Changing the Goal-Setting Process at Microsoft

Author(s): Karyl N. Shaw

Source: The Academy of Management Executive (1993-2005), Vol. 18, No. 4, Decision-
Making and Firm Success (Nov., 2004), pp. 139-142
Published by: Academy of Management
Stable URL: http://www.jstor.org/stable/4166135
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Academy of Management Executive (1993-2005)

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t Academy of Management Executive, 2004, Vol. 18, No. 4

Changing the goal-setting

process at Microsoft

Karyll N. Shaw

Microsoft Corporation has a long tradition of em- back to them to agree on a target range of new
phasizing individual goals in its performance hires for each organization. Just as the recruiting
management system to support its performance- director predicted, during the meeting the Senior
based culture. As happens at many companies, VP-obviously a believer in specific and very dif-
each year employees draft performance goals and ficult goals-kept pushing the recruiting manager
have them approved by their managers. At the end to provide a specific number of new hires for the
of the year, these goals form the basis of the per- next year, and grew more and more frustrated as
formance review documentation and discussion she continued to resist agreeing to any specific
process.' All employees are trained in how to set goal. Finally, he insisted, "If you won't give me a
goals, and managers are trained to assist in the number, then I'm going to give you one." The vice
goal-setting process, including how to provide rel- president, switching to a positive incentive, also
evant performance feedback throughout the re- told the recruiting manager that if she achieved
view period. the hiring goal, he would throw a huge party for
Goal-setting training stipulates the use of the team at his home.
"SMART" criteria or attributes (i.e., Specific, Mea- The goal that the VP set was twice the current
surable, Achievable, Results-based, and Time-spe- year's hiring goal and much more than the recruit-
cific) in writing goals. The attributes of specific ing team thought possible to attain, yet by the end
and time-specific obviously refer to the attribute of of that year, the recruiting team had exceeded the
specificity mentioned by Latham in his article for VP's goal by almost a third. The VP followed
this Executives Ask feature. The measurable at- through on his promise to throw a fabulous party at
tribute implies the ability to get feedback. The his home, and at the celebration the recruiting
achievable attribute is intended to promote com- team presented a huge cake, with the VP's hiring
mitment. The results-based attribute is important goal and the actual new-hire total achieved
but does not rule out setting goals for actions that printed on the cake in bright red frosting.
lead to outcomes as well as for the outcomes them- As has been documented extensively in the me-
selves. dia, Microsoft has grown rapidly even though
Colorful stories that are part of the company's many companies in its industry have been in de-
folklore depict the results-oriented culture and fo- cline, almost doubling the number of its employees
cus on specific, measurable goals that Microsoft since 1999. Aside from economic and competitive
has relied on historically to drive toward success. pressures in the past few years, since 1999 the
For example, in the late 1990s a senior vice presi- company also has been involved in several ex-
dent was pressuring the recruiting team that sup- haustive legal challenges to its business practices.
ported his organization to increase its hiring goals CEO Steve Ballmer has an unwavering belief in
to meet business needs. The recruiting director, the company's continued success and has insti-
knowing that all the VPs supported by his team tuted several changes in the organization's struc-
wanted similar goal increases and concluding that ture and processes to ensure that future.
his team would not be able to meet all of these The performance management system is one of
goal increases, sent his team member-a recruit- the several organizational processes that have
ing manager-into the meeting with the senior VP. been reviewed recently to determine what changes
He warned her over and over, "Whatever he says, might be needed in order to meet the current and
do not agree to a specific number of new hires for future needs of Microsoft's complex business
next year." The recruiting director planned to lis- model. Below is a description of the changes Mi-
ten to all of the VP requests for his team and come crosoft is making to its goal-setting process within

139

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 140 Academy of Management Executive November

