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The Psychology of Goal Setting

“To lead people, walk behind them.” – Lao Tzu

Corporate leaders in practically every industry are searching for new markets, creating new ways to handle existing ones, or invigorating their enterprise to adapt to rapidly changing conditions.


To you, it’s a fascinating challenge that’s worth pursuing for its own sake.

But to your team, it sometimes feels like chaos. Other times, it feels like the future is coming at them faster than ever before.

To lead them, you need to give them a sense of stability. And you have to do it in such a way that it generates their best, forward-thinking contributions. Your employee’s sense of stability has to arise from doing the very thing that helps you conquer your fascinating challenge.

“In this day and age,” John Spence writes in Letters to a CEO, “it is critical that you help employees understand exactly how the work they do fits into a larger picture of the organization, is meaningful, and makes a difference.”

It’s all about the art of setting goals.

I Can't Get No...

Your best people are reading things like Lifehack, which writes that “when we set…goals that are ‘safe’ and easy to achieve, we don’t get any value from them and get no real sense of achievement or satisfaction.”

They go on to explain that people approach goals with two objectives: they think about how likely they are to succeed, and they wonder what’s in it for them. When it comes to business goals, you can control both.

Let’s start with the likelihood of success. Setting goals that are too easy backfires. Your intention may be to create successes upon which you can build, but they may seem pointless or demeaning. At the other end of the spectrum, setting goals that are clearly unattainable doesn’t work, either – those are demoralizing and can generate resentment.

Getting it right is the art of goal setting. It’s not easy. But there are parameters you can use to guide you. Let’s say, in a general sense, that you need a 40% improvement from a team, as objectively measured by some metric. Depending on the team, the metric could be anything from throughput to revenue. But no matter what it is, 40% is a massive improvement. 

Spence explains how you might go about getting people to accomplish goals this difficult. You might establish the overarching goal of 40%, and then set an incremental goal of 5%, with a deadline. Clear enough. 

But what changes the psychological impact is this: you don't leave it to the team to accomplish on its own. At a carefully planned meeting, you and your team produce a two-part agreement. You make specific commitments to do certain things that the team needs. And the team makes specific commitments that should lead to attaining the goal. 

Then you all get to work. You always follow through, and the best people on your team will, too. Once that 5% mark is hit, you celebrate (more on that in a moment). Then you hold a progress meeting. This time, that 40% goal seems far more attainable, because there's only 35% left. You might get your team to agree that the next increment ought to be an additional 7.5% improvement. Now you're accelerating, and the team has begun to chase that "real sense" of achievement.

You keep the process going, and at each step of the way, you make commitments right along with everyone else. You fall into step with them. You track what they're doing. You show up at their incremental celebrations, and you show your appreciation. 

“People love to make progress, and even minor progress events can be powerful motivators,” Stephen Lynch writes in Business Execution for RESULTS. “I like to call those events ‘small wins.’ Small wins are the incremental steps toward our longer term goals…when people can see tangible progress and experience small wins often, they become more engaged and productive.”

That's what gives them the sense of security they need to stay focused. You're on their team. When you reach the 40% stretch goal together, you all share the success. It wasn't scary. It was meaningful carer development. It made their work life more satisfying. Now, they're ready to tackle the next challenge – with you on the team.


But that's just part of the psychology of goal setting. You've given your people a sense of stability even while they chase change. But the second part is just as important. It's all about your team's natural reaction to succeeding. They want to know, “What’s in it for me?” 

Ordinarily, you would answer by heading straight for some sort of monetary reward. That's correct on the stretch-goal scale. But on the incremental-goal scale, money backfires.

For incremental goals, small rewards – even silly rewards – can be far more effective. A recent study in Harvard Business Review explains that “the basic idea of small rewards is fairly simple. When rewards are large enough to trigger behavior, but too small to fully justify the behavior, individuals will seek another justification for their efforts…piddling rewards create a sense of dissonance (why am I doing this?) which can be relieved only by ceasing the activity completely – or by developing an interest and finding enjoyment in it.”

Creativity matters when it comes to creating "enjoyment" like that. I once knew a sales manager who gave team members a plastic animal if they hit their daily call quota. It wasn’t a competition; everyone who made quota got one, and, sometimes, everyone did. Clearly, that’s a “piddling reward.” But because the reward had absolutely no conceivable value other than symbolism, and because you could display them on your desk, and because it was silly to see them standing there, those toys became the hottest property in the sales department. 

Outsiders would literally gather around a successful caller to admire their zoo. The animals conferred status. 

The team found them fun, and funny, even as they suffered no illusions that the gamut kept them focused on real-world achievement. Since hitting those incremental goals inevitably generated real business – and the real, monetary rewards that went along with it – the animals helped break their stretch goal into pieces that could be achieved and celebrated.

That’s leading people by “walking behind them,” as Lao Tzu says. As soon as you fall in step behind your team, they will take you where you want to go – because that’s where they’re going, too.