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Goal Setting Theory

Introduction

Goal setting is the process of establishing exactly what levels of performance an individual needs to achieve (PSU, 2012). Goal setting theory, mainly developed by Edwin Locke, has become the most useful theory of motivation within the workplace (PSU, 2012). It could be the simplest theory of motivation in that it focuses on the basic desire to reach a goal as the motivation.

Goal setting can be done by the individuals themselves, such as setting a goal to exercise more or run a marathon by the age of 30. Goal setting can be in a participative group manner, such as a class project or in a team fund-raising event. Goals can even be assigned to an individual, such as a doctor setting goals for his patient to lose weight or a boss setting goals for his employees. In such a case as detailed below, a store manager named Charlie assigns goals to his sales team in hopes of improving his store’s monthly sale’s goal. Charlie provides a case study of a typical retail environment that can be enhanced by goals. When goals are properly set in a workplace environment, they can increase motivation, allow for personal improvement, direct attention to work, and increase persistence for goal attainment. These goal mechanisms help to ensure goal attainment.

Case Information

Charlie is the store manager at a high-end retail store selling kitchenware, furniture, and linens. His sales team consists of fourteen employees raging from ages 20-56. Charlie’s store has daily, weekly, monthly, quarterly, and yearly sales goals assigned to his store by the corporate office. The sales goals are based on trends from the previous year. However, if the current traffic, i.e., the trend, is up then the sales goals increase. If traffic is down, the sales goals decrease. When the monthly sales goals are met, each team member receives a bonus check that is a small yet decent percentage of that employee’s transactions for the month. If the monthly sales goal is exceeded, their bonus check reflects the increase. If the monthly sales goal is not met, no bonus checks are given. Charlie also receives a monthly bonus check if the store goal is met and it is a generous percentage of the store’s profit. If the goals are continuously met, he will eventually be eligible to become a regional manager, which is something he would like.

Charlie’s store has not hit their sales goals for the previous two months, something unusual for his store location. He has a dedicated staff and an energetic work environment, but he knows the current economy in his town is changing due to an oil boom and every business is raising their hourly rates to be competitive. Charlie feels perhaps his team is not motivated to work as hard because other local stores are paying more than his. Charlie asked his corporate office to increase his store’s hourly pay and they approved the increase, however it will not take action with payroll until November 1. Along with the hourly rate increase as a motivator, Charlie has assigned specific goals for his team members to attain the store’s October monthly sales goal of $250,000, or possibly exceed it.

Goal I: Each sales representative is to have an hourly sales goal of $100. To make sure the hourly sales goals are met, he will track each employee’s transactions a few times per day. When hourly sales goals are met, the daily sales goal will be met.

Goal II: Each sales representative is to increase his or her average dollar sale (ADS) to $32. That is, items sold need to be of a higher price or upgraded so that each transaction is no less than $32. This will contribute to meeting the daily sales goals.

Goal III: To increase the store’s conversion rate to 45%. One of the main issues Charlie has noticed in his store is the decreasing conversion rate. A conversion rate in retail is based on the amount of traffic in the store compared to the amount of transactions made. If 100 people walk in and only 25 transactions were made, the conversion rate is only 25%. Increasing the conversion rate increases money brought into the store. Based on his store location, a conversion rate of 45% is high, yet attainable.  Store greeters must approach at least 75% of entering customers to inform them of discounts, sales, and promotions in order to bolster sales. Cashiers will also do this at the registers by asking questions such as, "Did you find any great bargains today?" or "Do you know our sweaters are buy one get one half off for today only?".

Charlie held a staff meeting on September 29th where he informed his employees of these new goals, and reminded them their bonus checks were contingent upon monthly sales goals being met. He also informed his employees that if October’s sales goals are met, each team member’s hourly rate would increase by $1.15. Charlie knows that no matter the outcome though, the employees will receive their pay increase due to the local economy, he is just hoping it will motivate them to work harder this month. He informed them that the store would continue these goals each month until the end of December. At that time, he and his employees will revisit their goals when the traffic and buying trends decrease due to the end of the holidays. At the end of the meeting, he asked each employee to speak up if they felt these goals were not attainable and to accept the goals and show commitment to them throughout the next month. Each employee agreed the goals were attainable, accepted the challenge, and promised commitment to them. 

