The Dysfunctional Evolution of Goal Setting

For many years, when it came to setting goals, organizations took a top-down approach. It made sense: Goal setting requires information of the sort only top-level managers had, and it was their job to make the calls and pass them along to the lower levels of the company. Of course, this approach usually failed to consider the input of many other critical stakeholders, and senior managers were often too far removed from the lower levels of the organization to fully understand how front-line employees create customer satisfaction and value.

To overcome this limitation, the sirens of strategic management thinking called for a bottom-up approach. Functional areas of the company would develop their goals, which would provide the foundation for business-level targets, which would then be rolled up into corporate-level goals. Again, this made intuitive sense: Operating employees have the fullest understanding of customer desires and expectations, which ought to form the basis of unit performance goals and, ultimately, the organizational mission and vision. In my experience with various organizations, however, what makes intuitive sense is not always what works in practice. As many traditional top-down companies have attempted to turn bottom-up, they have created a dysfunctional mutant organization that possesses the worst characteristics of each approach. In many companies, strategic leadership teams buy into the bottom-up notion so completely that they abrogate their responsibility to lead the process.

Say, for example, a company’s senior managers, upon analyzing its capabilities and the state of the current business environment, determine that the organization must have 10% sales growth in the coming year. Do they communicate that figure to the regional managers? Absolutely not! They believe they should be past simply dictating numbers. Instead, they send out the call for functional-level targets. Salespeople, who are closest to the customers, are asked for their individual growth targets. Regional managers then tally these to form the regional goals, which are then rolled up to form the corporate goals. But suppose this bottom-up–generated performance target equates to only 2% sales growth for the company, which is, of course, unacceptable. Do senior managersthen let the regional folks know that 10% growth is the target number? Definitely not! That would be the dreaded top-down mentality. Instead, they send out the call to regional and operational personnel to try again. Successive iterations of this clandestine exchange continue until the numbers percolating up from the lower levels match the supposedly nonexistent corporate expectations.

What’s the moral of this story? A bottom-up approach to goal setting does not mean senior executives should not facilitate the process. In fact, they must. Using a bottom-up approach only works if crucial communication between organizational levels takes place. Field employees have not been seated at the board table and are not usually privy to strategic conversations. Therefore, leaders are obliged to ensure that operating employees aren’t so woefully uninformed that they cannot intelligently participate in the process. Effective communication requires some level of give and take, of negotiation between organizational levels. By avoiding this negotiation, senior executives miss the opportunity to benefit from the functional experts’ vast current knowledge and the chance to seed it back into the strategic process.

The bottom-up approach is also ineptly employed when senior managers are not serious about receiving employee input. Although simply dictating goals to operational-level workers may not be seen as motivational, asking for their input and then ignoring it is even more deflating. This not only misses the opportunity to garner the motivational benefits inherent in bottom-up empowerment, but it can cause an enormous decline in morale. Functional specialists do not want to waste their time in goal-setting meetings when they believe the decisions have already been made.

To remain competitive today, firms need the valuable expertise and the enthusiastic commitment of employees at every level. If handled properly, effective goal setting will enable the organization to benefit from both.