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.