Charlie knows that when core performance indicators such as a high conversion rate and high ADS are met, his store's sales goals will be met. All assigned goals can be measured through tracking systems within the company computers. Charlie can print out a sales report that will inform him of each team member’s daily transaction amount, their individual ADS per transaction, and the store’s conversion rate.  Further, sales associates will ask customers if they had assistance from anyone on the floor.  If a customer indicates help was given, the sales representative will also receive credit during the transaction. This will allow Charlie to monitor the team’s participation and give feedback. Charlie will provide feedback twice a week to each employee, or daily for those employees that are not meeting their daily sales goal. He will provide them with ways to improve sales and general re-training if they seem to be lacking in any particular tasks. He will also provide feedback on their overall participation of the store’s goals.

Analysis

Goal Mechanisms and Conditions

Mechanisms

Goal theory works simply because when a goal is created, a process is revealed that will enable the goal seeker to find the path to the goal. PSU (2012) discusses four ways in which goals setting assists with goal attainment:

First, setting goals will enable an individual to (consciously or subconsciously) divert their attention towards activities directed at goal attainment and away from activities that are unproductive with regards to the goal (PSU, 2012).

Second, goals will invigorate and excite the efforts of an individual.  The harder the goal, the more effort will be put forth in their attainment (PSU, 2012). 

Third, stamina towards goal attainment is enhanced (PSU, 2012). 

Lastly, the old adage, “work smarter, not harder” comes into play as the process of finding more effective strategies is enhanced in an effort to reach goals (PSU, 2012).

Conditions

Mechanisms of goals alone will not lead to successful completion of goals.  Other factors, known as conditions, are also necessary for goal attainment (PSU, 2012).  These conditions include commitment, specificity, difficulty and feedback (Locke & Henne, 1986; Locke, 2000; PSU, 2012). 

Goal commitment occurs when people accept a goal as something desirable, and something they wish to attain.  Goal acceptance largely depends on employees believing that they have a reasonable chance of achieving the set goal (PSU, 2012). However, it is also important to note that, “...an organizational goal is not necessarily an employee goal, and only goals of the individual employee will motivate their behavior.” (PSU, 2012).  By having employees provide their input when setting goals, they are then becoming intrinsically connected, and have a better chance of being highly motivated as a result. 

Metaphorically speaking, specificity of goals relates to how detailed the “road map” is.  Goals that detail what, how much and when are concrete as opposed to the ambiguous “do your best” which lacks motivational incentive (PSU, 2012).  Generic, ambiguous, and amorphous goals have been shown to decrease motivation therefore it is critical that goals are specific.  The point is that goals must be both difficult and specific in order to successfully increase performance (PSU, 2012).  

Goal difficulty can be tricky and must be carefully analyzed.  The harder a goal is to attain, the harder individuals will work for them (Locke & Latham, 1990).  However, if the goal is perceived as impossible to attain (either unrealistic or too hard), the goal setting will have the negative motivational effect.  Challenging a persons abilities is critical to goal setting, yet managers must know the limitations of their subordinates abilities in order to set effective goals.  Difficulty is directly connected to goal commitment because the more challenging a goal is to achieve, more commitment to that goal is necessary (PSU, 2012).

Feedback is the last of the goal conditions and likely the most important.   Latham & Locke (1991) connected two sides of the same coin between goals and feedback in the sense that goals give feedback a meaningful backdrop, and feedback keeps individuals on the path toward the goal (PSU, 2012).  Also, similarly to goals, feedback must be specific to be useful. Therefore, it is within the context of specificity that a mutual relationship exists where the feedback data supports goal setting, and the attainment (or lack of attainment) of a goal drives more constructive conversation towards new or different goals which will then require further feedback.

