Managerial Responses at the Interface between Stretch Goals and Organizational Performance

Abstract

Many academics, consultants and managers advocate the use of stretch goals in the belief that difficult-to-achieve goals generate creative tension, motivate employees, and yield superior performance. However, the proponents of stretch goals ignore that difficult-to-achieve goals can have either facilitative or disruptive effects within organizations depending on managers’ cognitive and affective responses to the goals. Using a management simulation in an experimental lab study, we test the effects of three goal difficulty levels – moderate, stretch, and seemingly impossible in increasing difficulty level – and find that increasing goal difficulty stimulates risk taking, reduces goal commitment, decreases self-efficacy, and increases anxiety. We also find no difference in financial performance between moderate and stretch goals, but show that seemingly impossible goals decrease financial performance. Our results provide empirical evidence for a nonlinear relationship between goal difficulty level, managerial affective and cognitive responses, and organization performance.