Stretch goals are “deliberately challenging or ambitious aims or objectives.” Known colloquially as BHAG’s – Big Hairy Audacious Goals – they are ubiquitous in revenue planning and deeply entrenched in sales culture. Fittingly, stretch goals themselves carry a bold sales pitch: Outsize performance reaps outsize reward.
To attract investors, CEO’s have conjured semantic theatre around stretch goals. Robert Reffkin, CEO of upstart real estate company Compass, brashly promoted his “20/20 by 2020” plan, boasting that the company would have 20% market share of the top 20 US markets by 2020. He walked that back following layoffs and financial under-performance at the company. And Wells Fargo’s ex-CEO John Stumpf fatuously proclaimed “eight rhymes with great” to goad staff into establishing multiple accounts for every bank customer. Stumpf’s catchy slogan came back to haunt him when Senator Elizabeth Warren famously reminded him about it during the government inquiry into the bank’s systemic customer fraud. Watch the video. You won’t see a better example of a polished CEO caught off guard.
Why do some companies have a decent shot at making stretch goals, while others trip all over themselves, making it clear they don’t have a snowball’s chance? How do some companies manage to extend the benefits beyond investors, while others create incalculable harm and wreckage? And importantly, why do some executives persist in using stretch goals as a mallet rather than an incentive?
Before Google became the dominant search engine, the company established a goal “to organize the world’s information and make it universally accessible and useful.” While this has caused unintended negative consequences, the benefits to society are incalculable. By contrast, “in the early 1990s, Sears gave a sales quota of $147 per hour to its auto repair staff. Faced with this target, the staff overcharged for work and performed unnecessary repairs. Sears’ Chairman at the time, Ed Brennan, acknowledged that the stretch goal gave employees a powerful incentive to deceive customers,” wrote Daniel Markovitz in a Harvard Business Review blog, The Folly of Stretch Goals (April 20, 2012).
When do stretch goals work? Another Harvard Business Review article, The Stretch Goal Paradox, by Sim Sitkin, C. Chet Miller and Kelly E. See reveals likely success factors. “Before launching stretch goals in sales, production, quality, or any other realm, how can you be confident that your grand aspirations will trigger positive attitudes and actions rather than negative ones? When facing radically out-of-the-box opportunities or threats, you can’t just rely on intuition. You need clear guidelines for assessing and addressing risk. You have to know when stretch goals do and do not make sense, and when to employ them rather than set more achievable objectives.”
Two key conditions influence the likelihood that stretch goals will produce positive results.
- Existing success momentum. “If a company has just surpassed an important benchmark in the industry or in its own recent history, it’s well positioned to tackle a stretch goal . . . Winning affects attitudes and behaviors positively. When confronting an extremely challenging task, the employees of recent winners are more likely to see an opportunity, systematically search for and process information, exhibit optimism, and demonstrate strategic flexibility.”
- Available resources. “If the supply of money, knowledge and experience, people, equipment, and so on exceeds a firm’s needs, the surplus can be used in a discretionary way. It can help organizations search broadly for ideas, experiment with them, and remain committed in the face of setbacks. Well-resourced organizations are better positioned to absorb failures that come with trying a variety of new ideas—not just because they have funds to move forward but also because they have emotional reservoirs that increase their resilience.”
As an operational tactic, stretch goals are not inherently bad. But like many business tactics, they get a bad rap after they have been misused. Senior sales executives often institute stretch goals as a “hail Mary” to turn things around at companies with flat or declining revenue growth. That’s a mistake. At companies in low-growth markets or suffering from repeated revenue setbacks, the effort often backfires, causing frustration, disillusionment, and employee churn. Instead, Sitkin, Miller, and See advocate pursuing small wins over stretch goals. Further, when the sales organization’s pursuit of stretch goals exceeds the company’s capacity to fulfill its promises, infighting and bad customer experience are the inevitable outcomes. In these situations, instituting stretch goals risks corroded morale and jeopardizes corporate strategy.
The important thing to remember about implementing stretch goals is that they should never be considered a “no brainer.” Stretch goals don’t fit every organization, and they don’t mitigate every revenue or performance challenge. The opportunities stretch goals create must be realistic and their probabilities should be carefully assessed. So should the risks.
Advantages of stretch goals:
- Discourages complacency based on past success
- Encourages employees to take intelligent risks
- Encourages innovation and new approaches to solving problems
- Provides employees a more equitable share of financial rewards
Disadvantages of stretch goals:
- Low morale, disillusionment, and skepticism if goals are missed
- Potential de-motivation and fear
- Unintended consequences, such as harm to customers and other stakeholders
For deciding whether to implement stretch goals, Sitkin, Miller, and See offer succinct guidance: “We understand that the next Panama Canal, moon landing, and iPhone cannot be produced without bold ambitions. But attempts at such outcomes should not be ill-advised lottery bets. Savvy strategic choices are better by far. Shoot for greatness. But greatness doesn’t always come from dramatic leaps. Sometimes it comes from small, persistent steps.”