Peter Drucker is the originator of Management by Objectives. It’s a Big Idea that, in various forms, still dominates much of the corporate world.
It’s not sophisticated, nor very clever. It is the simplicity and directness that makes Management by Objectives a powerful tool for any manager. However, as a corporate culture, it may have passed its sell-by date.
So, let’s see what Management by Objectives is, how it works, and what its strengths and weaknesses are, in today’s world.
Why Did We Need Management by Objectives?
Drucker coined the term ‘activity trap’ to describe the way we can get so caught up in doing stuff that we forget why we started doing it. And that leads to the problem that the stuff we are doing now may no longer contribute to the goals we should be pursuing. Because goals change.
Focus on Results
The purpose of Management by Objectives is to focus us on the results, not the means of achieving them. You could call it Management by Results, which might be better. But we don’t.
What is Management by Objectives?
Fundamentally, Management by Objectives is about delegating responsibility for meeting objectives, rather than setting people tasks to do. It is profoundly respectful of people’s abilities and motivations.
Classic Management by Objectives
In its ‘classic’ formulation, Management by Objectives is a top-down way of running an organisation. The enterprise sets its goals, or objectives, for the next period. It sets those objectives to its top tier managers. They, in turn, interpret their objectives in terms of narrower, specific objectives to set to their direct reports. And so on, down through the organisation.
Management by Objectives as a Management Style
When we look at my critiques of Management by Objectives, you’ll see that the classic approach above will no longer work well for many organisations. That doesn’t mean that it cannot work extremely well in short chains of management. As a manager, it will serve you well to:
- think about the objectives you and your part of your organisation must meet
- how you can delegate responsibility for some of those objectives (or discrete parts of them) to your team members
- and how you can ask them to do the same for their team members
How to Do Management By Objectives
Here’s a simple process based on organisation-wide implementation. But you can apply it in the more limited fashion I suggested.
- Consider the objectives your organisation needs for the next period, based on its wider vision and strategy
- Review what managers need to achieve to meet those objectives and set responsibilities accordingly
- Managers need to define and plan their own objectives, and then cascade them downwards
- In doing so, managers should only set objectives, rather than dictating steps
- The organisation needs to recognize and reward people who meet their objectives
Back in Drucker’s time (the 1940s), managers who failed to meet their objectives were punished and even fired. That’s not appropriate in the modern workplace, unless the poor performance is due to factors that are, themselves, good reason for a punitive response.
So, What’s Wrong with Management by Objectives?
I think there are three reasons to be cautious about Management by Objectives. But each can be addressed, leaving Management by Objectives a sound approach, in the right circumstances.
Critique #1: Objectives
Goal setting is not easy. Sometimes, you don’t know what objectives to set – especially where you are in a fast-moving VUCA environment, and need to respond in an agile way. And, of course, getting objectives right is a challenge. Poor objective setting can be demotivating and, worse, deliver the wrong outcomes. This trivial-seeming step in Management by Objectives is anything but.
Critique #2: Motivation
If demotivation can result from poor objective-setting, it can also result from good objective-setting. Because not everyone has the same objectives, I may find that my objectives lead to less reward than yours. Or worse, eagerness to gain my reward by meeting my own objectives may motivate me to frustrate others, to compete with them for resources, or even to do things that inadvertently (or knowingly) subvert or hinder others.
Critique #3: Simple Pyramids in a Complex World
Management by Objectives is effectively a pyramid of down-flowing instruction. But today’s world is far more complex. And to respond to that complexity we want people to lead and make decisions at all levels of our organisations. We want them to respond quickly, and take responsibility. Management by Objectives can start to feel too linear, didactic, and inflexible.
What is Your experience of Management by Objectives?
We’d love to hear your experiences, ideas, and questions. Please leave them in the comments below.
A Quick Note on Terminology
Many people abbreviate Management by Objectives to MBO. I prefer not to, to avoid confusion with MBO: Management Buy-Out. I know that context is king and you’d be unlikely to confuse the two. But, old habits…