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Management
by Objectives (MBO)
Business schools
teach five basic management functions:
Organizing -
establishing management structure (reporting relations,
authority, responsibilities, and accountabilities) to
accomplish company goals,
Staffing - all
functions (hiring, training, evaluation, discipline,
and compensation) required to make employees effective
within the organization,
Directing - orders
and other directives given to direct company operations,
Planning - establishing
company direction and standards to achieve company goals,
and
Controlling -
ensuring that company operations and management functions
are properly carried out.
Management by
Objectives is an integrated management system with planning
as the dominant function. We plan our work and work
our plan. The heart of the system is an operating plan
with objectives that cover sales, profit, return on
assets, and employee development. As much as possible,
in MBO, company objectives and action steps are
Specific - who
will do what and when,
Measurable -
numbers are best in terms of deciding whether something
was accomplished or not,
Doable - our
expectation is that the objection will be achieved,
and
Stretch - we
are looking for more than routine effort to accomplish
the objective.
The operating
plan is usually coupled with a detailed budget that
lays out the sales, profit, and return on asset objectives
by responsibility area. Budgets are good at establishing
numeric goals and standards but they usually do not
include action steps or the fourth major objective -
personnel.
For well managed companies, the operating plan fits
within the framework of a long range or strategic plan.
By intent, a strategic plan is not as detailed or measurable
as the operating plan. It considers external threats
and opportunities and internal strengths and weaknesses
and establishes overall company direction for the foreseeable
future - three to five years out.
A key to Management
by Objectives is individual accountability. It is where
many attempts at MBO fail. Unfortunately, not every
employee wants to be held accountable. It takes two
or three years for an established company to sort down
to the employees who prosper in a results-based management
system. In the meantime, there is whining and rationalization
about why Management by Objectives will not work. It
is not easy to stay the course and many companies that
start drop out. But, companies that commit to MBO,
prosper mightily over the long term. For our start up
clients, we establish an MBO system at the onset.
Management by
Objectives sets up and allows a flat organization structure
with decentralized decision-making. It is, by far, the
most flexible and cost effective management structure
available. Individual and group goals are established
along with implementing plans. There is no need for
supervisory management to step in unless and until the
plan is off track and then there is pre-established
mechanisms for immediate and effective corrective action.
A major side benefit is that managers develop faster
and better in a flat organization structure where they
are held accountable but given the opportunity to pursue
objectives they helped establish and following an action
plan they helped write.
In Management
by Objectives, each employ and manager has a position
description with defined responsibility, authority,
and performance standards. On a periodic basis, the
employee is given an objective review based on performance
against standards. Training, promotion, and compensation
are based on the performance evaluations. Over time,
employees like working in an MBO system because they
know what is expected of them and they will be graded
fairly and compensated according to their performance.
A major benefit
of Management by Objectives is that communications are
improved. Employee meetings are focused on results.
MBO is supported by policies and procedures, but operations
are guided the operating plan. Policies and procedures
are used to guide regular and recurring activities and
are reviewed periodically for effectiveness. Basically,
there is less need to direct the company once an operating
plan is established.
Corrective action
is taken immediately. To a large degree, in a Management
by Objectives system, company operations are controlled
by tracking and adjusting performance according to plan.
Weekly, monthly, and quarterly performance reviews,
at increasing levels of thoroughness, are established to
keep operations "on plan". At any point in
time, performance is off plan for four basic reasons
- the objective, plan, assumptions, and/ or performance
were faulty. Corrective action is taken accordingly.
For both our
consulting and start up clients, Management Uplink business
coaches work to establish an effective MBO in the client
company. It is a long term process and we are generally
limited in time. But, in each assignment, we put in
the basics - operating plan, budget, and performance
reviews. If time allows, we work on the supporting systems.
But, more than anything else, Management by Objectives
is a management system. We expect each client to continue
developing an effective MBO system for their company
after we leave.
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