Why SMART objectives don't cut it in the real world

Bernie Smith

Founder, Made to Measure KPIs

When I was very young I would draw stick figures with the arms coming from the middle of their torso. Legs were straight lines, and heads were circular. The sky was a thin blue stripe along the top of the picture, and the sun was a yellow circle. In my mind, this was how the world and the people in it were put together.

When it comes to performance targets and goal-setting the business world seems stuck mainly in the 'arms coming from the middle of the body' phase of development. Most of us are using a model to design and set targets that does not reflect the reality of the real world - SMART goal setting.

Over the 30 years of my business career, the SMART objective setting approach was the only structured method I saw in regular use by clients developing goals and targets. SMART is based on Locke and Latham's five principles for setting effective goals and targets.

  1. Clarity: Come up with a clear goal
  2. Challenge: Make sure the goal is a stretch but not impossible
  3. Commitment: Ensure your target owner is committed to the goal and target
  4. Feedback: Give regular feedback
  5. Task complexity: Make sure the timescale is realistic, breaking down complex tasks into sub-tasks, goals or targets

Perhaps 'CCCFT' was not catchy enough, so it evolved into SMART, asserting that all targets and goals should be...

  • Specific
  • Measurable
  • Achievable
  • Realistic
  • Time-based

Each of these points is important when it comes to target and incentive design. However, experience shows that SMART targets repeatedly fail to deliver the expected results and outcomes in the real world. Take Wells Fargo Bank...

In the early 2000s, the management of Wells Fargo, a major US bank, decided that cross-selling was the key to business success. On the surface it makes good sense. It costs less to cross-sell a product to an existing customer, and customers with multiple products are more likely to be loyal and generate more revenue for the bank.

Under the leadership of Richard Kovacevich, the bank introduced a target called 'Going for Gr-Eight' for employees to sell at least eight products to each customer.

Each morning, branch managers were expected to attend a conference call to explain how they planned to achieve their goal for the day. If they missed that target, they were also required to call each afternoon and explain the reasons for missing and how they planned to fix it. "It was a religion. It very much was the culture." Staff were under intense, sustained pressure to hit their sales targets every day.

The focus was so much on 'Going for Gr-Eight', and the cross-selling figures, the management of Wells Fargo ignored clear warning signs, including several whistle-blower attempts and a warning from their own internal investigations unit. Desperate to hit their targets, staff started to show highly dysfunctional behaviours:

Staff coined the term 'pinning', which described assigning customer' personal identification numbers' (without customer knowledge) to impersonate them on the Wells Fargo systems and enrol them in new products without their knowledge.

  • More than 1.5 million deposit accounts and 565,000 credit card accounts are thought to have been opened without customer authorisation.
  • Customers were charged fees on bank accounts they didn't know they had.
  • Bank accounts were created for fictitious customers (193,000 non-employee accounts were created between 2011 and 2015 where the only email address was an @wellsfargo.com email address)
  • Branch sales staff pressured customers into taking out large loans and repay them immediately so that staff could meet their sales targets.

The 'Going for Gr-eight' targets arguably met all of the SMART criteria but despite this, the target 'gaming' (and outright criminality) the 'Going for Gr-eight' cross-selling targets drove led to a $185 million fine by the Consumer Protection Bureau and, more significantly, massive erosion of reputation and customer trust.

It's not just Wells Fargo who have had targets backfire on them. You only have to open a news site to find other examples of performance targets that satisfied the five SMART criteria but ended in disaster…

  • Volkswagen says diesel scandal has cost it €31.3 billion - Reuters, March 17th 2020
  • PPI In Numbers: A Look At The Scale Of Britain's $59 Billion Consumer Scandal - Forbes, August 29th 2019
  • NHS targets 'may have led to 1,200 deaths' in Mid-Staffordshire - The Telegraph, March 17th 2009

Locke and Latham's five principles and SMART goal-setting are a solid start but the behaviour that targets drive is too complex to summarise in five short bullet points. SMART's failure to factor in human 'gaming' has repeatedly led to wildly unexpected outcomes, damaged reputations, huge fines and even death.

Returning to my pre-school artistry, as I grew, I started to use the evidence of my own eyes to fix my broken mental model of human anatomy. I hope the following two articles of this series will have the same effect on your target and incentive design, helping you see the flawed assumptions widely used without question and to adopt new approaches that better reflect the demands of target and incentive design 'for the real world'. Next issue: 'A better way to design performance targets'.

To discover a better way to design your targets and incentives head to KPI Academy and discover the GAMED complete online target and incentive design course.

Readers of Digital Accountancy are able to benefit from 50% launch discount code by using this Coupon Code at checkout:

DIGITALACC50

Bernie Smith

Founder, Made to Measure KPIs

Bernie Smith, founder of Made to Measure KPIs, trains and coaches businesses to develop meaningful KPIs and present their management information in the clearest possible way to support good decision-making.

His approach has been adopted by many organisations, including Airbus, HSBC, UBS, Lloyd’s Register, Credit Suisse, Royal Bank of Scotland, LloydsTSB and many others. He has written twenty books on KPIs, regularly tops this category on Amazon and is a frequent key-note speaker on performance measurement.

Earlier in his career, Bernie, who qualified as a professional engineer, worked as a consultant leading teams delivering exceptional operational improvement in blue-chip companies using Lean and Six Sigma approaches. This broad industry experience has given him a unique perspective when it comes to developing KPIs to improve organisational performance.

Bernie lives in Sheffield, UK, with his wife Liz, two children and some underused exercise equipment.

Read next article

Worldfirst: A customer first approach to international business payments