What Science Says About How Goal Setting Impacts Company Success

What Science Says About How Goal Setting Impacts Company Success
“Goal setting theory has demonstrated more scientific validity to date than any other theory or approach to work motivation.” — Craig C. Pinder, Professor of Organizational Behavior

Goal setting is one of the most well-researched topics within organizational psychology. But you wouldn’t necessarily know that from popular articles around the web. 

A quick search on goal setting surfaces many articles on setting SMART goals. Some others provide goal-setting tips or advice on creating systems of accountability for yourself. 

But very few carefully break down the actual research on goal setting and the mechanics of how it impacts employee performance and overall company success. 

Healthy businesses aren’t just those with customers and revenue. They’re businesses where people are happy and innovating for the future. Healthy companies look forward—they’re not just maintaining success, they’re actively planning for what’s next

Goal setting is a crucial part of that future planning.

In this article, we’ll summarize the goal-setting science literature. We’ll explore the research that explains how goals work. Then we’ll distill down to the top recommendations based on the research to help you maximize the effectiveness of your goals and foster your company’s success.

The value of goal setting: How goals drive productivity

First: Do goals really matter? Are they really such a big deal?

The research provides an emphatic yes

Advice on goal setting is popular for a reason: it is one of the most effective interventions for improving productivity. Having no goals, or having dysfunctional goals, sets you up for sub-optimal performance.

Comprehensive summaries of the research on goals and goal setting make it clear: specific, challenging goals significantly improve performance in a variety of work contexts. 

How much is productive goal-setting worth?

In one analysis, researchers estimated the value of the increased productivity from setting specific, challenging goals over “do your best” goals. They averaged across a wide range of tasks and contexts to find that it led to approximately an 18% increase in the value of output. 

For example, imagine a software developer that makes $80,000 a year and has “do your best” goals. After setting challenging, specific goals, the company could expect the value of the increased productivity from that developer to be worth about $14,400. For a 30 person startup where the average salary is $80,000, that translates to about $432,000 a year in additional output. 

Over time, that impact compounds. Each year the company adopts a rigorous goal-setting process, the benefit accumulates. 

That benefit may manifest in a number of ways. It may present itself as:

  • Increased sales and revenue

  • Accomplishing projects more quickly and faster product development

  • Reduced need to hire additional employees

  • A lower-stress, less frantic work environment

For a startup, speed is essential. Goal-setting makes important initiatives happen faster—and without burnout. Learning to set effective goals could be the difference between a startup’s success and failure.

Takeaway: When done well, goals can significantly increase performance. In the context of work, that can mean substantial improvements to business outcomes. 

How goals improve performance

So why are goals so effective? What are the mechanisms by which they influence performance? The literature points to four primary ways that goals can impact performance.

  • Goals activate effort. Goals provide the motivation to actually do the work. Specific, challenging goals help you take action. 

  • Goals direct effort. Goals channel that effort towards activities that are relevant. And they help keep you from spending your time on things that don’t matter.

  • Goals foster persistence. Challenging, specific goals help you keep going when you face obstacles. They reduce the likelihood you’ll give up when things get tough. 

  • Goals prompt us to draw on our knowledge and create strategies. Goals cue us to gather the resources we need to attain the goal. They help us deliberately consult our relevant knowledge, implement cognitive strategies, or create plans for accomplishing the goal. 

Factors that make goals more effective

While goals can have a massive impact on productivity, some are better than others. Here’s a list of the characteristics that make goals effective. When you’re setting your own goals, keep these in mind. 

Specific

Making goals specific is essential. Research consistently shows that “do your best” goals are not nearly as effective as specific goals. To be effective, goals must be explicit about what success looks like. 

Takeaway: Make your goals specific. They should define what success looks like.

Difficult

Research consistently demonstrates that difficult goals are more effective than easy goals (at least, to a point). 

When people set easy goals, they usually achieve them. But they subsequently lose motivation and typically don’t exceed their goals by much. So setting easy goals isn’t the best way to enhance performance. 

Instead, several research studies have found a linear relationship between difficulty and performance. The harder the goal, the better the resulting performance. 

Takeaway: Make your goals challenging. 

