What to do with MBOs?

After a round of performance reviews with my team, I’m so with Jonathan Becher about the pitfalls of management by objectives (here).  It is easy to fall into the vicious cycle he describes, where

MBOs that measure outputs, rather than impact, [which then] cause outputs to decrease. Which encourages more bad management by bad objectives.

Poor MBO procesess also tend to encourage Pareto suboptimal solutions to business problems, especially when coupled with an out-of-whack incentive structure.  Like where the incentives for individual objectives — oh, let’s say bonus payments for objective achievement — outweigh those for more organization-wide objectives (e.g., firm margin, revenue growth, market share).

Not that I’ve seen that anywhere…

5 Responses

  1. And I’m sick and tired of people claiming 130% attainment for barely meeting non-strategic objectives. Not that I’ve seen that anywhere.

  2. Yup… grade inflation is just as bad as in education these days. I still remember the first time I heard someone mentioned they had a > 4.0 GPA. Huh?

  3. The way ‘management by objectives’ gets applied in most organizations is a legacy of top-down thinking from the industrial era. It reflects a belief that the people at the top know what everyone in the organization should be doing. Of course, there are shared goals in every organization. But the meaningful goals are the ones that make the connection between where the employee is and where the organization wants/needs to go. What is the baseline for the individual? What do they need to do to contribute to the shared strategy of the organization? That’s what you want to measure.

  4. Hi Mary,
    Agreed , it’s a legacy of simpler business models. To be clear, I’m increasingly dubious about how well we can cascade specific objectives to an individual from that shared strategy.

    Per Jonathan’s post, Deming’s vision looks more and more attractive. Even if I set individual objectives, I’d like to see them subordinated to progress vs. shared goals (e.g., via the incentive weightings).

  5. Paul,
    You raise an interesting point about MBO’s being out of sync with larger business realities. That doesn’t seem to be a reflection on MBO’s, but rather any process, individual or department based, that is out of alignment, or serves one at the expense of pushing the rest of the organization forward.

    Actually, we have a fair amount of tolerance for that, partly justified by the thinking that he/she who is in power, gets to make up the rules, divide up the rewards, etc. Will be interesting to see if the latest “excesses” change our economic thinking on that.

    Anyway, yes MBOs seem pretty goofy when they are out of sync with reality, but then so do a lot of things, like process, guidelines, payment structures…. what does seem to help MBO’s be more effective, beyond placing them in reality, is supporting them with technology and regular review process. I just blogged on that, I welcome your thoughts. – Rodney Brim


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