S.M.A.R.T. Theory:  

SMART goals also may be evolving into SMARTER goals with the E adopting meanings like emotional, exciting, enthusiastic, and evaluate and R adopting terms such as reevaluate, reassess, and reviewed often.

  • Specific: Goals must be clear and unambiguous; vagaries and platitudes have no place in goal setting. When goals are specific, they tell employees exactly what is expected, when, and how much. Because the goals are specific, you can easily measure your employees' progress toward their completion. Specific - A specific goal has a much greater chance of being accomplished than a general goal. To set a specific goal you must answer the six “W” questions:  
    • Who:    Who is involved?
    • What:   What do I want to accomplish?
    • Where:  Identify a location.
    • When:   Establish a time frame.
    • Which:  Identify requirements and constraints.
    • Why:    Specific reasons, purpose or benefits of accomplishing the goal (Top Achievement).

EXAMPLE:  A general goal would be, “Get in shape”. A specific goal would say, “Join a health club and workout 3 days a week" (Dummies.com,2012).

  • Measurable - What good is a goal that you can't measure? If your goals are not measurable, you never know whether your employees are making progress toward their successful completion. Not only that, but it's tough for your employees to stay motivated to complete their goals when they have no milestones to indicate their progress (Dummies.com, 2012)Measurable - Establish concrete criteria for measuring progress toward the attainment of each goal you set. When you measure your progress, you stay on track, reach your target dates, and experience the exhilaration of achievement that spurs you on to continued effort required to reach your goal. To determine if your goal is measurable, ask questions such as, "How much? How many? How will I know when it is accomplished?" (Top Achievement, n.d).
  • Attainable - Goals must be realistic and attainable by average employees. The best goals require employees to stretch a bit to achieve them, but they aren't extreme. That is, the goals are neither out of reach nor below standard performance. Goals that are set too high or too low become meaningless, and employees naturally come to ignore them (Dummies.com,2012). Attainable - When you identify goals that are most important to you, you begin to figure out ways you can make them come true. You develop the attitudes, abilities, skills, and financial capacity to reach them. You begin seeing previously overlooked opportunities to bring yourself closer to the achievement of your goals.You can attain most any goal you set when you plan your steps wisely and establish a time frame that allows you to carry out those steps. Goals that may have seemed far away and out of reach eventually move closer and become attainable, not because your goals shrink, but because you grow and expand to match them. When you list your goals you build your self-image. You see yourself as worthy of these goals, and develop the traits and personality that allow you to possess them (Top Achievement,n.d).
  • Relevant - Goals must be an important tool in the grand scheme of reaching your company's vision and mission. You may have heard that 80 percent of worker productivity comes from only 20 percent of their activities. You can guess where the other 80 percent of work activity ends up! This relationship comes from Italian economist Vilfredo Pareto's 80/20 rule. This rule, which states that 80 percent of the wealth of most countries is held by only 20 of the population, has been applied to many other fields since its discovery. Relevant goals address the 20 percent of worker activities that has such a great impact on performance and brings your organization closer to its vision (Dummies.com, 2012).
  • Realistic - To be realistic, a goal must represent an objective toward which you are both willing and able to work. A goal can be both high and realistic; you are the only one who can decide just how high your goal should be. But be sure that every goal represents substantial progress (Top Achievement,n.d). A high goal is frequently easier to reach than a low one because a low goal exerts low motivational force. Some of the hardest jobs you ever accomplished actually seem easy simply because they were a labor of love.
  • Time-bound - Goals must have starting points, ending points, and fixed durations. Commitment to deadlines helps employees to focus their efforts on completion of the goal on or before the due date. Goals without deadlines or schedules for completion tend to be overtaken by the day-to-day crises that invariably arise in an organization (Dummies.com,2012)Timely - A goal should be grounded within a time frame. With no time frame tied to it there’s no sense of urgency. If you want to lose 10 lbs, when do you want to lose it by? “Someday” won’t work. But if you anchor it within a time frame, “by May 1st”, then you’ve set your unconscious mind into motion to begin working on the goal. Your goal is probably realistic if you truly believe that it can be accomplished. Additional ways to know if your goal is realistic is to determine if you have accomplished anything similar in the past or ask yourself what conditions would have to exist to accomplish this goal (Dummies.com, 2012).
  • T can also stand for Tangible - A goal is tangible when you can experience it with one of the senses, that is, taste, touch, smell, sight or hearing. When your goal is tangible you have a better chance of making it specific and measurable and thus attainable (Top Achievement, n.d).