Possible

The relationship between difficulty and performance holds up until a person reaches the limit of their capacity. At that point, the increasing difficulty no longer leads to better performance; it actually may even hinder performance. For goals to be effective, they need to be seen as achievable.

In other words, while popular advice would have you “shoot for the stars and at least hit the moon,” that isn’t completely supported by the research. You may just miss both the stars and the moon. So sure, set big goals. But set them too big and they can be counterproductive.

Takeaway: Make your goals doable. Impossible goals don’t help

Factors that moderate the effectiveness of goals

In addition to the above, there are several other factors that can influence the effect that goals have on performance.

Feedback

Knowing how you’re doing matters. It affects the impact of goal setting on performance in two ways. 

First, feedback stimulates you to set more goals. For example, if you have a sales goal, and you achieve it, you might set an even higher one next time. Seeing your results helps you set new goals, which boosts performance. 

Second, feedback tells us how well we’re doing in relation to our goals. This can boost our effort and also help us work more effectively. 

In contexts where there is clear feedback on your performance—when your results are visible to you—goals have an increased effect on performance. Setting goals but failing to regularly measure progress significantly diminishes their impact.

Takeaway: Ensure you’re getting feedback on your goals—either through your own measurement or through feedback from others. 

Commitment

The more a person is committed to a goal, the bigger the effect that goal will have on performance. 

And it turns out there are many things that can influence our commitment to goals: the presence of an authority, being held accountable by peers, making goals public, and incentives for achieving goals, among others. 

Takeaway: Work to increase goal commitment. Familiarize yourself with the different ways you can influence goal commitment levels and then deliberately incorporate them into your goal execution system.

Complexity

The complexity of a task affects how well goals improve performance. Goals work better for simple tasks and tasks that people already have the knowledge and ability to do. Goals for more complex tasks have a somewhat lower effect on performance. This is one reason why people don’t see massive benefits when they set goals on their own—they often set goals for complex tasks without breaking them down. 

One effective tactic is to create strategies for accomplishing complex tasks. For example, one effective strategy is to break down goals into smaller chunks. For knowledge workers, most tasks are complex. If you don’t simplify larger tasks into smaller, manageable pieces, you can undercut your performance. 

This is one reason the Habitstack software breaks down yearly goals into quarterly, monthly, and weekly goals. Having goals for simpler, smaller pieces leads to a much greater boost in performance.  

Takeaway: Find strategies to reduce the task complexity. For example, break complex tasks down into smaller, simpler goals that roll up to the larger strategic objectives.

Resources

If you don’t have the tools or resources you need to perform well, you won’t perform well—even if you have specific, challenging goals. Similarly, if the situation or environmental context hampers performance, goals have much less of an effect on performance. 

In the workplace, not having the appropriate resources could look like:

  • Lack of time. For example, a leader who habitually interrupts their team’s goals to accomplish other unplanned work may be undermining their team’s time resources. 

  • Lack of tools. For example, a team may need a specific tool or software application to complete their work. Not having the tool may undermine their performance.

  • Lack of knowledge. For example, particular problems or tasks may require outside expert knowledge. Not having access to that knowledge may reduce performance. 

  • Lack of budget. For example, if the expectation is that everything is do-it-yourself, goals will progress more slowly. Small investments in tools, books, courses, and outside expertise can dramatically increase the chances of success.

Habitstack tip: Consider assigning a discretionary budget to help ensure your teams have the resources they need. It’s quite common for people to miss their goals because they were reluctant to spend a few hundred bucks to speed things up. Can you pay an Upworker to build that list of prospects? Can you hire an expert in the tech you’re trying to implement to answer your questions instead of you taking days to figure it out on your own? Do it!

Takeaway: Ensure that you or your teams have the resources and environment they need to be successful.

How many goals should you set?

The research seems to show that people can pursue several goals at the same time and still get the benefits of goals. For example, in one study, employees were given the goal of improving 12 specific behaviors. Participants made significant improvements on all behaviors. 

However, some research suggests that multiple goals can decrease performance in certain circumstances. For example, when different goals require resources that are limited, like time, attention, or physical resources, pursuing many can reduce performance. 

It’s okay to have more than one goal. But when there are too many goals that compete for resources, performance decreases. 

