I came across a working paper recently from the Harvard Business School called “Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting.”  Although hundreds of studies have shown that setting specific, challenging goals can drive behavior and boost performance in powerful ways, the authors of this paper argue that goal setting has been “over prescribed”.  In their words, “goal setting has powerful and predictable side effects…and should be prescribed selectively, presented with a warning label, and closely monitored.”

After reading this paper, it struck me that goals based on engineered labor standards come the closest to the concept of “near-perfect goal setting”-i.e., goals that substantially improve performance while largely avoiding unintended negative consequences.

A few years ago, I conducted an ROI study for RedPrairie where I surveyed twenty companies that were using their Labor Management System in combination with engineered labor standards.  The ROI of this combination was very high (payback usually under a year), and some of the companies interviewed achieved truly outstanding results.  Since then, I have interviewed many other companies using various forms of engineered labor standards for the warehouse and their results have been similar.

For example, I visited a warehouse in North Texas last Fall that was in the process of gradually ramping up the productivity goals for its workers.  After completing the engineered labor study, they found that their average warehouse employee was below 50 percent of standard.  At the time of my visit, the goals were set at 80 percent of standard.  I called my contact last week and all the workers are now at or above 100 percent.  This company had a payback of under a year, with labor cost savings of about $1 million due to the increased productivity.  These results are by no means unusual.

But poorly executed goal setting can have dire consequences.  In the early 1990s, for example, Sears set specific, challenging sales goals for its auto repair staff.  These goals, however, prompted their staff to overcharge for work and complete unnecessary repairs on a companywide basis.  In the Harvard Business School paper, the authors cite other “emblematic examples of goals gone wild”, including Ford’s decision to overlook safety flaws in the Ford Pinto in order to expedite its market introduction, and the collapse of Enron based on their sales force incentives.

So when do goals go wild?  Well, according to this paper, goals can be counterproductive when they are:

• Too specific or too narrow
• Based on inappropriate time horizons
• Too challenging

Engineered labor standards can be too specific or too narrow if managers allow quality to slip, or allow workers to engage in unsafe practices, in order to achieve their productivity targets.  This problem is well understood.  A WMS solution can be used to monitor quality, like mispicks per worker.  Safety is an issue that can be addressed in a variety of different ways.  When I visited the warehouse in Texas, forklift drivers honked every time they emerged from an aisle; walking paths through the DC were carefully lined off, the warehouse was clean and well lit, and everyone wore hard hats.

Sometimes bonuses are used in conjunction with labor standards.  For example, a worker coulde be paid $10 an hour if they achieve 100 percent of standard, but $10.50/hr if they perform above 105 percent, and $11.00/hr  if above 110 percent.  I like the idea of combining engineered labor standards with bonuses.  To me, it just seems fair and just.  It also has the benefit of making it easier to sell these standards to workers.  However, companies that combine incentives with standards need to cap these bonuses at a certain level.  I’ve come across 115 percent or 120 percent of standard as a cap rate above which no further incentives are paid.  If workers, particularly fork lift drivers, work faster than this level, they can become less aware of their surroundings and endanger their coworkers.

The time horizon problem is based on the idea that goals can lead people to perceive their goals as ceilings, rather than floors, for performance.  So, for example, once a sales person hits a quota, he may relax and not pursue new opportunities vigorously.  However, as described above, there are good reasons why productivity targets should have ceilings.

Finally, if goals are too challenging, a variety of psychological problems and unethical behaviors can result.  The whole point of engineered labor standards is to avoid these issues.  The objective is for the average person, working at average speed, to achieve their goals without having to strain themsleves.  Productivity increases are based on getting people to work at a steady pace all day long without inappropriate breaks or idle time.

In short, as I mentioned earlier, I believe that productivity goals based on engineered labor standards in the warehouse is probably the closest logistics managers can get to perfect goal setting.  Do you agree?  Disagree?  What have you experienced with engineered labor standards?  I’d love to get your viewpoint on this topic, so feel free to post a comment or send me an email.