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

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

Part 1 of a 2-Part Article


An MBO process that helps produce positive business results has four basic steps:

  1. Objective setting or defining a desired result you want to accomplish by a specific point in time.
  2. Action planning or creating a plan for the steps you will take to attain that result.
  3. Periodic managerial reviews to check on your progress toward meeting the objective, and discuss needed adjustments, and
  4. A Final Managerial Review of objective attainment

Each of these steps adds value to the process in a number of different ways. The first step, setting an objective forces a person to think about the relative importance of their job responsibilities, and how valuable different results could be to their organization. Each objective should have three (3) components:

  1. The Desired Result, e.g. Complete the installation of the new software for the finance function.
  2. Result Criteria: e.g. within the established budget of $500,000 and by November 1, 2014
  3. Critical Conditions (factors outside the control of the individual that could impact attainment of the objective) e.g. based on the customization of the software being completed by ABC vendor by May 1, 2014.

Setting objectives also makes sure that your manager is in agreement with your priorities and that your objectives are aligned with what the function wants to accomplish, and the overall objectives of the organization. Once established, a well-defined objective helps focus a person’s efforts. Just having an objective can also positively impact a person’s motivation if it is difficult enough to be challenging without being so difficult that it is clearly unattainable.

Creating an Action Plan, Step 2 of the process, accomplishes two basic things.   First it helps you think through what you need to do reach you objective. Doing this in advance increases the probability of your being successful and reduces the likelihood of overlooking some action that needs to be taken.   Far too often, organizations skip this planning step, but without it, objectives tend to become what a friend once called the “Wish List”…….something you prepare at the beginning of the performance year, put in a drawer, and then pull out a month before the end of the year, and hope that you’ve worked on them. Action Plans help make your objectives real, and just the effort put into creating a plan will cause you to perceive them as being more valuable. Secondly, like a yardstick, a plan provides an absolute measure of your progress toward the objectives which is critical for the third step of the MBO process.

The Action Plan is particularly important for Step 3, because it enables self-correcting feedback, which is typically the most effective kind. You, as the owner of the objective can measure your progress without their manager or anyone else telling them. If your plan called for you to complete a step a month ago, and you didn’t get it done, you don’t need someone to tell you you’re a month behind. Being able to see it for yourself puts you in the position of being able to make needed adjustments on your own. All of this promotes self-control (also the best kind), greater autonomy, and fuller ownership of the responsibility for meeting the objective. It also changes the role of the manager, in Step 3 from being a control mechanism (measuring the status of your progress) to that of a coach and joint problem-solver, e.g. “we can both see how you’re doing…..let’s talk about any changes you may need to make to be successful, and what I can do as your manager to help you.” As an example, an objective might be dependent on your getting information from another department by a certain time, and despite repeated requests and promises, the department has not provided you with what was needed. This may be a good time to have your manager to intervene and contact the other department.

And then of course, there’s Step 4, with review with your manager of how successful you were in meeting the objective. Again the objective gives both of you an absolute rather than a comparative measure, assuming the objectives are concrete and measureable, and both you and your manager have the same understanding of what the desired result will look like. In that case, you either met the objective or you didn’t. You know how you did, and so does your manager, so that issue shouldn’t require much discussion beyond confirming that the two you are in agreement.   More like any project post-mortem, this conversation should focus on a critique of what did and didn’t work, how conditions may have changed from when the objectives were first set, what both you and the manager could have been done differently, what new objective could build on the results accomplished and so forth.

This, however, is very different from a Performance Review or an evaluation of employee’s performance. It is designed to be a learning event for both the individual and the manager for what worked well so they continue to take that action, and where and what they could do something differently to get even better results in the future. But here’s the part that’s counter-intuitive: Don’t confuse the meeting of objectives with good performance, or the failure to meet objectives with poor performance. We’ll discuss why in Part 2.

Comments (1)
  1. WomensNews says:

    The only place where meaningful management results can be won is the outside world. Managing for results is expansion of MBO into the marketplace. It is the theory and practice of how to produce results on the outside, in the market and economy.

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