Management by Objectives: Perhaps a Model Worth Reconsidering

Management by Objectives, also known as MBO, is a management framework popularised by management consultants around the need to run a business according to clearly defined needs and objectives. Put another way, it is the process of defining the organisation's principal objectives and using them to determine employees' objectives. The tourism industry—hotels, restaurants and golf courses alike—is fundamentally driven by time-based objectives and by monitoring quantitative and qualitative results through the corresponding forecasts. It therefore provides a particularly clear environment in which to examine a Management by Objectives model. MBO processes are intended to identify an employee's principal objectives and then assess them with input from the wider group. This helps everyone in the organisation understand their achievements in relation to the company's main priorities as they carry out their work. In principle, that strengthens alignment between activity and results and can significantly improve productivity. But there is an important caveat: Management by Objectives is not necessarily linked to a financial incentive plan. Although MBO is designed to help define and manage a set of objectives, the objectives themselves will differ, at least to some extent, from one company to another. It allows organisations to express their individuality and their principal priorities and, most importantly, to execute them. Objectives are essential if we want everyone to use their working time productively and work towards a shared outcome. However, a constellation of problems can undermine performance appraisal systems. Department heads are sometimes forced to commit to objectives they do not believe are realistic. An obsession with objectivity and quantitative measures can mean that quality is neglected. Department heads who feel deeply uncomfortable rating people on their performance can turn this critical task into a considerable headache. More importantly, the individual's needs and aspirations are often absent from the performance measurement system, even though people are more deeply motivated by work that engages and excites them while also advancing the organisation's goals. Although Management by Objectives has by now become an integral part of many management models, the typical MBO exercise can perpetuate and intensify hostility, resentment and mistrust between a manager and their team. Clearly, somewhere between the concept of MBO and its implementation, something has gone wrong. Together with performance appraisal, the intention is to follow the tradition of a more rational management process: defining what people should do, who should exercise effective control over the process and how compensation should relate directly to individual achievement. At its core, the MBO process is an attempt to be fair and reasonable, to anticipate performance and judge it more carefully, and presumably to give people an opportunity to motivate themselves by setting their own objectives. The intention to clarify job responsibilities and measure performance against an employee's own goals seems entirely reasonable. It is equally sensible for manager and employee to consider the same issues when reviewing the latter's performance. In this article, I will explain why I believe Management by Objectives, as it is practised today in many organisations, can become counterproductive and serve mainly to increase pressure on the individual. In doing so, I am not rejecting MBO or performance appraisal outright. I am instead asking the fundamental question: "Whose objectives?" The issues I will raise are largely concerned with psychological considerations and, in particular, with the assumptions about motivation that underpin these techniques.

The “ideal” process

Because Management by Objectives is closely related to performance appraisal and review, I will consider them together as a single practice whose purposes are:

• To measure and judge performance
• To relate individual performance to the organisation's goals
• To clarify both the work to be done and the expectations for achievement
• To encourage increasing competence and employee development
• To improve communication between manager and employee
• To provide a basis for salary and promotion decisions
• To stimulate employee motivation, and
• To serve as a mechanism for organisational control and integration.

Serious problems

According to contemporary thinking, the “ideal” process should proceed through five steps:

1. an individual discussion with the manager about the employee's job description,
2. setting the employee's short-term performance objectives,
3. meetings with the manager to discuss the employee's progress towards those objectives,
4. establishing checkpoints to measure progress,
5. a discussion between manager and employee at the end of a defined period to evaluate the results of the employee's efforts.

In ideal practice, this process takes place within a context of more frequent, even daily, contact and is separate from the salary review. In real practice, however, there are many problems:

No matter how detailed the job description, it is essentially static: a series of statements.

Yet the more complex the role and the more flexibility it requires from the employee, the less any fixed description of its components will correspond to what that person actually does. Consequently, the higher someone rises in an organisation, and the more varied and subtle the work becomes, the harder it is to define objectives that represent more than a fraction of their real contribution.

With predetermined goals and job descriptions, too little weight may be given to areas where the individual has discretion but which are not included in either.

I am referring to spontaneously creative activities that an innovative executive may choose to undertake, or to tasks that a responsible executive believes simply need to be done. As we move further into a service economy, where tasks are less precisely defined but spontaneity in service and self-assumed responsibility are crucial, this becomes increasingly important.

Most job descriptions are limited to what employees do in their own roles.

They do not adequately take into account the growing interdependence of managerial work within organisations. This limitation becomes increasingly important as we better understand the impact of social and organisational factors on individual performance. The more an employee's effectiveness depends on what other people do, the less reasonable it is to hold that employee solely responsible for the outcome of individual efforts.

If a primary purpose of the performance review is to advise and develop the employee, the appraisal must consider the entire situation in which both manager and employee are operating.

It must also take into account how the employee's work relates to other roles. In coaching and development, much of the attention should be devoted to helping the employee learn how to navigate the system. Yet most appraisal processes make no provision—and the evaluation forms I know provide no space—to report and record that discussion.

Objectives are established and developed within a period that is often too short to allow adequate interaction between the different levels of an organisation.

This works against the opportunity for colleagues, both within the same work unit and in complementary units, to develop objectives together and achieve maximum integration. As a result, both objective-setting and performance appraisal contribute relatively little to the development of teamwork and more effective organisational self-control.

Alongside these problems is the difficulty managers experience when carrying out appraisals.

One commonly cited reason appraisal fails is that managers dislike playing God by passing judgement on another person's value. One response is to recommend that people set their own goals, validate them with their manager and use the appraisal session as a coaching mechanism. The manager would therefore become someone who helps employees achieve their own objectives rather than a dehumanised inspector of output. As an aside, I very much doubt that appraisal fails simply because managers feel they are playing God or behaving inhumanely. My own experience leads me to believe that managers can experience the act of evaluating others as hostile and aggressive—something that, unconsciously, feels as though it may hurt or diminish the other person. The appraisal situation can therefore generate powerful and paralysing feelings of guilt, making it extremely difficult for many executives to criticise employees constructively. Whatever the explanation, the more complex and difficult appraisal and objective-setting become, the louder the demand for objectivity. Every organisation is a social system, a network of interpersonal relationships. A person may perform excellently according to objective measurement standards and still fail badly as a colleague, employee, manager or peer. It is quite common for people to stop progressing for interpersonal reasons rather than because of technical inadequacy. Furthermore, because every employee contributes to their manager's efforts to achieve that manager's own goals, employees will inevitably be assessed partly on how effectively they work with their manager and help them achieve those goals. A strong subjective element therefore enters every appraisal and objective-setting exercise. The greater the emphasis placed on measurement and quantification, the more likely we are to sacrifice the subtle, unmeasurable elements of the job. As a result, quality of performance frequently loses out to quantification.