stages of development - International Business Growth Radio Network

Management by objectives (MBO) - Jeremy Gray

27/12/2020

Jeremy Gray - "Practical Solutions to Difficult Problems"

The term 'Management By Objectives' was first termed by management guru Peter Drucker in his 1954 book, The Practice of Management.

Management by objectives (MBO) is a strategic business model designed to improve the performance of an organization. It is a strategy with clearly defined objectives which is agreed by both the management and the employees

Drucker pointed out that employees often lose sight of their objectives because of an “activity trap”. When we get too involved in our current activities, we forget the original purpose.

Peter Drucker had a warning about MBO – he said MBO works if you first think through your objectives – ninety percent of the time you have not.

How to set effective goals:

Involve employees from start-to-finish:

The purpose of goals is to help employees improve – naturally, it makes sense to include them in the entire process. Securing employee buy-in allows you to help develop their short- and long-term goals, and increases the likelihood that they will be achieved.
Stretch goals helps push performance and serves as a motivator for ongoing development
Employee goals are often agreed upon during the annual review process. But setting annual goals is a mistake. The timeline is too long. Use quarterly goals,

Goals need to be linked to business objectives

Strategy can be quite abstract so translate strategy into understandable business tactics. Explain to employees how their role fits into your business strategy,
Employees will be more effective if they can see how their individual goals fit into the big picture

Adapt goals in real-time

Goals should never be seen as stagnant, but dynamic and evolving.
As realities fluctuate throughout the year, failing to revisit goals can be demotivating
Goals should be adapted as the environment changes.
One way of doing this is to document the assumptions behind a goal.

Goals or objectives in Drucker speak. when set properly, can improve commitment and help clarify an employee’s role which increases engagement and business success.

How to implement MBO:

Setting your company’s goals is the first step in implementing MBO.
Determine exactly what you want to accomplish.
Make sure your goal is worth your effort.
Make your goals specific with an action plan
use SMART goal (specific, measurable, actionable, results oriented and time bound)
Commit to your Goals make a commitment and stick with it.
But do not continue on regardless if circumstances change
Be aware of Continuation Bias which is the unconscious bias to continue with the original plan in spite of changing conditions.

With organizational and employee goals aligned

Monitor progress
Provide performance evaluation and feedback
- Most companies make this an annual exercise that is usually handled badly and hated by both managers and employees.
Performance reviews can be improved by:
- Adopt a Growth Mindset Managers should promote a growth mindset, emphasizing that workers can always take concrete, tangible action to improve, learn, and grow.
- Ditch Performance Rankings One of the most hated aspects of performance reviews are performance rankings, These are rarely handled well
- Check in Often – Not Just During Annual Reviews.
- Regular communication between manager and employee is the single most effective way of improving performance reviews.

An important part of MBO is to reward employees for high performance.
- Ensure there is sufficient differentiation between top and average performers.

The benefits of Management by Objectives

Increased employee participation creates a positive work environment as employees understand how their work is aligned with company strategy and objectives.
MBO develops stronger communication skills. Better communication equals better relationships and clearer direction.
MBO is easily applicable to any organization, without incurring major costs.

Criticism of MBO include:

It is short-sighted, focusing on shorter term goals while neglecting the long term objectives of the company,
It stifles leadership as employees focus only on their own set of objectives instead of the goals of the company as a whole.
MBO doesn’t work well when there are conflicting objectives.