In 1993, twelve years after becoming CEO of GE, Jack Welch traveled to Tokyo. He heard a story about Japan’s rail system while touring a medical testing plant. In the 1950s, during the prolonged devastation of World War II, Japan focused heavily on developing the nation’s economy, with much of the country’s population living in or between Tokyo and Osaka, which separated just 320 miles of railroad tracks. Every day, tens of thousands of people travel between these two cities. Huge quantities of industrial raw materials were transported by these railways.

Nevertheless, the Japanese topography was so mountainous and the railway system so outdated that the journey could take up to twenty hours. So, in 1955, the head of the Japanese railway system challenged the nation’s best engineers to invent a faster train. Six months later, a team unveiled a prototype locomotive capable of traveling 65 miles (104.6 km) per hour – a speed that, at the time, made it among the fastest passenger trains in the world. Not good enough, the head of the railway system said. He wanted 120 miles (193.1 km) per hour. The engineers explained that this was not realistic. If a train turned too sharply at those speeds, the centrifugal force would derail the rail cars. Seventy miles (112.6 km) an hour was more realistic – perhaps 75 miles (120.7 km) per hour. Any faster, and the trains would crash.

Why do the trains need to turn? The railway head asked.

There were numerous mountains between the cities, the engineers replied.

Why not make tunnels, then?

The work required to cross the tunnel through such a large area could equate to the cost of rebuilding Tokyo after World War II. Three months later, engineers introduced an engine capable of running 75 miles per hour. The head of the railways condemned the plan, seventy-five miles an hour, he said, he had no chance of transforming the nation. Gradual improvements would only lead to incremental economic growth. The only way to overhaul the country’s transport system was to rebuild every aspect of how trains work.

For the next two years, the engineers experimented. They designed train cars that each had their engines. They rebuilt gears to be washed with less friction. They discovered that their new train carriages were too heavy for Japan’s existing tracks. Hence, they reinforced the rails, which increased stability and added another half mile per hour to the carriage speed. Hundreds of innovations, big and small, made trains faster than before. In 1964, the Tokaido Shinkansen, the world’s first bullet train, left Tokyo along with a series of welded rails passing through tunnels cut into the mountains of Japan. He completed his journey in three hours and fifty-eight minutes at an average speed of 120 miles per hour. Soon other bullet trains ran to other Japanese cities, helping fuel a dizzying economic expansion. According to a 2014 study, bullet train development was critical in spurring Japan’s growth well into the 1980s. Moreover, within a decade of that innovation, the technologies developed in Japan had given birth to high-speed rail projects in France, Germany, and Australia and had revolutionized industrial design worldwide.

For Jack Welch, this story was a revelation. What GE needed, he told Steve Kerr (Dean of the USC business school and an expert in the psychology of goal setting) when he got home from Japan, was a similar outlook, an institutional commitment to bold goals. In the future, every executive and department, in addition to delivering specific, achievable, and timely goals, will also have to identify a stretch goal – a goal so ambitious that managers could not describe, at least initially, how they will achieve it. Jack Welch said everyone had to be involved in “thinking about the bullet train.” In a 1993 letter to shareholders, Jack Welch explained that “stretching is an idea that would bring smiles, if not laughter, to GE three or four years ago because it essentially means using dreams to set business goals without reading an idea of how to get there. If we know how to get there – it is not a goal.” Six months after Jack Welch’s trip to Japan, every division at GE had a stretch goal. For example, the GE aircraft engine division announced that it would reduce the number of defects in the finished engines by 25%. The department managers realized they could quickly achieve this goal. Almost all the defects they found in the motors were minor, aesthetic issues, such as a slightly misaligned cable or minor scratches. Anything more serious was fixed before the engine was shipped. If they hired more quality assurance staff, the managers thought, they could reduce cosmetic defects with little effort. Jack Welch agreed that reducing defects was a wise goal. He then told them to reduce their mistakes by 70%. That is ridiculous, the executives said. Engine construction was such a complicated affair – each engine weighed five tons and had more than ten thousand components – that there was no way they could achieve a 70% reduction in error. Welch said they had three years to reach the 70% stretch goal.

