursue when a goal is hard to achieve.

Let’s look at an example! If you set a goal for your sales team to Increase Revenue by 10%, there are a few ways they might pursue this goal:

  1. They might work as hard as possible to close 10% more quality deals, resulting in 10% more revenue at the same margins you have had previously.
  2. They might provide 50% discounts to new customers, growing revenue by 10%, but reducing margins to zero (or go negative).
  3. They might pursue high risk customers that will grow revenue by 10% in the short term, but churn in a matter of months resulting in a drop in revenue.

Obviously, option 1 is what you were hoping the team would do when you set the goal. However, options 2 and 3 become very tempting if they struggle in pursuit of the goal and their compensation is tied to achieving that goal. Look no further than the recent scandal at Wells Fargo, where over 5,000 employees were caught using illegal tactics to hit their goals, to see how tempting these options can become.

That’s no good. How do I avoid that?

Well, if you want your employees to avoid breaking the law you should make ethics part of your hiring process and corporate culture. If you want to avoid the gray areas around achieving goals, you can set goals more effectively! Instead of setting a goal to “Increase Revenue by 10%” you could choose any of the following:

  • Increase Revenue by 10% while maintaining net margins.
  • Increase Net Revenue by 10%.
  • Increase Profits by 10%.

Each of these options provide more clarity and require less interpretation than the original goal, increasing the likelihood that you will get the result you want. However, even these options provide subtly different incentives. For example, focusing on Net Revenue might cause the team to try and change the definition of your Cost of Goods Sold (COGS) by reclassifying some costs as fixed.

The goals you choose, and the incentives they provide, will be specific to your business. Being thoughtful of those hidden incentives and designing goals to encourage good behavior can take time and practice. Good luck!

Learn more: While you are at it, you might want to watch a related video I recorded about Choosing Your KPIs (3:07) and how they related to choosing your goals.

 

Quote of the Day: “Setting goals is the first step in turning the invisible into the visible.” – Tony Robins