Zoltan Vadkerti is a work-life expert, blogger and co-founder of the WorkLife HUB.
The Management by Objectives framework is one of the cornerstones of a successful remote working programme. In fact, over 2020, we highlighted the crucial role of the model in the Practical Guide on Teleworking during the COVID-19 pandemic and beyond developed for the International Labour Organization (ILO) and a Toolkit on Teleworking in Public Administration which we created for the Council of Europe.
In this blog series, our goal is to elaborate further on the Management by Objectives framework and provide organisations with actionable steps in how they can successfully implement the model. Before we move into elaborating further on the implementation steps, in this blog post we dive deep into the background and history of the model.
What is Management by Objectives and why is it relevant in today’s reality?
The Management by Objectives (MBO) - also often referred to as Management by Results (MBR) - is a performance management approach that is based on specific goal setting between an individual employee and the organisation, the formulation of specific guidelines for check-ins and evaluation periods, and the creation of jointly agreed expectations and cultural norms upfront (Hayes, 2021).
Historically, the term was first coined by the internationally beckoned management guru, Peter Drucker, in his book, The Practice of Management, published in 1954. The concept was further developed by one of Drucker’s trusted students, George Odiorne. In fact, Drucker first heard about the MBO model from Alfred Sloan, author of the book, My Years with General Motors, the founder of Alfred P. Sloan Foundation. MBO became mainstream after Hewlett-Packard Company adopted it, in 1957, and turned it into an integral part of “The HP Way” management style. One key driver for Drucker in the development of the MBO concept was that he believed that managers often lose sight of their objectives when they get hold of “the activity trap” another concept of his. He argued that managers often get so lost in their daily tasks that they forget the original purpose of their work, or even neglect the uncomfortable truth about the condition of their organisations.
So was born the Management by Objectives concept to help organisations, managers and employees follow and deliver on key objectives, improve communication and, ultimately, the performance of entities. At Hewlett-Packard, after the introduction of the model, supervisors were asked to develop team and individual level objectives and integrate them into an overall framework of the company together with other peers. This included them coming up with written plans in terms of what resources they needed to achieve their objectives. Plans were then shared and discussed across the organisation in a coordinated effort.
Since then, MBO has come a long way
It has been the subject of studies and articles as well as further developments. One notable adjustment to the original MBO model was an increased emphasis on employee’s personal and development goal setting such as skills building. Lately, MBO has also been applied successfully by organisations in their effort to roll out and manage remote working - or teleworking - programs that are goal-oriented and supported by skills development action plans, deadlines, performance review and communication frameworks. One overarching concept in the MBO model is planning, which presupposes organisations and their employees to not only react to internal challenges or external events but become proactive in acting upon them. Thus, MBO requires remote workers to plan and set personal goals closely tied together with the overall goals of the organisation.
For MBO to deliver on its potential Drucker set out several conditions to exist. These include:
- To generate more commitment and ownership the goals and objectives (both quantitative and qualitative) should be jointly agreed upon between individual employees and their direct supervisors (self-motivate to set your own objectives).
- Objectives should be challenging at the same time realistic, achievable, and not overly ambitious.
- The establishment of a regular feedback culture (daily, weekly or monthly) is essential in the success of MBO models.
- It is also recommended that some form of reward systems are set up to further encourage employees to deliver on their objectives, such as recognition schemes, appreciation or performance-related pay mechanisms.
- One underlying concept through the different parts of the MBO model is individual and organisational level development and learning.
MBO is also often referred to as a Management Information System that is to compare the actual performance of teams and individual employees to certain objectives defined earlier.
A myriad of noteworthy companies, organisations and public bodies use the MBO framework, from Xerox, DuPont, Intel to the Greek public sector, or municipalities and cities in the US. The public sector implementation of MBO first occurred in the 1970s as directed or encouraged by the Nixon administration. The organisations that implement MBO often link their effectiveness and success to the MBO model. They report that objectives can be established in all domains of activities, from sales to marketing, from HR to finance.
Importantly, Drucker did not believe that the MBO method will become a solution to all organisational challenges but a simple and effective tool to be used by managers and individuals. According to Drucker, the MBO framework is to give organisations a step-by-step approach, with many practitioners emphasizing that the success of the model very much depends on top-level management support as well as training supervisors who can actually implement it. Another dilemma that Drucker intended to address was where supervisors should focus their energy and time, thus he argued that effective managers should focus not on the actual activity but the results to be achieved. For this, he recommended the setting of predetermined goals then breaking down these into more specific objectives or key results.
Management By Objectives in Practice
There is a myriad of ways through which organisations can implement the MBO framework. Though, MBO blueprints five key steps that organisations should use to put the management framework into practice. These are:
- Review or develop organisational level goals and objectives
- Translate organisational level objectives to departments, teams and employees
- Stimulate the participation of employees in setting individual goals and objectives
- Develop a remote working work plan
- Periodically evaluate and reward employee progress.
Stay tuned as we unpack each section of the MBO framework step-by-step in our next posts.