Idea 32 - Management by objectives (50 Management ideas you really need to know)

Idea 32 -  Management by objectives

Management by objectives is such a classic principle that many who couldn't care less about business will still recognize the phrase. It was introduced to the language by that most enduring of classic business thinkers, Peter Drucker, in his milestone 1954 work, The Practice of Management.
Management by objectives (MBO) is about making sure that you can see the wood for the trees. Drucker noticed that managers could get stuck in what he called an 'activity trap', getting so wrapped up in their daily tasks that they overlooked the reasons why they were doing them. MBO calls for a focus, not on activities, but on results. Which is why it's sometimes called management by results.

Drucker tells us that setting objectives is the first of the five essential operations for managers. (The others are to organize, to motivate and communicate, to measure and, finally, to develop people - including themselves.) One of the keys to MBO is that all managers, high and low should understand the objectives and agree on them. When everyone has their own specific goals, all aligned with each other, and progress towards them is monitored, measured and, if necessary, adapted, the business should be able to achieve the best possible results from necessarily finite resources.

The MBO process begins by reviewing and setting the overarching goals for the organization as a whole. Step one is for the board to sit down and define overall corporate objectives. Then comes the job of deciding which particular management tasks are necessary to achieve those objectives, and whose responsibility they should be. Those tasks must in turn be analyzed to determine what is necessary for their success, and so on. In this way, subordinate goals and objectives are 'cascaded' down the organization.
Each of the cascading goals then needs to be defined, and a supporting plan of action mapped out. If people are going to be truly committed to the objectives they have agreed to, then they should share in the process of defining them. And since this is management by objectives, not by activities, managers should agree on a 'contract of goals' with their subordinates rather than dictating in detail how the job should be done. As Drucker wrote: 'The manager should be directed and controlled by the objectives of performance rather than by his boss.'
So MBO is very much about delegation and was an early expression of empowerment, at least for junior managers. It assumes a certain competence among managers, and to this day describes the relationship between some multinational corporations and their international subsidiaries. Head office accepts that country managers have superior local knowledge and, having agreed outline goals, leaves them to get on with it. Similarly, BP agrees 'contracts' with heads of its business units.
Strategy link in this way, the MBO structure is supposed to create a direct link between top-level strategy and its implementation lower down the organization. To keep the whole process on track, progress towards objectives has to be monitored regularly, and the employee's performance evaluated. Evaluation should be accompanied by feedback. For Drucker, feedback means that, whenever you take a key action or decision, you should write down what you expect to happen. Then, as results start to become available, you check regularly to see how expectations compare with what actually happens. This feedback can then be used to decide what you are good at, what you are bad at, where you need to change and where you should press on.

The achievers, those who meet their objectives, are then rewarded. In MOO's undiluted form, non-achievers are punished. Drucker's work with General Electric in the 1940s provided much of the basis for MBO - and GE managers who didn't meet their targets at the time were fired.
One weakness of MBO is that all this goal-setting and revising generates lots of paperwork and is very time-consuming. Another is mat, since it rests heavily on the objectives themselves, it is important to select goals that, by their nature, can succeed - smart goals. In the 1980s and19905, SMART became a popular acronym for the qualities demanded by MBO objectives.
They ought to be:

Specific - vague and generalized won't do
Measurable - the objective should be quantifiable.
Achievable - not too easy, not impossible.
Realistic - given the resources available.
Time-related - set a deadline.

No competent manager would suggest doing away with objectives but, as a complete theory, classical MBO is not in active use. Given today's increasing acceptance of holistic systems thinking, the MBO concept is seen as too linear, and too dismissive of context and human nature. Nor is it particularly well-suited to a fast-moving information age in which changing assumptions and goals can make yesterday's planning redundant all too quickly.

Results-based management that rewards achievers and directly or indirectly penalizes others can have distorting effects on team-building, morale and even ethical behavior, as employees 'work the numbers'. As with many other influential management ideas, MBO has sometimes been subjected to overly harsh criticism. Drucker can't have minded much and was at pains himself to downplay his theory's importance. 'It's just another tool', he is reported to have said. 'It is not the great cure for management inefficiency ... MBO works if you know the objectives. Ninety percent of the time you don't.'

Reference: 50 Management Ideas You Really Need to Know

Book by Edward Russell-Walling

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