SMART goals make for smart organizations. In our experience, many supervisors and managers neglect to work with their employees to set goals together. And in the ones that do, goals are often unclear, ambiguous, unrealistic, unrelated to the organization's vision, immeasurable, and demotivating. By developing SMART goals with your employees, you can avoid these traps while ensuring the progress of your organization and its employees.(Dummies.com,2012)

MBO

The application of management by objectives (MBO) throughout business organizations has become widely spread (PSU, 2012). MBO is an approach to systematically align both employees' goals and the goals of the organization and ensures that everyone is clear about what they are doing and why it is beneficial to the organization (Mindtools, 2012). The management by objectives has a five step process:

1. Set or Review Organizational Objectives - This step requires defining the clear organizational objectives. 

2. Cascading Objectives Down to Employees - Once the objectives are set they need to be clear to every employee. To make sure that the goals are attainable and the employees feel accountable, the SMART method will be used. 

3. Encourage Participation in Goal Setting - Everyone needs to understand how personal goals fit within the the objectives of the organization and allow sharing and discussion so that everyone understand "why" things are being done. This allows everyone to set goals to align with the organizational goals and also allows for an increase for personal responsibility of their objectives. Self-direction, decision making, and responsibility is an important part of this step and encourages motivation within the employees.

4. Monitor Progress - Since the goals and objectives of SMART are measurable they can be monitored. However, those that are monitoring need to make sure that they are timely with their monitoring in case something is wrong so issues can be adequately dealt with in a timely manner. Make sure every goal has mini goals, and adequately monitor goal performance and accountability. 

5. Evaluate and Reward Performance - The MBO is designed specifically to improve performance at all levels of the organization. Employees are evaluated on their performance related to the goal, and retrospectively include rewards such as compensation and provide appropriate feedback. "When you present organization-wide results you have another opportunity to link individual groups' performances to corporate performance. Ultimately this is what MBO is all about and why, when done right, it can spur organization-wide performance and productivity" (Mindtools, 2012). 

After the process is completed, the cycle is usually repeated after a review of the previous five-stage process is done and those who were involved in the attainable goals understand the importance to measurable goals and clear performance within the MBO. Management by Objectives is a powerful tool for aligning employees actions with organization's goals (Mindtools, 2012). Same as above.

Application

Goal Mechanisms and Conditions

Mechanisms

Charlie's goal of increasing the store's conversion rate to 45% helps to draw attention to being productive rather than being unproductive on the sale's floor. His employees achieve productivity by fulfilling the goal and greeting 75% of the customers that walk into the door, as well as cashier's making statement such as, "Did you find any great bargains today?" or "Do you know our sweaters are buy one get one half off for today only?". This type of set up will allow for his employees to engage customers more frequently and steer away from outside distractions.   

Having the ADS increased to $32 and the hourly sale goal per employee at $100 gives Charlie's employees excitement because the goal is challenging, allowing the employees to utilize their own personal strategies in order to achieve those individual goals. Thus, they will be invigorated to achieve the goals at hand and potentially surpass them.  

