MBO - Management by objectives:
benefits and traps

Normative management and performance control

Management by objectives is a process that attributes clear goals
(objectives) to managers and operators in a business or institution
and measures their performance in reaching them.

This practice certainly made the general economic efficiency progress.
But there are problems to define and measure qualitative goals
and also long term ones.

Also, the goals might limit the freedom of initiatives towards new
productive paths, thus freeze evolutions in a highly complex and
moving environment.
And if too tight, they would create unnecessary and morale-killing
stress.

  fog Managing in the fog?
incentive Or carrots and sticks for every activity?

The origin

Peter Drucker, a famous management consultant and theoretician,
developed the idea of MBO - Management by Objectives in the middle
of the 20th century.

MBO intends to make managers and employees, in an organization,
conscious of - and responsible for - their performance /
efficiency in their area of activity
(i.e. resources, production,
marketing, research & development, finance, communication, support...).

The  chosen
goal objectives are linked to the strategy, standards
and operational plans of the business or institution.

How it works

Periodical (yearly, monthly...) expected results are attributed to individuals
and/or teams. They can be:
  • Quantitative, and, although harder to measure, qualitative.
  • Short term and long term, but the later also less easy to monitor.
The system includes or not monetary incentives to help those objectives
to be met.

The concept led to develop tools to measure, monitor, and if possible
explain, the dialmeterdeviation between objectives and results.

Among those tools let us mention
loupe  Reporting, Management
control and accounting, Project planning, Incentive pay
system,
and, with the help of information technologies, the full
bodied MIS - Management information system.


Let us mention also benchmarking. It is a comparison with other
entities that are considered highly performing ...for the time being
at least (here an anticipation of possible evolutions or disruptions
should not be neglected, this is the problem with idols).

Wow, no place to hide your poor results, Jo Manager, but no drama
here, maybe you were
just unlucky, better that you got informed,
and you will perform better next time !

The utilization of the system and its benefits

This normative system is now routinely employed in most businesses
and in many other institutions.

Its box benefits have been huge.

It brought more objectivity in judging efficiency, and helped
to increase the performance
of the related entities, a bonanza for
society in general.

As for the operators themselves, MBO helps them :

* not to work in the fog, thanks to objective goals and references,
* to see how effective is their contribution,
* and have their performance valued fairly without too
    much subjectivity
.


An example
: see how MBO and MIS can be applied to a
Marketing plan

Its limitations or deviations

But in practice the MBO has been also a way to dependence tighten control
over people.
This monitoring was needed for the general efficiency of the business, but
if  applied blindly without flexible openings
, this straightjacket's
could:
  • Create unnecessary stress and loss of morale
for the whole staff, not only for those who are not the
best performers, after all not anybody can be a Stakhanov-type
star and be accountable for a high performance on every aspect
of its activity.

Another thing is that, when teamwork is needed, individual
objectives can go against the group cohesion.
  • Limit the individual freedom of action
all the more if the ability to find and experiment new
productive paths is ignored in the list of stated objectives.
It can be a bureaucratic (and time consuming) tool that
freezes bulb creativity as well as the adaptation

to a more and more complex and changing environment.
In this respect, it is difficult to avoid a
biased and reductive
choice of objectives.

MBO can bring other unexpected effects, including perverse incentives
that distort behaviors, for example by privileging clockshort term
goals over long term ones
, or introducing other inappropriate criteria...
and moral hazards (cooking the stats).

For example there is rather often a deviation towards privileging
sous financial objectives at the detriment of other key ones (safety,
staff morale, customer interests, fair integration with the outside world),
a neglect that can be highly risky ...even financially.

=> Financial performance should be one of the results of good
      overall management,
not an alternative to it.

Also, MBO measures only what has been projected and can be measured
Thus it does not fully replace the need

* to spot external and internal evolutions
* and to see what really happens at the ground level.

It shares some of the traps and limitations of economic models and
projections and of normative regulation.

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M.a.j. / updated : 10 July 2015
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