Rewards and incentives for superior performance should be clearly specified. Ambiguity or uncertainty regarding the outcome of efforts is one of the reasons for non-compliance. As simple as the MBO may seem, managers who are going to implement it should understand and appreciate it to a great extent. They must explain to their subordinates what it is, how it works, why it is done, what role it will play in evaluating performance and, above all, how everyone will benefit from it.
It is one of the most used management tools, but is management by objectives (goals) destroying our companies? Yes, Kelly Allan argues in the last column of the Deming Files. Here's why MBOs can cause people to offer meaningless and even harmful results. Dra. Drucker, who is credited with developing the concept of management by objective (MBO), thought that the MBO could provide leaders with a method to carry out long-term planning and strategy, answering questions such as what does this organization want to achieve? What are our objectives? However, the key differences are that the Hoshin-kanri has a solid means of communicating throughout the organization (downwards and upwards); and the evaluations that verify the reality of the long-term objectives integrated into it.
People across the organization determine if the proposed short-term efforts match the capacities and resources needed to achieve them. There is another factor that causes most MBO efforts to fail, and that is focusing on profits as a key metric. Edwards, Deming, Drucker knew that making money is a by-product of strategy, not an objective in and of itself. Yes, making money in a for-profit organization is essential.
However, it is not a sustainable goal. This is not a simple philosophical point. Drucker pointed out that organizations with a clear objective, which is not based on money alone, tend to be more successful and for longer, and to cause less harm than those for which earning money is the stated or unstated objective. If you really follow Drucker's intentions and keep the MBO in a long-term, high-level, mission-related effort, then, yes, the MBO could be done well and contribute to the strategy.
As another reader commented, the MBO cannot be blamed as a tool, since the fault lies in an incorrect implementation due to an incorrect understanding of the objectives. Unfortunately, few leaders understand that and practice it. Therefore, although technically we cannot blame the MBO, I have rarely seen an implementation in which there is no misunderstanding of the MBO, which cancels the value of the MBO. This is the exact opposite of what Dr.
In fact, the MBO creates a culture in which people strive to obtain unique and unrepeatable results in the short term, instead of obtaining repeatable, reliable and betterable results year after year. In such a culture, managers are responsible for coaxing and extrinsically motivating their direct reports to achieve results, since managers are also responsible for short-term results. At some point, managers and workers cannot achieve arbitrarily set objectives without cheating or destroying other parts of the system. Cooperation between departments and the optimization of the entire organization are no longer an option, because each man and each department are their own resources.
People who misunderstand Drucker on the subject of MBO tend to commit many management sins that distort and thwart Drucker's intentions. This misinterpretation has dire consequences and, for the most part, teachers have misunderstood Drucker, who, in turn, miseducate business leaders about MBO malpractice. Ignorance may seem like a blessing, but it's costly. Now let's move on to another reader's comment from the initial PEX Network column.
He speculated that if the MBO were applied to systems and processes, it would be acceptable, avoiding the bad practice of setting people short-term objectives to meet. The reader also pointed out that this requires defining, documenting and continuously improving those processes, a really difficult job. I agree that it is a difficult job and, therefore, I maintain that the answer is once again no to the question of whether there is a right way to do MBO. Why? Because, as Deming taught, setting objectives to a process does not contribute to improving it and, what is worse, it tells us nothing about the capacity of the process or how to increase it.
In addition, assigning objectives to a process violates Deming's points about understanding variation, both the common cause and the special cause. Changing the name from objectives to goals does not reduce harm and, as one reader commented, our entire society suffers when people distort their work to obtain meaningless, even harmful, results. A very common mistake is to think that the problem lies in individual objectives and that it is more faithful to Drucker's vision of the MBO if we move on to group objectives or KPIs (key indicators of the process). While some improvements may result from the shift to group objectives, enormous improvements in innovation and productivity are generally overlooked.
As another reader commented, it's important that we understand the theory on which the practice is based; that we need to really analyze the method and the objectives. To that end, it would discourage group MBO practices, just as it would discourage the application of MBO practices to people's outcomes. The MBO, as is normally practiced, rapes both Drucker and Deming. In my next column, Three alternatives to MBO based on demining, I will suggest simple and effective alternatives to MBO.
Many thanks to all the readers who commented on the column on Organizational Sabotage. I hope this column did your points justice. Get the opinions of the world's most important opinion leaders in your inbox. Reach Process Excellence professionals through cost-effective marketing opportunities to get your message across, position yourself as a thought leader, and introduce new products, techniques and strategies to the market.
Join the Process Excellence Network today and interact with a dynamic network of professionals, keeping up to date with the industry by accessing our wealth of articles, videos, live conferences and more. Process Excellence Network, a division of IQPC. Adam Hayes, PhD. In addition to his extensive experience in derivatives trading, Adam is an expert in behavioral economics and finance.
Adam earned his master's degree in economics from The New School for Social Research and his doctorate,. From the University of Wisconsin-Madison in sociology. It holds the CFA and holds FINRA Series 7 licenses, 55% 26 63. He is currently researching and teaching economic sociology and social studies of finance at the Hebrew University of Jerusalem.
The term “management by objectives” (MBO) was first used by Peter F. Drucker in his 1954 book entitled The Practice of Management. A company can set several objectives with its employees. In the case of a call center, an MBO could consist of increasing customer satisfaction, for example, by 10%, and reducing call times by one minute.
The responsibility now lies in finding ways to achieve this goal. Once you've decided, it's important to get employees involved and then monitor their progress, provide feedback and reward those who do good work. The MBO is not a panacea, a cure for all organizational problems. Quite often, many organizations see the MBO as an instant solution to their problems.
They don't recognize that the MBO requires careful planning and implementation to be successful. In reality, the business environment is not so stable that the objectives, once established, remain valid until they are achieved. The MBO involves a process of establishing specific or consultative objectives between the superior and the subordinate. The original purpose of MBO was to focus the manager's attention on the goals and objectives of the organization, which Drucker called the “original purpose”.
This is why effective military and management academies depend on the integral development of the individual, instilling (literally “trampling”) values and disciplines, not just transmitting tools and techniques. In practice, managing various operations on the basis of objectives does not provide a unified, comprehensive and total approach to management. According to the theory, commenting on goal setting and action plans encourages participation and commitment among employees, in addition to aligning objectives across the organization. The interaction between managers results in better ideas and, consequently, there will be better planning and control.
Simplified monitoring: facilitates self-evaluation and feedback, which improves managers' efficiency. The main areas mentioned above require successful implementation of the MBO and real hard work, as well as patience on the part of managers. But in addition to these, the other specific benefits for superiors are that the MBO motivates subordinates, strengthens the relationship between superiors and subordinates, and provides an objective evaluation method. The MBO (as a management approach) departs from the emphasis on human relations that prevailed in U.
Because management is concerned with obtaining results, much more emphasis must be placed on the ability to achieve results. To be successful, MBO programs must include commitment and participation in the MBO process at all levels, from top management to the lowest positions in the organization. One of the biggest advantages of the MBO is that it provides an objective basis for reviewing performance based on achievements and not on personality traits. .