Takeaway: Prioritize your goals such that you work on only a few goals at a time and ensure that you have the resources to support each of the goals.

Habitstack tip: If you have a lot of goals, we recommend that you force yourself to do them in sequence instead of in parallel. Think you can nail 15 big important goals this year? Great. Start with the top 3, finish them off and move on to the next 3. Don't try to do them all at once.

Assigned goals can be effective

Several studies suggest that assigned goals can be as effective as self-set goals as long as goal difficulty is the same and participants understand why the goal was made. 

Habistack tip: In our experience, many team members actually like having their goals assigned to them—as long as they have a chance to discuss and adjust them.

Takeaway: Feel free to assign goals to your team members, but make sure you explain the rationale behind the goal. 

Self-efficacy matters

Self-efficacy is the degree to which you believe in your ability to accomplish a task or perform in your area of responsibility. Self-efficacy influences how challenging a person makes their goals, as well as overall performance—people with higher self-efficacy set harder goals and also perform better at them. People with high self-efficacy also tend to have stronger commitment to their goals. 

Ideally, you and your team are experts at what you do, and so you already have a high degree of self-efficacy. However, more junior members of your team or those newer to their position may struggle with lower self-efficacy. These individuals may set relatively modest goals. 

There are some ways to boost self-efficacy among employees, such as empowering them with experiences of success. In fact, accomplishing goals is one powerful way to boost self-efficacy. Achieving wins gives a person a sense of mastery that fosters self-efficacy. 

To counteract potentially reduced commitment among individuals with lower self-efficacy, you may wish to find other ways to foster goal commitment. For example, you could encourage your teams to make their goals public or to hold each other accountable. You could also provide them a coach.

Takeaway: Expect better performance outcomes on tasks that you feel more confident about. Try to boost self-efficacy by empowering yourself and your team to have experiences of success. Among individuals with lower self-efficacy, aim to build goal commitment with other strategies like accountability. Consider providing leadership coaching.

Recommendations for making your goal-setting effective

Over 100 years of research on goal setting has taught us much about why goals are effective. How can you use that research to inform your own goal setting? 

Here are our top suggestions:  

  1. Set goals. Step one is to actually set goals. The research is very clear that goals can significantly improve work performance and business outcomes. If you’re not setting goals, you’re putting yourself at a big disadvantage. 
  2. Set productive goals. Productive goals are specific (they describe what success looks like) and they’re hard (but not too hard). 
  3. Make a goal plan. Goals work best for simple tasks, but for many of us, work is complex. The solution is to break down complex tasks into smaller, bite-sized chunks. Make goals for your tasks on a weekly basis to improve performance in the longer term.
  4. Enhance commitment with execution habits. Regularly review your goals and your progress to stay committed to your goals. To enhance commitment, make use of other strategies, like making goals public, using peer support, and having others hold you accountable.

Setting goals is a simple but effective way to foster business health

Setting challenging, specific goals fosters business success. It helps your teams get more accomplished while feeling happier. 

That means greater output, projects completed faster, reduced need for recruitment, and working with less stress. If the biggest problem your team is facing right now is too little revenue or too little time, take another look. It could be that the benefit you’d see from a productive goal execution system could actually help solve those problems. 

Done right, a goal execution system sets you up for success that’s sustainable. Creating that system is your foundation. 

We’ve laid out just some of the compelling research about what makes goal-setting effective. This literature is rich, and there is much more. But this review provides some clarity about what makes a robust goal-setting system:

  • Productive goals: goals are specific and difficult

  • Goal plans: there is a strategy for accomplishing complex goals

  • Execution habits: engage in rituals that foster commitment to your goals

With those things in place, you’ll have a solid foundation for using goals to create a healthy business—one where you’re not just growing, but you’re looking forward and future-proofing your business. 

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Is your leadership team struggling to be fully effective?

  • You’re all constantly pulled in many directions at once
  • Doing low-level work that should be delegated or automated
  • Working on individual priorities instead of shared goals
  • Feeling overwhelmed, unfocused, and tired

We’ve been there. So, we created an execution system that will align your team around a singular vision, keep them focused on the goals that matter most, and help everyone stay sane in the process.

Learn How HabitStack Can Help ->

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