the performance management (PM) system so that achieve easy goals might receive a higher rat-
a culture based on business focus, disciplined ex- ing than employees who almost achieve very
ecution, and accountability can be assured. difficult goals. In addition, for non-sales employ-
ees, performance bonuses are based on these
Findings From the Performance Management ratings (Method 4 as discussed by Locke in his
System Review Executives Ask article), emphasizing the impor-
tance of a consistent calibration process.]
The PM system review team conducted an audit of
. In some groups, goals are assigned from the top,
over 1500 employee annual performance review
with little or no discussion or explanation by
forms using the SMART criteria to assess the qual- managers.
ity of employee goals. The annual performance
review form includes each employee's goals for the The PM review team's findings indicated that
year along with the employee's and the manager's several of the causal mechanisms and conditions
review of goal success and the official employee needed for goals to positively impact performance,
performance rating submitted for the year. The au- discussed by Gary Latham in his Executives Ask
dit of the review forms resulted in startling sur- article, were not present for many employees at
prises. While the company's leaders suspected Microsoft. Goals direct attention, energize people,
that the rigor of the goal-setting process had di- and influence persistence, effort, and work pace.
minished somewhat, the audit indicated that al- They often motivate people to discover new ways
most one-quarter of all employees had not in- to achieve the goal. With so many employees lack-
cluded "specific" goals on their annual review ing specific (SMART) goals, it was difficult to know
form. In addition, when assessing specific goals what directed their attention, energy, and efforts.
that were provided against other SMART criteria, In terms of the conditions for effectiveness that
only about 40 per cent were deemed measurable, Latham discussed, many of these rely on the skill
in terms of having included some reasonable way and support of the manager so that goal commit-
to assess whether the goal had been achieved. The ment is enhanced and feedback on goal progress
goals were more activity-focused than focused on is provided. Microsoft employees generally work
results, and it was hard to see alignment with on complex tasks and in an extremely dynamic
broader organizational or company goals. environment, enhancing the need for regular feed-
To more fully explore the reasons why the goal- back, goal progress review, and the support of
setting process had lost its earlier rigor, the PM managers in attaining needed resources and re-
review team conducted focus groups with employ- moving obstacles. According to the PM review,
ees and managers at all levels and in all regions many of these conditions were not being met.
in its worldwide population. The themes that
emerged from the focus-group discussions in-
The Changes: From Goals to Commitments
cluded the following:
In analyzing the PM review results, Microsoft's
* The rate of change in the company makes it
leaders concluded that goals had begun to be
difficult to set specific goals that actually fit the
viewed as aspirations (hopes) rather than as gen-
business needs for an entire year.
uine commitments. We know from goal-setting the-
. We need a consistent process for goal align-
ory that goals without commitment do not work.
ment/cascading. Some groups are setting up
Thus the first change that was made was to com-
their own processes to do this.
* Managers need more training in setting SMART bine the two by changing the actual language from
'goals' to 'commitments.' The commitment termi-
goals.
nology came directly from leaders who believed
. Managers and employees need to meet more
that when an employee makes a commitment,
regularly to update progress toward achieving
goals. there is a greater level of accountability to meet
that commitment. To support the CEO's plan to
* We need consistent calibration processes com-
drive a culture of accountability, this language
pany-wide to ensure that performance ratings
change was important. In addition it was agreed
take into account differences in goal difficulty
that managers would:
among employees. [Note: Performance ratings
are finalized through an employee-to-employee . Discuss and document the commitments of all
calibration that management teams conduct, employees;
and final ratings must meet rating guidelines. * Revisit and refresh commitments over time;
Unless goal-difficulty differences are accounted * Agree to success metrics for each commitment,
for in calibration processes, employees who including the "How?" behind execution (e.g., the

