Managing by Objectives, or by Whose Objectives?

MBO stands for Management by Objectives. It is a set of strategies that manages a team by setting goals. Practitioners hold that defining objectives makes staff more invested and more motivated, and that — together with communication and coordination across departments and levels of management — it can align the goals of everyone in the company from top to bottom. When junior staff are able to meet their goals, the company as a whole naturally achieves the results it hoped for (Hayes, 2020).

MBO places weight on three processes: setting goals, encouraging staff to take part in decision-making, and giving objective feedback. Each of the three improves a different aspect of how a business operates (Rodgers & Hunter, 1991). Because every member of staff or department has only limited time and resources, setting goals lets people focus their attention and effort on objectives tied to the business as a whole, thereby raising workplace productivity. Encouraging staff to take part in decision-making lets senior managers learn about the needs of more junior staff, or hear views formed from direct contact with customers, and adjust the company's overall goals and direction. Objective feedback, on one hand, helps staff and subordinates better understand the progress of their work and what their managers expect; on the other hand, positive feedback can act as a reward that encourages staff to keep up the effort.

How do you put MBO into practice in a company or organisation?

Broadly speaking, the method for carrying out MBO can be divided into four steps.

One: First, managers should clarify the central goals of the company or organisation, which may relate to the organisation's mission or vision. This step matters because the central goals will directly shape how departments and individuals set their own goals; the very first step of putting MBO into practice has to be getting clear on the team's broad direction.

Two: Once the overall goals have been decided, each department and member of staff can start from their own role and set appropriate short-term goals. In setting these goals, we can draw on a method recommended by the man who proposed MBO, Peter Drucker — SMART. SMART refers to five criteria for setting goals: Specific, Measurable, Acceptable, Realistic and Time-bound.

Three: After goals have been set, managers should keep following up on them and encouraging staff to reach their personal goals. At the same time, staff should put in place a way to review their own progress. Tracking your own progress consistently is an effective way to gauge how far you are from reaching a goal, and it lets everyone adjust their approach and attitude going forward.

Four: After a period of time, managers and their subordinates should hold a goal-centred discussion. The manager needs to give objective and candid feedback on the subordinate's performance — on one hand encouraging them, and on the other exploring where there may be room to improve.

The limits of MBO in practice

Harry Levinson was a psychologist who made significant contributions to industrial and organisational psychology. He criticised MBO as behaviourist psychology — motivating staff purely through reward and punishment, while overlooking human nature and the self (Levinson, 2003). MBO stresses setting goals that align with the company's central direction. Forcing these goals onto staff, however, overlooks the personal goals and psychological needs they themselves pursue. Different psychologists have put forward no shortage of theories related to psychological needs (such as theories of social-psychological development and Maslow's hierarchy of needs). None of us would deny that everyone has values or pursuits that matter to them, and that these personal needs and the company's goals may well come into conflict. Place too much emphasis on business objectives derived from the company's mission or from an individual's role, and even where staff are able to contribute to the development of the business, they may still be unable to meet their personal needs through that work.

Overlooking staff's personal goals brings two problems. Staff who fail to find satisfaction, and who cannot find meaning in striving within the company, will naturally choose to leave and seek out another working environment in which to pursue their ideals. When the staff turnover rate is too high, it raises the company's training costs on one hand, and on the other makes it hard for the company to retain suitable talent. Beyond the problem of turnover, staff may also lose the drive to keep competing because of the conflict between the goals and their personal ideals. Even if they stay on at the company, with no motivation or sense of satisfaction in their work they go through the motions and do the bare minimum, getting by rather than thriving — which makes it impossible to build a sound, healthy office culture, and works against the company's long-term growth and expansion.

Refining MBO a step further

Stressing the importance of goals is not wrong in itself. To argue that a company should not put profit or principle first would, on the contrary, be unreasonable, and would undermine the very reason the company exists. By understanding the problems with MBO, managers can fine-tune how it works in practice. MBO can be implemented in a way that leads with the company's direction of development while at the same time attending to staff's personal needs. The process may call for managers and staff to build a closer relationship, through communication and conversation, so that in setting goals they can meet both staff's personal needs and the company's objectives. Concretely, before setting goals, a manager or supervisor should first understand a member of staff's personal needs, and then find the common ground between the role, the personal needs and the company's goals.

In the most ideal business environment, every member of staff's personal pursuits would line up with the company's ultimate goals. In that case, everyone would be willing to give one hundred per cent of their potential to the company, contributing enormously to its sustainable development. Of course, this is an utterly idealised scenario. As a manager, there are times when you may need to use more methods to take the initiative in helping staff find meaning in their work — for example, working with staff to coordinate the content of their roles so that the work can bring them a sense of satisfaction, or cultivating a sense of connection among staff through corporate-training team activities to meet their social needs.

No single management strategy is flawless. Even a perfect strategy would not necessarily suit every company. TreeholeHK provides professional training to companies of every size; under the philosophy of "insight into the future, effort in the present", we turn psychological knowledge into practical skills that help your team get things done, grow and succeed. If you would like to know how to use psychology for corporate training, you are welcome to get in touch with TreeholeHK.

References

Hayes, A. (2020, July 1). Management by Objectives (MBO). Investopedia. https://www.investopedia.com/terms/m/management-by-objectives.asp

Levinson, H. (2003, January). Management by Whose Objectives? Harvard Business Review. https://hbr.org/2003/01/management-by-whose-objectives

Rodgers, R., & Hunter, J. E. (1991). Impact of management by objectives on organizational productivity. Journal of Applied Psychology Monograph, 76(2), 322-336. https://psycnet.apa.org/record/1991-25999-001