Management by Objectives

This article is paraphrased, summarized, and plaigarized from The Essential Drucker, Chapter 8: “Management by Objectives and Self-Control”.

Management by objectives can improve the performance of an organization by transforming an organization’s goals into personal goals.

Personal goals are determined by their contribution to the objectives of the whole organization. And each person knows how his contribution is combined with the contributions of others to reach the objectives of the organization.

Consider the story of the three stonecutters who were asked what they were doing. The first replied, “I am making a living.” The second kept on hammering while he said, “I am doing the best job of stonecutting in the entire county.” The third one looked up with a visionary gleam in his eyes and said, “I am building a cathedral.”

The third stonecutter is a “manager”: he relates his contribution to the goals of his organization. The first stonecutter knows what he wants to get out of the work and manages to do so. He is likely to give a “fair day’s work for a fair day’s pay.”

It is the second stonecutter who could be a problem. He may believe that he is accomplishing something when in effect he is just polishing stones. Workmanship must always be related to the needs of the whole organization — the craft is not an end in itself. The craftsman must see the organization as a whole and understand what it requires of him.

Management by objectives (MBO) can improve performance by converting an organization’s needs into personal goals.

How do you implement MBO? (Short Version)

In Jim Pitkow’s words:

“I’ve just done them based upon having the employee do a bottom’s up (they typically require some structuring to get started) and then rationalizing them against the corporate goals, which the CEO tends to set in cooperation with the Board… probably makes sense to have management try it first to figure out what works for the team and then use that as a model for the rest of the company.”

How do you implement MBO? (Long Version)

What should an individual’s objectives state? Objectives can state

1. The objectives of the individual’s group.
2. The contributions the individual is expected to those objectives.
3. The contributions the individual is expected to make to help others obtain their objectives.
4. The contributions the individual can expect to receive from others towards the attainment of his own objectives.
5. Individual development objectives.

It may also be helpful for the individual to list obstacles in himself and others that may prevent him from reaching his goals.

Who should set the objectives? Each individual should set his objectives himself in relation to his group’s objectives. Each individual should also participate in the development of his group’s objectives and assent to them.

How should achievement be measured? An individual should measure his own performance against his objectives. He should receive and prepare measurements soon enough to make any changes necessary for the desired results. Measurements should go to the individual first, not his superior. Management by objectives is a tool for self-control, not a tool for control from above.

How should goals be achieved? Individuals should decide how to reach their personal goals. It should be clearly understood what the organizations bars as unsound. But within these limits, every individual should be free to decide what he has to do.