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Management by Objectives (MBO) Is a Great Tool…Just Don’t Use It to Evaluate Employee Performance

Posted by David Wight in Business Management, Human Resources, Leadership, Organizational Change | 1 comments

Part 2 of a 2-part article

In Part 1, we discussed the four basic steps in the Managing by Objectives (MBO) process and how each step can lead to positive organizational results. In Part 2 we discuss why the MBO process should not be used to evaluate employee performance, however, and how doing so undermines the value of the process.

While it may seem counter intuitive, there are a number of reasons why the MBO process, and more specifically, how well employees meet or fail to meet their objectives, should not be used to measure or evaluate employee performance.

There are two fundamental ways to measure things: an absolute measure like a ruler which tells you that a line A is 5 inches long, or a comparative measure, which tells you that line A is longer than line B. With absolute measures, no additional information about any other line is needed for accuracy, where for a comparative measure at least one other line is obviously needed. Using results achieved against objectives is an absolute measure; no knowledge of another employee’s performance is required. The problem is that is the absolute measuring instrument, e.g. the ruler, must be consistent and clearly that is not the case with objectives. Their difficulty levels and their Subjective Probability of Success (SPS) vary all over the place.   Objective A has a SPS of 80% which suggests that it will be relatively easy to achieve where Objective B has a SPS of 40% suggesting that it will be much more difficult to reach. Complicating this even further, the SPS will vary based on the individual employees skill or level of proficiency. That’s like having a ruler where the length of an inch changes every time it’s used. The measurement becomes inaccurate, invalid, and in many cases, misleading.

Secondly, objectives are never set in a vacuum. Conditions within the organization or its environment over which the employee has no control that will change and impact the employee’s ability to meet the criteria of the initial objective, the desirability of the specified result, how realistic it is, or its level of difficulty. A sales person has an assigned territory and a corresponding sales objective for the year.   One third of the way through the year, the largest customer in that territory who accounted for 20% of the territory sales declares bankruptcy.   The objective which at the beginning of the year had a Subjective Probability of Success (SPS) of 60% (not a slam dunk nor totally unrealistic), now has an SPS of 10%. What was initially moderately difficult now becomes almost impossible and totally unrealistic. Or another situation where one of the conditions for meeting an objective is that they employee will receive certain information from another department that is critical to meet the objective by a certain time.  When that time comes, the department informs the employee that the information will not be forthcoming due to other priorities and the person’s managerial hierarchy lacks the internal political clout to change their mind. Again the reaching of the objective is undermined by something completely outside the control of the individual.

When critical conditions change significantly the manager and the employee to discuss the change and modify the criteria of the initial objective, or discard the objective entirely if it’s no longer relevant.   That kind of flexibility is critical for MBO to remain a valuable process. Why would want to evaluate someone’s performance against an objective that has become irrelevant or clearly unattainable because of changed conditions. How is that going to help you improve and optimize employee performance, the basic objective of most Performance Review or Appraisal Programs? Still most organizations that use MBO to evaluate performance, refuse to allow objectives to be changed once they are established. When I point out this problem to managers, I hear ludicrous and idiotic remarks like, “Well, that’s just how the chips fall.” I understand the dilemma. Leniency error or overly positive performance reviews is the single most prevalent error that exists in the entire performance evaluation process Allowing managers and employees to revise objectives during or at the end of the year (usually lowering the criteria or making the desired result less difficult) would undoubtedly make this error even more prevalent.

What they don’t realize is that they are actually building leniency error into the process. particularly when the evaluation is tied to pay increases or bonuses.   It gives employees an incentive to set objectives that can be easily reached.   If you take away the evaluation and monetary rewards, most normal people with positive self-esteem will set objectives for themselves that have a Subjective Probability of Success (SPS) between 40-60%….difficult enough so that there is an element of challenge and risk, but not so difficult that the objectives are unattainable no matter what they do. Not surprisingly this level of difficulty also maximizes the individual’s motivation.   Ironically, when employees set objectives that are easily reached to assure a positive performance evaluation, it actually reduces their motivation, because the attainment of the objectives lose any sense of accomplishment. Lower motivation is not exactly what the MBO process is meant to produce.

Not changing the objectives when critical conditions have changed, however, is not the answer. The problem is that using results against objectives should not be used to evaluate performance in the first place. Instead, MBO should be used to maintain a high level of motivation which is part of managing employee performance.



Comments (1)
  1. Kevin Daley says:

    I have been on the Leadership and Sales Management Training field for years and it is good to see well written articles that ultimately benefit the reader. Thank You Peak Performance Sales Training

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