What are Business Goals?

Goals are a fundamental part of any good business plan. They specify where your business is going and how you'll get there. Like a sailboat crossing the water, if you don't have specific goals, the winds of change, turbulent waters and sudden crises can put your business off course or even sink it.

Simply put, a goal is a written statement describing what you want to achieve within a deadline. Business goals include those for the company as a whole, goals for each department and goals for each employee. Ideally, they should all be aligned so that employee and department goals help the entire company reach its goals.

The words goals, objectives and targets are often used interchangeably. Some companies use the word goals to describe overall goals for the company, with objectives set out for departments and targets to describe individual employee goals.

Goals and Objectives Examples:

• Business Goal: Increase profit by $1 million this year.
• 1. Sales Department Objective: Increase sales by 40 percent this year.
• Sales Rep Targets: Make 20 additional cold calls per week.
• 1. Production Department Objective: Decrease returns by 10 percent.
• Production Employee Targets: Double check every shipment and sign.

For decades, managers and business owners have used SMART goals, which ensures that goals are Specific, Measurable, Achievable, Realistic and Time-bound.

However, research published by the MIT Sloan School of Management in 2018 revealed that there's more to setting company goals than making them SMART. In the desire to make goals achievable, many business leaders wind up making their goals too conservative, too private and too rigid in the face of dynamic market conditions.

A classic example of the failure of SMART goals is sales projections. A sales rep and her manager will discuss the goals in private. When the sales rep is paid a bonus for exceeding those goals, she'll naturally make those projections as conservative as possible. Then, towards the end of the quarter, the sales rep will usually hold back on upcoming orders if she has already reached her bonus.

In addition to this, because the goals are usually private, nobody else knows what the goals are, which doesn't foster a sense of teamwork in the sales department or elsewhere in the company.

Donald Sull and Charles Sull found that the most effective goals are FAST: Frequently discussed, Ambitious, Specific and Transparent. FAST goals are used by companies such as Burger King, Kraft, Heinz and Anheuser-Busch InBev.

Google posts each employee's goals beside their name, title and contact information in the company's internal employee directory.

Making goals transparent to everyone in your company may seem to be more detrimental than a benefit, especially if a company has always kept goals private and confidential in the past. However, in the vast majority of cases, the benefits outweigh any drawbacks, regardless of the size of the company or the industry it's in.

When the business makes its overall goals available to the employees, they, in turn, can align their goals and objectives to match the company's strategies. Furthermore, when everyone knows what other departments are planning to do, they're less likely to make unrealistic demands of those departments and duplicate the work planned by those other departments.

Making goals specific, based on actions and measured with metrics and milestones, has been a part of Intel's business model since the 1970s. Other companies have since adopted this model, including Amazon, Intuit and Google.

Goals should be defined with concrete actions, measurable and clear in how they'll be achieved and measured. This is often defined as objectives and key results, or OKR. Other companies measure goals using key performance indicators, or KPIs.

Compared to using vague goals like doing your best, just defining a few specific and ambitious goals can increase performance. Study after study over the past five decades has shown this to increase performance to the 80th percentile.

Using metrics and milestones also increases performance. Just by taking the time to break down goals into specific actions helps you to think through the details of how you're going to achieve those goals. For employees, specific tasks help them to understand exactly what's expected of them instead of basing their understanding on generalities that are often misinterpreted.

Specific actions also make it easier to adjust to changing circumstances. For example, if the overall company objective is to increase web-based sales by 40 percent this year, this could be broken down into specific tasks like increasing social media engagement by specific numbers and increasing online advertising by specific amounts to bring in more visitors. Once you've achieved the social media engagement goal on different platforms, you can compare this to your increase in sales and adjust your requirements accordingly.

Many companies set goals on an annual basis. Management and employees typically enter these goals in a spreadsheet or Word document and then look at them once or twice over the course of the year. At year's end, it's no surprise that what they accomplished has little in common with what their goals had been at the beginning of the year.

Making goals based on fiscal quarters rather than annually gives team members four times the opportunity to discuss those goals, evaluate them and adjust them as needed. Regardless of the time period for goals to be achieved, monitoring progress and discussion is paramount to business success. Companies like Microsoft and IBM now discuss goals regularly rather than waiting for annual performance reviews.

Many business owners, executives and managers have been taught over the years to focus on setting achievable goals in order to keep the organization motivated. If you had $100,000 in sales last quarter, setting a goal for $1.2 million next quarter could be demotivating. Consequently, an increase of 10 percent to $110,000 would seem to be more realistic.

In theory, this sounds like a good idea, but in practice, it can become counterproductive. There are three reasons for this. First, many companies tie performance bonuses to an employee's ability to reach a goal, so there's seldom a reason for those employees to set goals beyond their current comfort levels. Secondly, since these goals are often financial rather than focusing on increasing revenue, managers are often inclined to focus on cutting costs instead – a much faster and easier way to increase profit in the short term. Thirdly, because goals are achievable, most companies insist that they're met, which can make employees resistant to take chances by innovating and exploring new ideas that may not help them reach those targets.

Study after study shows that ambitious goals are much more effective than conservative, achievable goals, provided these goals aren't also unrealistic. This is where specific required actions, metrics and discussion come in. If you're using SMART goals, you could set a goal to increase sales by 10 or 20 percent and be done with it.

Setting an ambitious FAST goal, you may be inclined to try to double sales instead. After looking at ways to achieve that goal, discussing it with your managers and employees and then setting down specific actions to reach that goal and ways to measure it, you may find it isn't really realistic, but an increase of 50 percent could potentially be met.

Google, for example, requires employees to achieve only between 60 to 70 percent of their targets. Compensation, including bonuses, aren't tied to these targets. Research has proven that financial rewards aren't the only way to motivate employees. In fact, ambitious goals themselves can do more to motivate them.