Are you setting the right type of goals?

The most common goal-setting mistake people make, apart from not setting goals at all, is setting the wrong type of goals. That is, setting goals that artificially constrain your team or give so much freedom as to be meaningless. The purpose of goals is to engage your team in working most productively towards the outcomes you desire.

Broadly, there are three types of goals: Activity, Results and Value.

• Activity goals are about the activities that you carry out in order to deliver value.
• Results goals are the results of value creating activities, and are often measured in financial terms.
• Value goals are about the value created by activities for customers and company.

Most people default to Activity and Results goals, because these are easier to think about. But they don’t help your team produce the best outcomes. Let’s look at an example to see why.

We’ll consider a simple business selling sandwiches with a small team. You are the manager, setting goals to try to improve this quarter.

Activity Goals

You analyze the situation, decide what needs to be changed, and exactly how, and then give your team the following goals:

1. Increase daily sandwich production from 450 to 500
2. Deliver 1000 flyers to offices within 1km walk each week
3. Reduce amount of fillings spilled when making sandwiches by 30%

Superficially, these goals look good. If the team executes them, and if your analysis is correct, you’ll produce more, advertise more and reduce costs, so you should have an improvement in the business.

But what if your team makes 50 more sandwiches and they don’t sell? What if the flyer isn’t very good, or if office workers don’t read flyers? What if saving the fillings meant that the team had to slow down so much that it took them longer to make, and ended up costing more? What if your team is capable and engaged, and has some better ideas to deliver value, but you’re telling them to focus on these particular things instead?

Key question: Can we achieve this goal and yet not create value for the company?

Results Goals

You realise that Activity goals might not actually lead to success, so you make sure your goals define success for the bottom line of the business.

1. Increase revenue by 10%
2. Decrease costs by 5%

These are typical financial goals, and if you met them, you would increase your profits.

But most of your staff spend their time carrying out activities that are a few steps removed from the financials. There are many ways one can meet these goals, so it’s hard for staff members to relate them to their daily work.

They may simply shrug and continue as normal, in which case the goals had no effect. Or they may decide to take some initiative, but now each team member is trying to decide what to do from scratch, and they may make incorrect or conflicting choices.

Key Question: Is this goal relevant and meaningful to my teams’ daily activity?

Value Goals

You decide to focus on the value that the team provides to customers and to your company, and put goals in place around this, but let them decide the activities they need to carry out to meet these goals.

1. Attract 10 new customers each day
2. Make better sandwiches, as measured by reviews on Google
3. Get more efficient at making sandwiches so we don’t have to work longer as we grow

Your staff can now see what you’re trying to achieve, and can use their creativity and initiative to find ways to get these results. Meeting these goals will definitely give you value, unless you’re wrong about some fundamental part of your business - you are at capacity, customers don’t want better sandwiches, or your costs are not attached to the time spent making sandwiches.

As a manager, you are clearly communicating your strategy to your team in a concrete form. Your staff are now responsible for executing this strategy, with your active coaching and guidance to help.

Why have the right type of goals?

There are no magic bullets, and having the right type of goals won’t instantly solve all of your execution and engagement challenges. But it will help create an environment where your team feels empowered and trusted, and where they know how their work is valuable to the company.

They aren’t easy questions, and the answers aren’t always obvious, but asking and answering these questions, and communicating the value you want your team to create is a core part of management.

Here’s some additional tips that may help:

Moving from Activity goals to Value goals

• What are we really trying to achieve?
• Why are we doing this?
• What will change after this?
• How will we know if it's successful?
• How will we know if it works?

Moving from Results goals to Value goals 

• What value do we create that enables us to deliver these results?
• Why do our customers spend money with us?
• Where do new customers come from?
• What drives our costs?
• What are the sources of risk?

Happy goal setting!