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Ask Art: Why Should I Set Stretch Goals?

by Art Byrne
March 22, 2018

Ask Art: Why Should I Set Stretch Goals?

by Art Byrne
March 22, 2018 | Comments (4)

In my experience, setting stretch goals is key to succeeding in a lean turnaround. And yet almost all traditional managers oppose them. The most common argument I hear from frightened leaders is that if they set the goal too high, then people will become frustrated and just give up. They worry that they will lose people and nothing will happen.

I can certainly understand this concern. If you have always operated in a traditional batch environment and don’t understand what is possible with a different approach such as lean, you will find it almost impossible to consider setting goals you can’t even conceive of achieving. Assuming that you will continue to operate in the same manner that you always have naturally means that you can’t expect more than small incremental gains. So why put goals out there that nobody believes are possible? It is much more comfortable for the traditional manager to set goals that everyone thinks could be reached if you just work a little harder or smarter. For example, if inventory turns have been in the 3.0x to 3.3x range for the past five years, then setting a goal of 4.0 might seem like a worthy but difficult goal.

If, on the other hand, you understand lean and the type of gains that are possible from a continuous effort to remove the waste from your processes, then you would never consider setting such small incremental goals. Even if you didn’t know much about lean but were exposed to the type of gains other lean companies have achieved you might at least consider changing your approach.

The lean company is constantly trying to eliminate waste so that it can compete on its operational excellence. The lean people have learned that the traditional “make-the-month” culture is always looking backwards at what already happened—at events that you can no longer do anything about. Big end-of-month reviews to analyze last month’s results tie up a lot of resources (i.e. waste) and don’t help your future results. Your emphasis should be on what you can do to improve future results.

To do this you should start by defining a set of operational excellence targets, that when achieved, will dramatically improve your future results. At first these goals will probably seem ridiculous to most of your people. In fact, if they don’t then you probably set the bar too low. Remember you are trying to change the conversation dramatically. You want targets that can’t be reached if you continue to work the same way—going just a little faster or a little better.

Consider this example. The traditional manager will set a goal of going from 3X inventory turns to 4X; the lean leader will set a goal of going from 3X turns to 20X, knowing that no one will think they can continue doing what they are doing and hit this crazy goal. Everything will have to change.

When I first became CEO of The Wiremold Company, I set our operational excellence goals as follows:

  1. 100% on time customer service
  2. 20X inventory turns
  3. 20% productivity gain (each year)
  4. 50% reduction in defects (each year)
  5. Visual control and the 5s’s everywhere

These were generic targets by design, as they can be used by any manufacturing company. They defined our operational excellence targets. They were aspirational, not something that was going into next year’s budget. We knew it would take time to get there but we needed a vision of where we were going and this was it. Achieving these goals was our strategy and our focus. Lean is the greatest strategic weapon you will ever see; but only if you set stretch targets and then use all the lean tools and lots of kaizen activity to achieve them.

By the way, we were at 3.4X inventory turns when I introduced these goals. I didn’t expect everyone to just say, “Oh sure Art, 20X inventory turns, no problem.” In fact they were horrified. But we started major kaizen activities right away. Setup reduction times plummeted. Machines that we changed over three times per week were now changing over 20 to 30 times a day. Inventory turns exceeded 10x after 3 years, and we freed up almost half our floor space and enough cash to do our first five small acquisitions (we wound up doing 21 over about 9 years).

Twenty percent productivity gains each year? Are you nuts? Well in my prior role as Group Executive of The Danaher Company, one of my group companies, Jake Brake, achieved a 29% productivity gain each year for the first five years with a workforce that belonged to the U.A.W. So 20% seemed ok to me. I think we wound up averaging 14%.

The goals may have seemed a little far out there to everyone at first but we didn’t lose anyone. In fact the opposite happened. We changed the conversation. The gains we were getting from every kaizen were so big that in no time people got used to having ambitious stretch goals. We reorganized into value streams and had the value stream managers present how they were doing on the five goals every week. Hitting these goals became part of the culture. Instead of being turned off by them our associates were energized by the challenge.

One of the key Toyota principles is the concept of respect for people. To me setting stretch goals shows great respect for your people. In effect, you are saying to them that you believe that they can accomplish great things—way beyond what they can imagine. You have to show them the way and run lots of kaizens but your people will always surprise you. To me the greatest reward was always to set a goal for a team that no one thought they could achieve; and then watch how proud they were and how good they felt after they beat it. That was so rewarding. Keep in mind that this creates an obligation for the leader. You can’t just say, ok, here is the target and just walk away. You have to lead them to the target by participating, coaching and encouraging them along the way. For example if you were at 3X inventory turns and I gave you the goal of 20.0x then when you got there we could celebrate briefly. If however, I didn’t then set a new goal of 30.0x then you would be disappointed in me and think I quit on you. “Hey, what happened to him, doesn’t he want us to go further?”

