Stretch Goals and the Distribution of Performance
نویسنده
چکیده
Many academics, consultants and managers advocate stretch goals to attain superior organizational performance. However, there is limited research exploring the effects of stretch goals on the distribution of performance. We explore the effects of goal difficulty on the mean, variance, and skewness of performance in two experimental studies. Participants were given either moderate or stretch goals for profit in a widely used management simulation with realistic dynamics. The stretch goals were achievable and well below optimal. Compared to moderate goals, stretch goals improved performance for a few, while most implemented policies that inadvertently led to bankruptcy, or, faced with that risk, abandoned the goal. Consequently, stretch goals led to higher performance variance and a right-skewed performance distribution but did not improve median performance. As a result of higher variance, stretch goals also led to lower risk adjusted performance. Furthermore, stretch goals generated large attainment discrepancies that increased perceived risk taking and undermined goal commitment. These two mechanisms help explain how stretch goals lead to high variance and a right skewed performance distribution. In complex environments, finding and following strategies to realize stretch goals is difficult and risky, and, instead, some managers adopt lower self-set goals or focus on survival. Depending on the risk preferences of managers, stretch goals might therefore be suboptimal even though a few organizations benefit. These findings extend theory on organizational goals and suggest caveats for the adoption of stretch goals.
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