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 2004 Shaw 141

plans to be used to attain the commitments), not section's segments and contained the following
just the "What?" information:
* Align commitments across the company by cas- Commitments-Identify the five to seven high-
cading commitments, beginning with Mi- level commitments for the employees and insure
crosoft's commitments and connecting to organi- that they are aligned to the business commitments.
zational, team, and ultimately individual Microsoft expects commitments to exist at a higher
commitments; level of challenge than goals have been in the
* Drive management team calibration discus- past. Whereas goals attempted to capture activi-
sions so interdependencies and metrics are vet- ties, commitments capture the end results they are
ted across individuals. trying to achieve and, to final completion, may
extend across multiple fiscal years.
These changes reflect the leaders' renewed com-
Disciplined Execution-The employee's execu-
mitment to basic tenets of goal-setting theory, en-
tion plan will identify how the employee plans to
suring that the various causal mechanisms and
deliver on the overall commitment. The execution
conditions for goal success are part of the PM sys-
plan is intended to identify significant milestones
tem going forward. The executive team set to work
that the employee will accomplish during the fis-
to define Microsoft's commitments and distribute
cal year, in addition to identifying groups with
them to all employees, so the cascading alignment
which the employee has interdependencies for
process could begin. The company's commitments
successful completion of milestones. Throughout
focus on driving shareholder value through inno-
the fiscal year, the company expects a well-docu-
vation, customer responsiveness, and the develop-
mented execution plan to be a great coaching tool
ment of talent. The PM team went to work to build
for managers to use with employees to note
the communications and training programs
progress and deliver feedback.
needed to prepare employees and managers for
Accountability-The accountability section is in-
the changes.
tended to clearly and consistently set expectations
for both employees and managers as to what suc-
The company's commitments focus on cess will look like at the end of the fiscal year. This
driving shareholder value through is a significant area of concern for employees in
today's goal-setting process that the company be-
innovation, customer responsiveness, and
lieves will be addressed through commitment set-
the development of talent.
ting. Accountabilities will capture the specific suc-
cess measures and metrics that a manager will
The communications to and training for employ- use to determine whether the results that an em-
ees stress that the commitment-setting process is ployee delivers meet expectations. Having clearly
most powerful when there is alignment between articulated accountabilities will establish a strong
individual, team, organizational, and Microsoft foundation upon which an appropriate employee
commitments. The alignment process starts by get- rating can be given, through which meaningful
ting clear on Microsoft's business focus and the calibration discussions can take place, and upon
company-wide commitments. With that focus in which more clearly linked rewards can be distrib-
mind, employees next examine the commitments uted.
of their own organizations, followed by their team As noted above, Microsoft used Locke's Method 4
commitments. Finally, employees define their own approach (based on Latham's idea): Managers take
individual commitments so that everyone will be account of various contextual factors during the
successful. calibration process to determine final ratings and
The new commitment-setting process was rolled related incentive rewards. So the increased focus
out for use during the 2004 annual performance on metrics and accountabilities should strengthen
review process. Various templates and tools were the performance-reward link.
provided to all employees and managers for use in
the commitment-setting process, including a new
Commitments, Execution, and Accountability
section in the annual review form and training on
commitment-setting for all employees and manag- To ensure a culture focused on business commit-
ers. Figure 1 illustrates the section of the annual ments and execution and accountability to achieve
performance review form in which employees and those commitments, Microsoft embarked on a thor-
managers include commitments, the execution ough review of its performance-management sys-
plan, and accountabilities. tem and implemented its new, more robust com-
The training included guidance for each of the mitment-setting process. These changes reflect a

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 142 Academy of Management Executive November

Part 2: FY05 Commitment Setting

Define your commitments for the next review penod.

Commitments should be:
? Specific, Measurable, Achievable, Resultsbased, and Time-speciflc.
? Aligned with the commitments of your manager, organization, and Microsoft
Commitments.
* Supported with customer-centric actions and measures aligned with divisional
business plans.
People Managers must include at least one People Management Commitment.
For additional assistance visit: Commitment Setting.

Reviewer and employee, edit this section to create a prioritized list of commitments.
Commitments Execution Plan Accountabilities
Identify 5-7 areas of focus which Identify how you will ac
are aligned with commitments of commitments (key miles
your manager, organization, dependencies). the realization of your
and Microsoft Commitments. commitments.

FIGURE 1
Goal-Setting Section of Microsoft's Annual Performance Review Form

return to basic and necessary goal-setting prac- formal ratings and bonus distributions at both reviews, with
raises and stock-option distributions occurring at the end-of-
tices after the company determined that the rigor
year (August) review only. In 2002, the 'mid-year review' was
in its goal-setting processes had diminished. Over
re-focused on career development goals and issues and in-
the course of the next year, the PM team will mon- cluded a performance checkpoint discussion only, with no per-
itor and evaluate the initial implementation and formance ratings or bonus rewards allocated.
continue to provide guidance for ongoing review
and revision processes as the system is fully im-
plemented. Given the renewed focus on specific, Karyll N. Shaw is an indepen-
measurable goals (commitments at Microsoft), dent consultant. From 1998 until

aligned throughout the company and supported by 2004 she worked for Microsoft
Corporation, designing leader-
management review and action, the company has
ship development processes
reinforced goal-setting theory's causal mecha- and supporting strategic plan-
nisms and conditions for success and should ning and change efforts there.
achieve the intended outcomes of these changes: She received her Ph.D. in orga-

the overall achievement of the Microsoft commit- nizational behavior and theory
from the Robert H. Smith School
ments.
of Business, University of Mary-
land. She also has served on
Endnotes
several business school facul-
'Until 2002, performance reviews occurred twice during each ties. Contact: karyllshaw@yahoo.
year (February and August) rather than once and included com.

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