Your company's goal-setting approach needs to change. Here's why

This article was originally published on Inc.

It's the season of goal setting. In our personal lives, it's a time to pen New Year's resolutions. And professionally, it's a time to set—or rethink—your company goals for next year. 

With layoffs gripping headlines and recessionary climates brewing, you need to adapt your goal-setting approach to meet the moment. The stakes are too high to cling to yesteryear's approach.

1. Beware of stretch goals

For more than a decade, Stephen Curry has been celebrated for his "hot hand"—a term used to describe an athlete with a winning streak. For years, many people believed that the hot hand phenomenon was a fallacy or a cognitive illusion. But recent research has debunked the fallacy—the hot hand is real, at least in some sports. 

Professors Sim Sitkin (Duke University), Chet Miller (University of Houston), and Kelly See (University of Colorado Denver) found that, when setting company goals, leaders don't pay enough attention to their organization's past performance—or whether their organization has been hot- or cold-handed. Experiencing past success impacts beliefs, attitudes, and actions. If your company has experienced a winning streak in 2022, then you and your employees are more likely to see ambitious goals—or stretch goals—as exciting and feasible and with optimism, and you're more likely to reach them. 

But in our turbulent and challenging economic climate, most companies haven't been hot-handed in 2022. If your past year has been punctuated with losses, you and your employees are more likely to view stretch goals as threatening, and with fear and self-defeat. According to Professor Sitkin and colleagues' research, you're better off setting more tempered goals—especially if you don't have a lot of slack resources lying around. 

2. When setting goals, remember Miller's magic number  

In the 1950s, psychologist George Miller declared seven the "magical number." He demonstrated that humans can only hold "seven, plus or minus two," numbers in their short-term memory at any given time. Humans have limited cognitive capacity and their capacity is even more constricted when they are performing nonroutine and complex tasks—like setting goals amid choppy economic waters. Juggling more than five big company goals is likely to lead to poor decisions, blind spots, and a deflated ego in 2023. 

In 2014, Stanford professor Bob Sutton and I saw the magic of Miller's number applied to goal setting when we traveled to Vancouver, British Columbia, to study the fast-growing home improvement company BuildDirect. The company's goal-setting approach was inspired by author Stephen Covey's "five rocks" lesson. 

The "five rocks" lesson asks: Imagine you have a fishbowl, five big rocks, sand, and a collection of pebbles. How do you fit everything in the fishbowl? The only solution is to put the five big rocks in first before the sand and pebbles. You'll be most successful in leading your company next year if you focus on five or fewer core company goals—or big rocks. 

3. Leading change requires focus and prioritization  

Leading through change in 2023 will require a different skill set than leading your organization in rosier climates. In joint research conducted by the Work Innovation Lab by Asana—a future of work think tank where I work—in collaboration with Sharpist—a digital professional development platform—we found that executives are overestimating their ability to lead through change right now. 

Using anonymous self-reported data, we found that over the past year, executives have underestimated their need to develop new skills in order to lead their organizations through change. Before executive coaching sessions, only 9 percent of the professional development goals that executives set via Sharpist were focused on their own inner resilience (skills like self-awareness, self-compassion, and emotion and stress regulation), yet after coaching sessions, this percentage doubled as executives recognized how critical these skills are right now. 

No matter how well-intentioned your company's goal-setting approach is, as a leader, you need to put on your oxygen mask first. Inner resilience skills like self-awareness and self-compassion will enable you to effectively adapt your goals over the upcoming year and lead your organization through change.  

Evolving your goal-setting approach for 2023 

Effective goal setting is a non-negotiable for 2023. Your company's goal-setting approach must evolve to meet the emergent challenges and complexities of next year. Setting goals isn't enough. How you set goals is critically important—and key to having a hotter hand in 2023 and beyond.