Management by Objectives

Last week, we looked at the profound influence Peter Drucker had on management.  This week, let’s look at one of his biggest contributions: Management by Objectives (MBO).

Drucker’s biographer asserts that he first heard the term while studying practices at General Motors, during the Second World War.  It certainly seems like a concept that an engineer like GM’s CEO, Alfred Sloane, would have favoured.  Indeed, in more modern times, MBO has been a main stay of corporations like the much-admired Hewlett Packard.  One of its founders, Bill Packard, said of MBO:

‘No operating policy has contributed more to Hewlett-Packard’s success ‘

He went on to describe it as ‘the antithesis of management by control. The latter refers to a tightly controlled system of management of the military type [while] Management by objectives, on the other hand, refers to a system in which overall objectives are clearly stated and agreed upon, and which gives people the flexibility to work toward those goals in ways they determine best for their own areas of responsibility.’

The MBO Cycle

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Management by Objectives is often represented as a cycle with five stages:

  1. Review the organisational context.  This is often seen as the weak point of MBO, as this is sometimes poorly understood.  Drucker, himself, has said: ‘Management by objectives works if you know the objectives: 90% of the time you don’t.’
  2. Reflect the organisation’s objectives in those you set to your team members.  Within the context of the objectives they are set, staff become self-directing, hence Packard’s distinction between MBO and control.
  3. Monitor people’s performance against the objectives you have set, and give regular, effective feedback.  Ideally, provide rapid feedback mechanisms, so that each staff member can assess their performance constantly.
  4. Assess performance against objectives, and then be sure to…
  5. Recognise and reward good performance.

‘What gets Measured, gets Managed’

This is another critique of MBO: if you measure the wrong thing, people will manage their performance to achieve it.  Drucker, as ever, was more subtle than simple descriptions of his ideas suggest and so was ahead of us here.  He noted that employees need four powers to do their jobs well:

  1. the freedom to challenge everything
  2. regular training and development
  3. the ability to achieve the objectives they are set, and see the results
  4. understanding of their organisation’s real purpose
This last means that managers and employees can set objectives that lead to the right behaviours being measured – and hence managed and delivered.

The Practice of Management

In last week’s blog, I laudedThe Practice of Management’.  It was the visionary book that kick-started the management book industry.  In it, Peter Drucker identified seven tasks for the manager of tomorrow (writing in 1954).  They all seem very much of the now, except, perhaps, one, which seems a little… pedestrian: ‘manage by objectives’.

Despite its critiques and detractors, maybe we should listen to the man who also advocated, over 50 years ago, in the same book, that we:

  • devolve risk-taking and decision-making down our organisations
  • prioritise strategic thinking
  • integrate teams of diverse members
  • motivate employees, gain their commitment and participation (‘engage’ them) with quick, clear communication
  • see your organisation as a whole
  • see your organisation and its activities in a wide perspective of society

Not a Management Pocketbook

Peter Drucker, 1909-2005I have found Robert Heller’s book on Peter Drucker to be excellent and recommend it to all Pocketblog readers.

For an introduction to Drucker’s thinking, how about The Essential Drucker, and for daily inspiration, how about The Daily Drucker?

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