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Oct 16, 2009 -

In the 1940s Stanford University’s goal was to become the “Harvard of the West.” In 1950 Boeing wanted to become the “dominant player in commercial aircraft and bring the world into the jet age.” Nike’s goal in the 1960s was to “Crush Adidas.” In 1986 Giro Sport Design wanted to become the “Nike of the cycling industry.” And Wal-Mart, in 1990, wanted to become a “$125 billion company by the year 2000.”

These are all examples of what Jim Collins and Jerry Porras called a BHAG--Big Hairy Audacious Goal--in their 1994 book Built to Last. According to Collins and Porras: “A true BHAG is clear and compelling, serves as a unifying focal point of effort…It has a clear finish line, so the organization can know when it has achieved the goal. It is tangible, energizing, highly focused. People get it right away; it takes little or no explanation.”

Set correctly, BHAGs work. But how do you do that? Taking clues from Collins and Porras, a good BHAG has four qualities:

1. Aligned. Properly set goals can be transformational if they’re tied closely to what is most important to the organization.

2. Audacious. BHAGs are a breed apart. You’re probably on to something if the first reaction to a BHAG is “impossible!” BHAGs can’t be achieved easily or quickly. They demand different thinking.

3. Articulate. A good BHAG is a clear target. And it’s real. It’s not in any way a fanciful statement disconnected from the business. Kennedy’s 1961 mission to “land on the moon by the end of the decade” needs no further detail.

4. Arduous. Easy goals don’t require innovation. A good BHAG does. It’s achievable, but only through different thinking, real struggle, and a dash of luck. If it’s truly impossible—as opposed to perceived as impossible—people will disengage from the process entirely.

A good example of how BHAGs can transform a business is the story of Toyota’s North American Parts Organization, a parts distribution organization serving 1,200 retailers. A newly appointed general manager set a three-part BHAG for the $2 billion dollar unit: reduce operating costs by $100 million, remove $100 million of inventory from the supply chain, and achieve a 50% improvement in customer service. Naming her effort “Stretch Goals,” she stunned her eighty or so senior managers by telling them she wanted these goals met in three years.

Putting their heads together, they arrived at ten key objectives that needed to be met in order to accomplish the mission: Reduce inventory 50%, decrease backorders 50%, reduce packaging expense 50%, reduce damage 50%, increase throughput 25%, improve safety/decrease errors 50%, increase space utilization 25%, decrease landfill usage 25%, reduce freight costs 25%, and decrease lead time 40%.

These targets were aggressive, to say the least. The beauty of the audacity, though, was management’s realization that a 30% improvement might in fact be easier than, say, a 10% improvement. A 10% improvement can be achieved by working harder or longer. There’s almost no way to work 30% harder without killing yourself. The more aggressive targets actually engaged people’s brains in new ways and forced them to rethink and redesign processes.

And there’s a hidden dimension to how the goals were set. The ultimate mission of the Stretch Goals initiative was to optimize the entire supply chain, but there are inherent conflicts existing between and among the various natural functions of any supply chain. The real art of the strategy was in recognizing those tensions, calling attention to them, and capitalizing on them to power new thinking and drive collaboration.

To the casual observer, the list of ten targets seems like a simple master wish list. But look closer. See if you can spot the tension points. Here’s a hint. Take a look at the first two targets, inventory and backorders. In most supply chains, they’re opposite sides of the same coin. Increase inventory, and backorders drop. Decrease it, and backorders generally rise. So management brilliantly and counterintuitively paired the two, pitting one against the other in order to generate creative tension.

If you look back at the list above, you’ll see that the ten are really five pairs of two conflicting goals. Not all of the stretch goals were met, but the organization came close enough: $100 million in cost savings, $90 million taken out of inventory, and nearly 40% improvement customer service. This is a great example of why you want your team to believe that their reach can and should exceed their grasp.

Matthew E. May is the author of In Pursuit of Elegance: Why the Best Ideas Have Something Missing, and blogs here. You can follow him on Twitter here.