Earlier this month, Tesla announced that it had missed its second-quarter launch goal by more than 2,000 cars. As a result, the company's stock value dropped 4 percent. The company fell short of its goal in the first quarter as well. In its note on Q1 performance last April, Tesla explained that it missed its goal because of a shortage of parts, but was confident that it was tracking toward its 2016 launch goal of up to 90,000 cars.

Though failing to meet business goals is rarely a good sign, Tesla's reported performance is not reason enough to question the company's potential. First, we should question its goals.

In business, we are encouraged to create specific and measurable goals. Ideally, goals motivate employees and instill confidence in external shareholders. Sometimes, however, these goals can have negative side effects that outweigh their benefits.

In a recent paper out of Harvard Business School, the authors use case studies and past research to identify situations in which goal-setting predictably and systematically goes wrong--and how to prevent these situations in the first place.

When goals are too specific, people become blind to other factors that do not help them achieve their goals, even when these other factors influence quality.

This phenomenon, coined "inattentional blindness," was discovered in a famous experiment by Simons and Chabris and can severely hurt an organization's performance. For example in the 1960s, Ford had set specific fuel-efficiency goals and an aggressive timeline for the design of a new car. The company successfully met its goals with the launch of the Ford Pinto. In the process, however, the company ignored safety risks, which eventually resulted in a number of deaths, thus tarnishing the company's reputation. The company's goals were so specific that it didn't leave room for employees to focus on anything else.

The way goals are measured has a deep impact on the employees responsible for them.

In a 2011 study, researchers found that "stretch goals" or goals that were too ambitious could actually cause employee performance to decline. This is especially true in complex environments where it's difficult or risky for employees to navigate and meet their goals. This was the case with Sears in the 1990s when the company set an ambitious sales goal for its auto repair staff. To meet their goal, employees sacrificed service quality and ethics by overcharging and performing unnecessary services.

There are ways to avoid the negative side effects of goals.

Analysis of case studies and goal-setting research shows that goals can be beneficial when they are carefully crafted to meet an organization's culture and environment. This means identifying and avoiding goals that employees and the organization are not well-equipped to meet.

Here are three goal-setting techniques that have benefited my past teams when developing both mature and nascent offerings:

  1. Set learning milestones around a specific area of focus. Each milestone will provide answers and direct you to a next phase of questions.
  2. Supplement stretch goals with realistic ones. This balances small victories with an excitement to keep moving forward.
  3. Involve the entire team in goal-setting. People become invested in the journey and more personally accountable.

If we were to apply these principles to Tesla, we might create learning goals around in-house capabilities or new technology development. Mirroring Q2 growth, we might create a conservative goal of 70,000 cars to balance the stretch goal of 90,000. 

The key takeaway here is that there is no formula to goal creation. Just because a goal is specific and measurable does not mean it will be beneficial to your organization. It is important to think about what is right for your company at a given stage, and then set meaningful goals that consider your employees and culture. In the worst case, your goals can set you back. Goals, unlike self-driving cars, require careful human steering.

Published on: Jul 28, 2016