When the Boss Fails: How Middle Managers Rethink Targets After Missing Their Own

In today’s increasingly performance-driven business world, the setting of targets is more than just a planning exercise—it’s a key component of motivation, accountability, and strategy. A study by Jan Bouwens, Christian Hofmann, and Nina Schwaiger “Target Setting in Hierarchies: The Role of Middle Managers”, published in the „Journal of Accounting Research“, adds a compelling dimension to our understanding of how performance goals are established within complex organizations. Their research reveals a little-explored dynamic: how middle managers adjust their behavior in response to their own prior failures, especially when tasked with setting performance targets for their teams.

The Problem: Do Supervisors Rethink Strategy When They Fail?

The study addresses the question in management and organizational economics: Does a middle manager’s own failure to meet performance targets influence how they set future targets for their subordinates?

Target setting is a foundational practice in hierarchical organizations. Managers rely on a mix of data—historical performance, peer benchmarks, market conditions—to establish goals that are both challenging and attainable. But what happens when the managers themselves fall short?

The authors explore whether such a failure alters how managers use performance information when setting new targets for their teams. This insight matters because middle managers play a pivotal role in transmitting goals down from upper management and adapting them to local conditions. If their own failure shifts their strategy, it could ripple through the entire organizational hierarchy.

Key Insight: Managers Use Past Performance More When They Miss Their Own Targets

Bouwens, Hofmann, and Schwaiger analyzed data from a real-world, three-tiered organization in Germany over a six-year period (2011–2016). The hierarchy included headquarters (the principal), regional managers (supervisors), and subsidiary managers (agents). Targets for revenue were set and reviewed monthly, and middle managers had the authority to allocate these targets among their subsidiaries.

The authors found that when regional managers (supervisors) failed to meet their own targets, they responded by leaning more heavily on their subsidiaries’ past performance when setting future targets. Specifically:

• They increased targets more aggressively for subsidiary managers who had previously exceeded their goals.
• Conversely, they decreased targets more sharply for those who had underperformed.
• They also reduced their reliance on other forms of contextual information (like expected working days) in favor of hard past performance data.

This behavioral shift suggests a strategic recalibration: failing managers become more risk-averse, preferring to use concrete, observable past outcomes to guide future decisions. They appear to adopt a “back to basics” approach in hopes of improving their own performance by ensuring their teams are more likely to succeed.

Why This Matters Now: Accountability and Agility in the Post-Pandemic Economy

The research is especially timely given current global business trends:

• Performance pressure is higher than ever as organizations try to recover or sustain growth following the disruptions of the COVID-19 pandemic.
• Agile management has become a popular mantra, but effective agility still depends on decision-making within hierarchies.
• Transparency and accountability in goal-setting and execution are central themes in modern governance and ESG reporting frameworks.

Understanding how middle managers adapt after failure sheds light on the internal mechanics of organizational resilience. It shows that failure doesn’t just lead to external consequences; it also transforms how leaders lead.

Implications for Stakeholders

1. For Executives and Headquarters:
   Executives should recognize that their middle managers are not just conduits of strategy but also interpreters. Their own performance anxieties shape how they translate corporate goals into actionable targets. Training and support mechanisms could help managers avoid overreacting to failure, ensuring a more balanced approach to target setting.
2. For HR and Organizational Designers:
   Incentive systems need to account for the cascading effects of performance shortfalls. If one manager’s failure leads to a series of easier or more difficult targets downstream, this can affect motivation and retention, especially in tight labor markets.
3. For Policy Makers and Regulators:
   From a governance perspective, the study’s findings highlight the importance of internal accountability mechanisms. When evaluating organizational integrity, it’s not enough to examine final outcomes—how those outcomes are pursued and adjusted over time matters too.
4. For Researchers and Strategists:
   This paper opens new avenues in the study of information use under pressure. It blends behavioral insights with classical organizational economics, reinforcing the idea that decision-making in hierarchies is dynamic and context-sensitive.

A Nuanced View of Leadership in Practice

What stands out most in this study is the nuanced picture it paints of middle management. Here, we see middle managers as active agents—people whose own performance pressures shape the operational reality of those beneath them.

By showing that supervisors who fail become more performance-data-driven in how they set goals, this research reveals a mechanism of behavioral correction within organizations. It suggests that managerial learning isn’t just a formal process—it’s embedded in the target-setting rituals of day-to-day business life.

In Conclusion:
This study powerfully illustrates that in hierarchies, performance isn’t just managed—it’s interpreted and reconfigured by those in the middle. When middle managers fail, they don’t just try harder—they try differently. For businesses seeking to build more adaptive and responsive organizations, that’s a lesson worth internalizing.

To cite this blog: Bouwens, J., Hofmann, C., Schwaiger, N. (2024). When the Boss Fails: How Middle Managers Rethink Targets After Missing Their Own. TRR 266 Accounting for Transparency Blog. https://www.accounting-for-transparency.de/middle-managers-target-setting-failure/