Management by objectives (MBO) is a management strategy that was first introduced by Peter Drucker in 1954. It is a system of setting goals and objectives for a company and its employees, and then measuring their progress towards those goals. Some of the most notable companies that use MBO include Hewlett-Packard, Xerox and Intel. The acronym OKR stands for Objective — Key Result. Don Dodge, a developer advocate for Google, described the OKR process as setting quarterly goals that are set to impossible levels, and then figuring out how to achieve them.
Measurement of progress is done every quarter and outstanding achievements are rewarded. Google's performance management philosophy has always been rather untraditional, with formal ratings never being part of the company process. Instead, employee goal-setting has been part of Google's DNA from the start. KPCB's John Doerr originally introduced a new style of goal setting, using Key Objectives and Outcomes (OKR), to Google (from Intel).
Goal-based management uses the company's main objectives to determine employee objectives. MBO allows all members of the company to see what they have achieved in relation to the company's main objectives and priorities while performing tasks. This shows how activity and outcome go together and can dramatically increase productivity. Eli Lilly, a Fortune 100 company, revealed some of its best practices for transforming performance management at the annual NeuroLeadership Institute summit. As a CEB researcher told the Washington Post, reflecting on Accenture's decision: “Employees who perform best in performance management systems tend to be the most narcissistic and self-promoting employees.” Adobe reports that “involuntary exits have increased by 50% because, according to Donna Morris, senior vice president of people and places, the new system “requires executives and managers to have regular 'tough discussions' with employees who are struggling with performance issues rather than postponing them until the next performance review cycle arrives.”Cargill says it has seen measurable improvements after managers began giving constructive, forward-thinking feedback, rather than reviewing what had happened in the past. The last two parts of goal-based management are implementing the decisions you came up with to move toward the goals you're looking for, and then receiving feedback for the entire process along the way. In many large Japanese corporations, starting in the late 1990s, MBO was used as the basis of the performance-based merit system (seika-shugi), which used clear numerical objectives to measure performance, in contrast to the previous system of non-specific contracts in Japanese companies. Most of the managers of that organization joined it because of its reputation for high quality and good service.
By redesigning its performance management process, company leaders sought to adhere to the theme of “trust”.So imagine what highly public, fully visible, highly adaptable and highly automated performance goals and metrics not only negotiated and contributed by each employee, but also managed on a day-to-day basis by each employee, could do to improve the business. MBO paved the way for many modern and commonly used management systems. All evaluation objectives and programs should include the establishment of group goals, the group definition of individual and group tasks, the group evaluation of their achievements, the group evaluation of the contribution of each individual member to the group effort (without basing compensation on that evaluation) and the shared compensation in function of the relative success with which the group's objectives are achieved. Objectives should include long- and short-term goals. Each managerial work is an interdependent task. Managers have responsibilities to each other and to their superiors.
The reason for having an organization is to achieve more together than each could on their own. Why then emphasize and reward individual performance alone based on static job descriptions? Such an approach can only guide people toward wrong self-centered goals. Final Thoughts Although goal-based management is a bit dated, it can serve as a great cornerstone and a tool within a larger toolset for many companies looking to improve their management style. Organizations of all types need to follow effective management frameworks to better achieve their individual objectives.