Pulling back your ambitions may lead to better results. By Gerard McManus

Some management ideas are extremely fashionable for a while before being overtaken by a shiny new trend, but they may linger for years afterwards as imitator experts continue to hold on and run with them regardless of their inherent merits.

One such concept is that of stretch goals – a concept popularised by the most macho of modern management gurus, Jack Welch.

Welch revolutionised and energised General Electric during the 1990s, and in the process institutionalised a virtual new movement of aggressive middle management downsizing, and "Six Sigma" quality control techniques.

Welch decided that if GE wasn't in the top one or two markets in a category then it should get out of the business, with many of America's leading companies following the "Jack Welch Way". So great was Welch's reputation at one point Forbes Magazine named him Manager of the Century.

Another of Welch's legacies is stretch goals, which are still in the lingua Franca of many senior levels of the bureaucracy, in sales teams and especially common in the IT development businesses.

In urging everyone at GE to stretch, this is how Welch described the concept: "We have found that by reaching for what appears to be the impossible, we often actually do the impossible; and even when we don't quite make it, we inevitably wind up doing much better than we would have done."

A stretch goal is therefore an objective that cannot be achieved by incremental or small improvements but requires extending oneself to the limit to be actualised. It is a challenge that is significantly beyond the organisation's current performance level, according to Welch.

The idea behind stretch goals is that they energise and push you to work harder at meeting more difficult targets and to achieve more than if you had set an easier goal.

When you set a stretch goal for yourself you know you may not meet it 100 per cent, but by coming close you will likely achieve extraordinary results.

For example, if you set the goal to 120, essentially asking an extra 20 per cent of yourself, and achieve 115, you have managed to achieve 15 per cent more than if you had set an easier goal.

Welch's theory came from conversations with Japanese partners in the medical systems business, who told him about the "bullet train breakthrough".

Welch was told that had the Japanese wanted to increase the speed of the bullet train by 16km/h they would have widened the track, improved the suspension system etc. However, if they wanted to double the speed from 240km/h to 480km/h, they had to think outside the box.

"It's not the same train with a little more tweak, it is a whole new thought," he wrote, urging his people to make change leaps beyond the incremental thinking of conventional management. Therein lies the first problem. Bullet train thinking was in fact breakthrough thinking, not making an achievement beyond everyday capability.

Aubrey Daniels, behavioural psychologist and the author of bestsellers Performance Management and Other People's Habits, says nothing riles managers more than when he tells seminars and keynote addresses that stretch goals are an ineffective management practice and a waste of time and money.

Many managers have had real experience of challenging employees to stretch themselves with subsequent performances achieving above their initial goal even if they didn't reach the stretch goal. So it is no surprise they don't like him raining on their parade.

However, Daniels says while there is some anecdotal evidence that stretch goals work, the research is far from conclusive.

"As a matter of fact, one study of stretch goals found performance decreased over time, as individuals repeatedly experienced failure in their attempts to achieve assigned goals," Daniels says.

"Why would a manager set a goal their employees will fail to reach 90 per cent of the time? The answer, of course, is that they mistakenly believe it will motivate employees to achieve more than they would by only setting reasonable goals.

"What most managers don't understand is that goals are motivating to people only when they have received positive reinforcement for reaching them in the past. Stretch goals almost always are driven by negative reinforcement – not by design, but because most managers don't know the difference between positive reinforcement and negative reinforcement."

The second criticism is more prosaic. Some managers who consider themselves tough and ambitious believe stretch goals are necessary to achieve outstanding performance.

According to Daniels, the reality in any organisation is that, while employees may reach and succeed in achieving these goals now and then, it is not the setting of the goal but in the day-to-day actions of the manager that success is achieved.

"There are better ways to reach what may appear to be the impossible that don't involve stretch goals at all. [And] there is considerable confusion about the differences between stretch goals, innovation, and creativity," Daniels says.

Last year, Daniel Markovitz wrote an important short piece in the Harvard Business Review backing the Daniels view, entitled "The Folly of Stretch Goals" in which he sought to debunk the effectiveness of the 1990s management theory.

Markovitz said stretch goals were "terribly demotivating" because a goal that is overwhelming and unattainable sapped employees' intrinsic motivation, causing them to freeze up.

Stretch goals also foster unethical behaviour, according to Markovitz, who cites a series of corporate shenanigans and unethical window dressing as the end result of managers pushing things too far.

His third criticism is that it encourages excessive risk-taking with the GFC in part caused by executives being hugely rewarded for out-of-the- box performances.

"Focusing on small wins in combination with process improvement will drive your organisation forward without the negative consequences of stretch goals," Markovitz writes.

Moving from a position of underperformance, competitive disadvantage or lack of product or performance differentiation requires goal setting or behaviour shaping to move from being behind to getting in front. If there is no possibility of catching up and passing through incremental shifts in performance and capability or in working any harder, then innovation and creativity are required.

"When trying to improve on an existing process, incremental goals work best – actually, the smaller the better, as small improvement targets provide more opportunities for positive reinforcement, which increases motivation," Daniels says.

Creativity involves a radical departure from an existing process. Permission to fail and accepting a lot of tests for ideas that don't work are part of this process. Not all businesses can afford this luxury.

Another downside to stretch goals is the rewarding of employees who tried hard, and got close, but didn't quite make it. This sends a message that behaviour is more important than results.

Daniels, one of the world's best counter-intuitive thinkers on management, argues the best thing you can do in goal setting is set the goal low because rewarding goal attainment increases motivation and the likelihood of subsequent goal success.