Goal Setting: The Power of Compounding Interests
Organizations use Company Visions and Mission Statements as means to clarify and streamline unifying goals and direction. Having a common goal does not however guarantee everyone agrees on how to best achieve it. A proper Goal Setting process is the road map for individual success to company success, but one ingredient is often overlooked.
In science, compounding refers to the process of adding, mixing and combining ingredients to formulate a solution. Talk to finance professionals on the other hand about compounding and they’ll refer to the power of compounding interest, the magnified returns of layered interest income over time. Even Albert Einstein once famously called it the “8th Wonder of the world”.
Looking through the lens of Organizational Behavior though, the idea of exponential returns on layered interests takes on an equally powerful meaning in the context of the Goal Setting process. Managers and employees often overlook the most fundamental criteria for organizational success when setting goals. Goals may be designed to be SMART, FAST or PURE, but their effectiveness in translating into organizational success may be hindered if they are not synergistic.
Pandemic and the Science Behind It
In 2007, a series of mysterious and nondescript viruses began to spread around the world. The seemingly randomly originated virus moved from continent to continent like wildfire as scientists, medics, researchers and quarantine specialists worked together and deliberately to contain, control and eradicate the viruses. Pandemic, the board game designed by Matt Leacock, was inspired by the events of SARS in 2001 and in its initial year was recognized as the best board game launched that year.
Unlike classic games such as Monopoly, Risk, Scrabble or even simple childhood games like Snakes & Ladders, players do not compete for exclusive claims to victory. Instead of players planning, negotiating and scheming against one another, players draw unique skills and competencies with a goal of mutual success in mind. Award-winning game designer Matt Leacock developed the game to play with his wife and friends after growing exhausted from the consistent emotional wear and tear of “friendly competition”: early-eliminated players being excluded, heated arguments among friends and residual strained relationships which lasted long after the games were over.
Not only was it an instant success, Pandemic spawned its own franchise and is also regarded as one of the most important games in bringing the concept of cooperative board gaming to the mainstream market. Since Pandemic’s launch in 2009, co-operative games have increased in popularity by 400% in market share, helping grow an industry which is on track to be valued at $12 billion by 2023.
In many ways, Pandemic’s success and the rise of co-operative gaming popularity can be attributed to its appeal to human motivation. Dr. David McClelland (The Achievement Motive, 1953) identified Achievement and Affiliation as two of the three key motivators of human behavior. According to his research, wanting to achieve something greater than oneself is innate within human nature. It is natural then for human beings to gravitate towards one another to achieve a common and greater cause.
Goals and their Acronyms
Conventional wisdom suggests that goal setting at the organizational level is one of the crucial first step in defining its purpose and barometer of success. Vision and Mission Statements serve well to crystallize an organization’s primary goal, acting as a compass for all individual efforts and achievements. But while organizational goals are often not difficult to articulate, breaking it down to the individual roles, responsibilities and goals is far less obvious.
In Pandemic, each player has a specific goal which contributes to the overall achievement of success. While the Containment Specialist’s goal is to track down the right virus locations to contain, the Scientist works to discover a cure. The Operations Expert builds research facilities in select locations while the Researcher disseminates information to allow for a faster cure to be found. Achievement of the mutual goal of all players is pre-determined by the framework of the game and so all players must collaborate if they are to succeed.
Unlike the world outside of board game though, individual human factors often make the efficient translation into practical organizational success difficult. An organization is coalition of individuals, each bringing their own unique resources, perspectives, experiences and opinions. But it is for this very reason that Proper Goal Setting is considered critical. Executed properly and everyone rows in the same direction, supporting each other for collaborative success. Minimize the importance of properly designed goals and the risk of workplace conflict, politics and cultural dysfunction inevitably emerges.
Much research has gone into organizational behavior and developing frameworks for effective goal setting with the purpose of aligning individual motivation. Used in more than just company settings, many different practices and research offer guidance for setting well-defined individual goals. The most well-known guidance is that goals should be SMART (Specific, Measurable, Attainable, Relevant and Time-sensitive), a term first coined by George Doran. There is also no shortage of other recipes, each offering their own take on the best criteria.
- SMARTER goals: Specific, Measurable, Attainable, Relevant, Time-sensitive, Evaluated, Reviewed
- FAST goals: Frequent, Ambitious, Specific and Transparent
- PACT goals: Purposeful, Actionable, Continuous and Trackable
- PURE goals: Positively stated, Understood, Relevant and Ethical
- BHAG: Big Hairy Audacious Goals
Some experts have even given up on trying to make their guidance into clever mnemonic acronyms, advocating that goals are most effective when following the guidelines of OKR, SMARTTA and CPQQRT.
An Exemplary Goal
But despite all the insightful guidance on how to make effective goals, upon further review, much of the guidance focuses on criteria for motivating individual achievement. Take the following example for a Sales Consultant, which follows most, if not all the common criteria of a well-stated goal:
Achieve at least $5,000 in new client revenues per month individually (5% higher than prior year achieved targets)
Assuming the right conditions for success, personal competencies and compensation exists, the goal statement is quantifiable, factual, time sensitive, relevant to the individual’s purpose. In a vacuum this goal may motivate the individual of maximizing sales revenue. This is a good goal for the Sales Consultant but is a great goal for the company?
Individual contributions and achievements do not operate in a vacuum in an organization. Without considering the impact of the goal statement on other stakeholders of the business, conflicts may arise leading to inefficiency in achieving the overall common goal. In addition to Achievement and Affiliation, Dr. David McClelland identified a third source of human motivation: Power.
The Sales Consultants may focus entirely on maximizing sales revenues at the expense of profitability. Individual players may shirk on supporting teammates, focusing entirely on individual achievement. This may ultimately prove counter-intuitive and self-sabotaging to the purpose of the Goal Setting process to begin with. Perhaps a more appropriate goal, congruent with organizational success as a whole might be:
Achieve at least $10,000 in net margin on originally sourced new clients generated over the last 3 months (5% higher than prior year achieved targets)
And while some questions remain around how motivated the individual may be to achieve this given their lack of control over certain components (retention, direct expenses…) the goal seeks to balance the incentive for the Sales Consultant to collaborate with others as much as possible, making sure that all contributing parties are set up for success, before executing the deal. This may restrict autonomy, but an individual concerned with aligning organization success, rather than individual success regardless of organizational success, should embrace the difference.
The Most Basic Ingredient
A Company Vision and a Mission Statement may be critical in providing a guiding destination but just showing everyone the finish line doesn’t mean everyone agrees on how to get there. In the world of Pandemic, each player has their own unique strengths, skills and weaknesses and because of that, each player has an individual role and mission contributing to the team achieving the overall goal. But while a casual board game sets a framework and rules to ensure collaboration, the real COVID-19 pandemic has proven that real human behavior does not so easily lean towards collaboration, even when faced with a common goal or threat.
Setting up an organization for success requires conscious effort of the behaviors and missions. Achieving targets and goals are great but individual achievements need to be more than the sum of their results. Compounding interest is more than just a finance concept when trying to realize increased returns on investments. It is the purpose of Goal Setting in achieving synergistic organizational success. SMART or FAST, whatever acronym or criteria is used in individual setting goals, leaders should never forget there needs to be an S at the end. Because the most critical goal setting criteria above all else, is that they need to be Synergistic to ensure compounded returns on the firm’s greatest asset: the team.