The department directors started to panic, analyzing every mistake recorded in the previous twelve months. They quickly realized that hiring more quality assurance workers would not do the trick. The only way to reduce errors by 70% was to make each employee, in fact, a quality assurance auditor. Everyone had to take responsibility for catching the mistakes. However, most factory workers did not know enough about engines to recognize every minor defect as it appeared. The only solution, managers decided, was a considerable retraining effort, except that it did not work either. Even after nine months of retraining, the error rate had fallen by only 50%. So, managers started hiring workers with more technical backgrounds, the kind of people who knew what an engine should look like and could more easily spot what was amiss. The GE factory manufacturing CF6 engines in Durham, North Carolina, determined that the best way to find the right employees was to hire only candidates with FAA certification in engine manufacturing. Such workers, however, were already in high demand at other plants. So, to attract them, managers said employees could have more autonomy. They could schedule their shifts and organize teams however they wanted. That required the plant to do away with centralized scheduling.

Teams had to self-organize and figure out their workflow. Jack Welch had given his aircraft division a stretching goal of reducing errors by 70%, a goal so bold that the only way to achieve it was to change almost everything, such as (1) How were workers trained? (2) Which workers were hired? Furthermore, (3) How does the factory run? By the time they were done, the Durham plant’s managers had collapsed organizational charts, remade job duties, and overhauled how they interviewed candidates because they needed people with better team skills and more flexible mindsets. In other words, Jack Welch’s stretch goal set off a chain reaction that remade how engines were manufactured in ways no one had imagined. By 1999, the number of defects per engine had fallen by 75%. The company had gone thirty-eight months without missing a single delivery, a record. The cost of manufacturing had dropped by 10% every year.

Numerous academic studies have examined the impact of set goals and have consistently found that forcing people to commit to ambitious, seemingly unattainable goals can lead to great leaps in innovation and productivity. Research on people who have lost weight or become marathon runners later in life has found that stretching goals are often integral to their success. Stretch goals “serve as shocking events that disrupt complacency and promote new ways of thinking,” a group of researchers wrote in the Academy of Management Review business journal in 2011. “By forcing a substantial elevation in collective aspirations, stretch goals can shift attention to possible new futures and spark increased energy in the organization. They thus can prompt exploratory learning through experimentation, innovation, broad search, or playfulness.” However, there is an important caveat about the strength of stretching targets. Studies show that a bold stretch goal can spark innovation. It can also cause panic and convince people that success is impossible because the goal is too big. There is a fine line between an ambition that helps people achieve something remarkable and an ambition that shatters morale. A stretch goal to inspire often needs to be paired with the SMART system. SMART is a mnemonic acronym that provides guidance criteria in goal setting, project management, employee performance management, and personal development. Specifically, the letters refer to feasible, relevant, and time bounds. Ideally, every company and department should target to be:

·       Specific. Target a particular area for improvement.

·       Measurable. Quantify or at least suggest an indicator of progress.

·       Assignable – specify who will do it.

·  Realistic. State the results that can be achieved realistically, given available resources.

·       Time-related. Determine when we can achieve the results.

Note that these criteria do not indicate that they should quantify all objectives at all levels of management. It is sometimes unrealistic to quantify, especially in middle management positions. Trained managers and companies may lose the advantage of a more abstract goal of quantification. The combination of its purpose and action plan is essential. Therefore, serious management should focus on these twins and not just on goals.

The reason we need both stretch goals and smart goals is audacity in itself. It is often not clear how to start with a plan. And so, to make a stretch goal something more than an ambition, we need a disciplined mindset to show us how to turn a distant dream into a series of realistic short-term goals. People who know how to build SMART (Specific, Measurable, Achievable, Relevant, and Time-Bound) goals are often accustomed to cultures that can break big dreams down into manageable parts. So, they know what to do when faced with seemingly big ambitions. Combined with SMART thinking, stretch goals can help you achieve the impossible. 

Georgios Ardavanis – 15/09/2023