Approaches to Goal Formulation:

There are mainly three approaches to goal formulation. They are as follows:

1. Top-down approach: Top-down approach is a directive approach. Under this approach, top executives first develp the corporate goals and disseminates them to middle and lower level managers for implementation. Top level mangers use their knowledge and experiences to formulate the goals.
2. Bottom-Up approach: Bottom-up approach is a participatory approach. Under this approach, functional workers formulate goals for their positions and passes to the top level for final revision and approval. Top level management finalizes the goals on the basis of mission statement and disseminate to lower level for its implementation.
3. Management by Objectives (MBO): MBO is initially suggested by Peter Durker in 1960.It is the process under which both top level and lower level management jointly formulate the goals for an organization. They determine each individual’s major area of responsibility in terms of goals which gives employees a sense of ownership and motivates further. The collective effort of both superior and subordinates in goal setting process is the major advantage of MBO.

Goal Formation Process:

Following are the steps involved in goal formulation process:

1. Assigning a group: At first a group in which the involvement of all the level of mangers from top, middle and lower level are assigned. The involvement of higher level ensures the utilization of their expertise on environmental changes and effective allocation of resources; where as the involvement of lower level ensures the formulation of realistic and achievable goal and commitment towards the work.
2. Environmental Scanning: After the group is assigned the necessary and relevant information of internal and external environment are gathered and analyzed. This helps to know the changes occur in external environment like political changes, technological changes, socio-cultural changes etc. and its possible impacts as well as, the strength and weakness of the organization that can capitalize the opportunities and neutralize the threats.
3. Determining and listing the potential goals: After the rigorous analysis of environmental factors and its impacts, potential goals are formulated and listed.
4. Brainstorming on potential goals: Once managers formulated the list of potential goals, it is necessary to think deeply on each of them according to their importance. Managers discuss these goals on their relevancy, strength, weakness and success in future.
5. Reach the consensus: Once the goals are carefully discussed, a best goal among the list is choose. There must be acceptance of majority in goal selection. This not only helps to avoid conflict but also helps in motivating the workers toward goal achievement.
6. Determine the major area of responsibility: After finalizing the goal, the activities related to its achievement are determined. In addition, the authority-responsibility relation of the activities and individual are determined and assigned the task accordingly.

Problems of Goal formation:

The main problems in goal formulation are as follows:

1. Improper reward system: When there is a weaker link between reward system and goal setting, it creates major problem in goal formulation. Employees are motivated only when there is a good relation between goal formulation and reward system.
2. Environmental Constraint: It will be hard to anticipate any changes exactly that may occur in future, which is a major problem in goal formulation. The environmental factors like technology, politics, etc. force the organization to change its policies and practices. Thus, inadequate assessment of these factors may lead to unrealistic and faulty goals.
3. Unwillingness of managers in goal formulation: Due to lack of knowledge, experiences and confidence, managers may show unwillingness to take part in goal setting process. This create problem in goal formulation.
4. Resistance to change: Goals are formulated to achieve certain changes in present situation. However employees and even managers may resist the changes because of the fear of job termination, unmatched knowledge of new technology etc. and try to maintain status quo. This creates problems in goal formulation.
5. Resource Constraint: Goals are formulated on the basis of backup resources available in an organization. However, inadequacy of such resources may lead to unrealistic goals, frustration and goal displacement.