By checking the progress of his employees multiple times daily, Charlie can help his employees maintain the necessary stamina (persistence) to achieve the goals. Using this, he can continually track their progress and allow his employees to re-learn strategies to stay on track when necessary. This mechanism can be more of a "catch all" for him by giving himself the chance to regularly analyze progress.  

The goals set by Charlie also allow for creative selling, which can be personal to the employee. For example, employees may vary with the ages of customers they prefer to sell to, which allow them to "customize" their techniques to those specific groups.

Charlie’s declaration of goals during the team meeting have set in motion a road-map for his employees. The three goals he outlined will enable his employees to focus on behaviors such as increased customer contact, enthusiasm for the products they are selling, persistence, and creative selling solutions that increase the probability of goal attainment, as well as shy away from unproductive behaviors.

Conditions

When Charlie set about creating these three goals, he generated them based on corporate needs and his own personal needs.  Charlie was careful to present them to the employees at a meeting and ask for their commitment, however, these goals were not intrinsic to the workers. An improvement in this area would be to have more dialogue at the meeting eliciting the employees input into the goals, which would have given them the opportunity to address whether or not they believe the goals are reasonable (PSU, 2012).  In addition to that, Charlie could have made a public commitment to the goals in front of his employees, which means that he would want to follow through to show his integrity (PSU, 2012). 

The biggest extrinsic motivation is the $1.15 raise after achieving the goals.  However, to ensure that his employees remained motivated throughout the month of October, Charlie could have offered a $50 gift card weekly to the employee with the highest sales after the weekly goal is met.  That would keep employees focused on achieving the highest sales number possible, therefore motivating them to exceed the goal.  

By holding a meeting, Charlie was able to lay out the specifics of the goals (share thoughts/question at the register and greet 75% of customers), while also addressing the difficulty in a manner appropriate for his employees.

The goals Charlie created for his employees may be strict and challenging, but certainly attainable. Charlie knew his employees skill level and had great insight into the causes of their recent lapse in performance. By recognizing those performance lapses, he was able to acknowledge that additional monitoring is needed to see that the goals are participated on and achieved by watching employee progress continuously throughout the day.

Charlie provided for feedback in that he is scheduling twice weekly feedback sessions with all employees, and more frequent sessions for those not meeting expectations.  Additionally, he is prepared to provide retraining or other support as necessary, making specific feedback a reality.  

SMART(ER) Goals

In the case study, Charlie uses SMART(ER) goals to encourage increased sales in his store.

  • Specific - Charlie provided his employees with clear objectives and instructions for achieving them.  He explained who was responsible for doing what things to increase sales (Top Achievement,n.d).
  • Measurable - The goals set by Charlie were measurable because in the staff meeting employees were made aware that they were to push at least $32 worth of items on each buyer, discuss promos and deals with at least 75% of the browsers, and sell at least $100 worth of goods per hour.  Sales can be monitored easily to make sure progress is being made.  The only way to ensure that floor salespersons are approaching more people is to audit the number of entrants in a day versus the number of sales in the same period to establish the current conversion rate, but this can also be adequately measured.
  • Assignable - Charlie assigned these goals to sales representatives, cashiers and store greeters.  Greeters have the first and best opportunity to inform incoming customers of store promotions and are therefore the most likely to be able to increase the number of people willing to make a purchase. Charlie's sales representatives are most likely to be able to increase the average sales of customers and are the only store employees who can have a $100/hour sales goal.  Cashiers are the last in line who may be able to up-sell (ensuring the sale is worth at least $32) by suggesting add-ons at the register or reminding customers of missed promotional opportunities.
  • Realistic - Charlie was able to set goals that the employees could achieve.  For the greeters, it is not difficult to tell incoming customers about deals and specials or give them a promotional card or pamphlet.  Sales representatives can also easily make $100 worth of sales per hour, even if some customers do not come in at the minimum goal of a $32 transaction.  Cashiers really have little control over sales, as by the time the customer reaches the counter he/she is ready to exit, but even they can push small items from the counter or remind customers of promotional deals.
  • Time-Related - Charlie addresses the issue of time-relatedness by assigning hourly goals which are meant to help achieve the store-wide goal by the end of October and then the seasonal or yearly goal at the end of December.
  • Evaluate - Charlie plans to review his team's performance daily.  Over time, Charlie should be able to determine if his strategy is effective.
  • Reassess - If Charlie's plan is successful, he may want to try to increase sales goals in order to give employees a higher standard to reach.  If his program has been failing, Charlie will want to use this step in the process to determine alternative goals or means of achieving them.