Let’s take a quick example of “Mr. I don't want to set stretch goals and a lean leader”. Let’s use quality. Mr. I don’t want to set stretch goals is only willing to set an annual goal of 5% reduction in defects. The lean leader on the other hand sets a target of 50%. At the end of the year the “I don’t want to set stretch goals” team beats their target by 50% and gets a 7.5% reduction. The lean team is not so lucky. They miss their target by 20% and only get a 40% reduction in defects. If this continues for several years what do think will happen? Who will win?

The moral of the story is don’t be afraid. Take the lean leap and set stretch goals. Show respect for your people. Use the lean tools and kaizen to get to the point where you can compete on your operational excellence targets. You have to lead the way but you won’t be disappointed.

The views expressed in this post do not necessarily represent the views or policies of The Lean Enterprise Institute.
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4 Comments | Post a Comment
Edgar Agustin March 22, 2018

Excellent article, Art.

When you put up a number for a target, do you have a basis for it, like when you set the inventory turn target to 20X, from the current 3.4X? And, did you have an idea that it will be achieved in about XX years? Thank you.

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art byrne March 24, 2018
1 Person AGREES with this reply

Edgar, good question. Normally I do have a basis for setting a target. For example in your inventory turns question the basis of setting a target like 20x when the current and historical rate is just 3.4x is twofold; 1. others have done it so we should be able two as well and 2. even if I didn't have that specific information 20x would still be the right target as you are trying to change the way people think about things. Going from 3.4x to 5x for example would cause people to think that they could pretty much stay the way they are and have been but maybe make a few small adjustments here and there, Even a target of 10x could result in similar thinking. A target of 20x on the other hand requires a whole new mindset and approach which is what you are trying to acheive if you want to compete on your operational excellence. As to timing, there is no real way to set a specific target. What you want to insure is that you are steadily moving towards 20x at a reasonable pace. In my experience if you are at 3x you should be able to get to 6x by the end of the first year. After that you should be able to gain about 2 turns per year till you get to 20x and so on. I hope this helps, Art.

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Edgar Agustin March 24, 2018

Hi Art, great insight into the deeper workings of achieving stretch goals, first by breaking an existing mindset. It reminds me of Carol Dweck’s work on fixed mindset vs growth mindset. It looks like a growth mindset is essential to being lean (vs. doing lean). Giving people a stretch goal teaches them to acquire a growth mindset – a  mindset that embraces challenges (from 3.4X to 20X), takes calculated risks, puts effort to grow and learn new things (‘this is over-the-top  mind-blowing goal, but let’s give it a try with Lean”), find lessons and inspiration in other people’s success (“if others have done it, we can, too), accepts criticisms, persists in setbacks, and bounces back and learns from failures.

Yes, Art. It is very clear now how you “operationalize” the strategy. It somehow echoes Mike Rother’s Improvement Kata, if my imagination serves me well on what you’ve discussed.

Step 1: Get the direction or challenge: Inventory turn of 20X

Step 2: Grasp the current condition: Our current ITO is at 3.4X

Step 3: Establish your next target condition: We’ll target 2 turns improvement year on year. 6X on the 1st year, 8X on the 2nd year, and so on.

Step 4: Conduct experiments to get there: We’ll do several kaizen events until we reach 20X ITO

And I believe the ultimate target of 20X and the annual sub-targets were in the hoshin kanri to keep people focused on the improvement process to reach the goal.

Thanks so much, Art.

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art byrne March 25, 2018
3 People AGREE with this reply

Edgar I mostly agree with your summary. The exception is where you say conduct experiments and do several kaizen events until we reach 20x. You won't get far if you focus kaizen activity on improving inventory turns. Inventory turns are a result of the other things you need to do to get there. Reducing set up times, creating flow and pull for example have to occur to get to 20x. Just focusing on inventory turns without these fundamental changes will just lead to people doing stupid financial tricks to get to a number. For example, it is pretty common for a team faced with this type of challenge to think first about pressuring their suppliers into giving them consignment inventory. This is a bad idea. It just results in the vendors loading you up. Your inventory, the physical inventory not what's on the books will grow and take up even more of your floor space. You will add costs just moving it around and keeping track of it. I think you get the picture.

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