Content area
Full Text
To execute strategy, leaders must set ambitious targets, translate them into specific metrics and milestones, make them transparent throughout the organization, and discuss progress frequently.
In 1954, management guru Peter Drucker introduced "management by objectives," an approach where employees would agree with their boss on a set of goals and work toward achieving those objectives throughout the year. 1 Not even a visionary like Drucker, however, could have predicted how thoroughly goals would come to dominate the modern workplace. In 95% of organizations, according to a recent survey, employees set goals for themselves or their teams. 2
The Strategic Agility Project
This article is part of an MIT SMR series that explores how organizations can achieve their strategic objectives.
Learn more about this series ?
When it comes to setting goals, most managers follow a well-established set of practices. They hold one-on-one meetings with their subordinates to set goals, and then they review performance against those objectives at year end and link their appraisal to promotion and bonus decisions. 3 These same managers aspire to make their goals SMART, by ensuring they are specific, measurable, achievable, realistic, and time-bound. 4
The conventional wisdom of goal setting is so deeply ingrained that managers rarely stop to ask a fundamental question - does it work? The traditional approach to goals - the annual cycle, privately set and reviewed goals, and a strong linkage to incentives - can actually undermine the alignment, coordination, and agility that's needed for a company to execute its strategy. Expecting employees to hit 100% of their targets to earn their bonus, for example, creates strong motivation for them to "sandbag" by setting conservative targets they are sure to achieve. And when goals are kept private, employees don't know what colleagues in other teams are working on.
Goals can drive strategy execution but only when they are aligned with strategic priorities, account for critical interdependencies across silos, and enable course corrections as circumstances change. If these conditions aren't met, every employee could achieve their individual goals, but the organization as a whole could still fail to execute its strategy.
If the traditional approach to goals cannot ensure successful strategy execution, what's the alternative? Over the past few decades, a handful of leading companies...