Examples of Business Goal-Setting Theory

Dr. Edwin Locke formulated and clarified what has come to be called "goal-setting theory" in the 1960s. Since then, businesses have found that employees are more likely to do their best work once they have set clear, attainable goals. Goal-setting theory affects many aspects of your business and once you understand specific applications in each area, you can improve your company in concrete ways.

To be effective, goals must be clear according to goal-setting theory. Employees must know exactly what they're supposed to achieve and when. Merely telling an employee to "do better" does not offer a clear course of action and doesn't indicate how the employee will know when he has achieved the goal. An example of a clear goal is telling an employee you expect a 10 percent increase in sales in three months. Another example might be asking an employee to produce 15 more units per day over a period of six weeks. Such goals make it clear what the employee is supposed to do and what the deadline is. They allow for objective measurement.

A goal is most effective when it presents a challenge to the employee. According to the article, "Building a Practically Useful Theory of Goal Setting and Task Motivation" written by Dr. Edwin Locke and Gary Latham, if a task is too easy or too hard employees will not put in their best efforts. However, a goal that is just difficult enough to be challenging inspires maximum performance. For example, asking a production manager to cut costs by 90 percent might be overwhelming. Cutting costs by 20 percent might make a reasonable challenge. Similarly, requiring order takers to double the amount of orders they take in an hour could discourage them. A goal of 15 percent more orders per hour might be more reasonable and challenging.

Getting employees to buy in to the goals you set makes it more likely they will reach those goals. You can do this by asking employees to participate in setting goals. Their commitment will provide the energy and perseverance that will help them achieve those goals. For example, getting your accounting department to agree to having all of your assets labeled and tracked by the end of the year can give them a sense of purpose and direction that will help them work together and improve their ability to value assets for tax purposes.

You don't just add goals and then check on their completion at deadline time. If you provide benchmarks along the way, this lets your employees know how they are doing. You can also hold periodic meetings so they can give you feedback about any issues that have arisen and adjustments that have to be made. This two-way feedback approach helps measure progress towards achieving goals and provides encouragement in the face of difficulties. For example, if you want the production department to have 20 percent fewer rejections from the quality-control department in six months, you can meet with them each month to give them their current figure and identify any areas where the problems seem to be occurring. In addition, if you would like a 30 percent improvement in customer service ratings, you can give your customer service department feedback on a weekly or monthly basis to let them know how they're doing.

Complex tasks can be overwhelming. Help your employees break such tasks into smaller parts so that they can achieve smaller goals on their way to the big one. For example, if you want to migrate all the data from one database to another, you can set smaller goals of moving a set number of accounts each week or month. Another example might be that if you want expansion plans for a new facility done in six months, you could set smaller goals of completing an analysis for the financing needed, construction costs and the new personnel that will be required as separate goals to achieve.