Since Charlie was able to follow the steps of the SMART(ER) acronym, there is no reason to believe that his team cannot achieve their goals.  The most important task Charlie has now is to provide his team with feedback regarding their performance.  Informing employees about how they are doing is important because it gives them the opportunity to improve performance or assure they are behaving in a manner consistent with success (PSU, 2012).  Further, Charlie might consider allowing his team members to help select goals.  This can help the team understand the goals better and improve employee commitment to them (PSU, 2012).

MBO Application

Consistent with the five-part MBO system outlined in the preceding section, Charlie addresses congruency of company and individual objectives on macro and micro levels. He has a well-defined organizational goal, individual goals are clearly conveyed, participation is encouraged, progress is monitored, and evaluation and reward systems are in place.  Below we will explore the implementation of Charlie’s five-part system more comprehensively.

1. Well-defined company objectives - Charlie clearly understands that it is the company’s goal for his store to achieve at least $250,000 in sales for the month of October and retain this standard, or better, for the entire holiday season.

2. Convey clear individual objectives to personnel - Charlie holds a meeting on September 29th informing his sales team of company objectives and how to individually accomplish those objectives. He introduces three small goals that, if accomplished, will ensure success: (1) Maintain an hourly goal of $100; (2) increase average dollar sales to $32; (3) increase the store’s conversion rate to 45% by informing customers of sales, discounts, and promotions when entering the store and at the check-out counters.

3. Encourage participation in goal setting - At the end of the meeting Charlie asks his sales team if anyone has issues with accomplishing individual goals.  He also asks them to declare to the group that they will accept the challenge and promise commitment. Charlie establishes accountability by having the sales representatives publicly declare commitment and encourages participation by allowing them to discuss any concerns they may have with accomplishing goals.

4. Monitor progress - Registers and computer software afford Charlie a means of tracking individual progress.  He can analyze daily, weekly, and monthly ADS which provides a means for him to provide feedback to personnel.  Charlie holds individual meetings with each sales representative twice a week.  If daily sales goals are not met he informs employees of their shortcomings.

5. Evaluate and reward performance - By using software Charlie is able to track performance and reward bonuses accordingly.  Employees are given two means of increasing income. The first means is through bonuses awarded based on meeting individual performance goals. The second means is by a wage increase of $1.15, which is based on the store meeting monthly sales goals.

As you can see Charlie uses a comprehensive system to ensure company objectives are met through individual performance goals.  This encourages employees to feel that they have a personal stake in meeting these goals by taking ownership of and benefiting from them.

Conclusion

Goal setting as a theory of workplace motivation can be highly effective and a positive experience for all involved. Upon goal attainment, each team member would benefit monetarily and/or with increased self-efficacy. In the application of SMART Theory, i.e., using SMART goals broken down into seven categories, as well as MBO, Charlie increased the likelihood of goal attainment by increasing his employee’s motivation.

Overall, Charlie was specific concerning the details of his store’s difficult yet attainable goals. He received acceptance and commitment from his employees, and gave them feedback when he felt they needed it. He created excitement by reminding his employees of their monetary rewards upon the goal attainment. He showed them more effective strategies on enhancing sales, and in return directed their attention to the work at hand, and he maintained persistence of the goal using feedback. With the goal mechanisms and conditions in place, Charlie has helped to establish the motivation behind the goals and ensure the attainment of store’s sales goal.

References

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