Management by Objectives, or MBO as it is affectionately called, is a concept expressed by Peter Drucker more than 50 years ago. This strategy for managing people, which focuses on managing teams based on their ability to complete individual and team goals, has been used in larger organizations since its inception. Small to midsize organizations, however, can also benefit from adopting this strategy, particularly if you also take on the S.M.A.R.T. (specific, measurable, achievable, realistic, and time-based.) method of implementation.
Making the case for MBO
MBO works because it helps to align the individual efforts of broad teams around the organization's collective objectives. MBO works in the same way that a laser works. A laser is, at its heart, just light. We have light all around us whether through the light bulbs overhead or the computer screen that we're reading this article from. However, that light is diffused. It is scattered, going in every direction. As a result it doesn't cut through the things that it strikes. Similarly, unless the light is very bright and/or extremely focused, it isn't generally noticeable. Lasers, however, take a relatively small amount of light and focus it into a narrow beam which is very noticeable and at sufficient size can cut metal. Management by Objectives does the same thing.
Organizations today are often diffused light sources with each member of the organization focusing on different, often personal, objectives. So instead of being able to cut through the market and capture more market share, or command higher prices, organizations are lucky to make steady growth.
The MBO process starts with the organization defining its objectives. The process of strategic planning, goal setting, or visioning generates from its process a set of objectives that the organization should strive to achieve. From there it is up to the individual departments to form their objectives, most if not all of which should align and support the organizational objectives. Individual objectives are then established to support the departmental objectives.
Setting goals at the employee level that align with company goals is the key. Here's how you can use the S.M.A.R.T. system for establishing those goals.
Once you've decided that you're going to give managing by objectives a try there are two important steps that you'll have to take. First, you must explain to your employees what you're doing and why you're doing it. The second step, setting the actual objectives, can be challenging in its own right as you seek to find the right balance.
Communicating the message
MBO is designed to improve the management process and maximize the effectiveness of the members of individual teams. You need to explain that the MBO process is focused on helping team members understand the individual roles they play and how their jobs contribute to company success. By focusing on the message that MBO is meant to help the employee assess and prioritize efforts to make certain those efforts are focused on the bottom line and organizational values. The process also helps your team understand what the organization doesn't value and what it may not need to do any more.
The so called "Activity Trap" is one where we get so busy doing things that we forget to ask whether what we're doing are the right things. This is an important concept for everyone in an organization to understand. Helping to explain how the activity trap happens and how MBO is designed to help avoid it will help your employees understand the goal of making the work that they do more effective.
There's a natural resistance to change that occurs even when there is an understanding that the intent is right and fair. In order to combat this natural resistance, consider making smaller (more tactical) objectives and measure them on a shorter basis than you normally might (quarterly or half a year instead of a typical one-year pattern.)
Setting S.M.A.R.T. objectives
The objective setting process is a difficult one for most individuals, particularly those who've never been asked to set objectives. The process seems daunting. However, it doesn't need to be. The process can be as simple as sitting down with the departmental objectives and asking the question, "How can I best help to meet these objectives?" From that answer comes the core for setting the individual's objectives. For example, if the departmental objective is to improve the customer satisfaction score, the team can work on providing more self-service information to reduce the number of calls and call wait-time or offer tools to improve customer service levels by clarifying how to communicate with a customer.
The S.M.A.R.T. method is one way to help you remember how to walk through the process of setting your first MBO objectives.
- S for Specific: There are several key factors which should be present in the objectives that are set in order for them to be effective. They should be specific. In other words, they should describe specifically the result that is desired. Instead of "better customer service score," the objective should be "improve the customer service score by 12 points using the customer service survey."
- M for Measurable: The second example is much more specific and also addresses the second factor—measurable. In order to be able to use the objectives as a part of a review process it should be very clear whether the person met the objective or not.
- A for Achievable: The next important factor to setting objectives is that they be achievable. For instance, an objective which states "100 percent customer satisfaction" isn't realistically achievable. It's not possible to expect that everyone must be 100 percent satisfied with their service. A goal of "12 percent improvement in customer satisfaction" is better—but may still not be achievable if it's assigned to the database developer. They aren't likely to have enough influence over the customer interaction process to improve satisfaction by 12 percent.
- R for Realistic: This leads into the next factor—realistic. Realistic objectives are objectives that recognize factors which can not be controlled. Said another way, realistic goals are potentially challenging but not so challenging that the chance of success is small. They can be accomplished with the tools that the person has at their disposal.
- T for Time-based: The final factor for a good objective is that it is time-based. In other words, it's not simply, "improve customer service by 12 percent," it's "improve customer service by 12 percent within the next 12 months." This is the final anchor in making the objective real and tangible. This final factor is often implied in MBO setting. The implied date is the date of the next review, when the employee will be held accountable for the commitments that they've made through their objectives.
Setting organized objectives to help team members make a greater positive impact on the organization may seem daunting but is simply a matter of taking a few forwards steps and following a simple recipe for success.