MBO philosophyBy Paul N. Romani
MBO by any other name is still MBO
In the literature on management science there are few concepts as frequently mentioned and, simultaneously, as widely misunderstood as management by objectives (MBO). Most who come upon the phrase for the first time invariably say, “Is there any other way to manage?” Yes, there is. Even the “inventor” of the term ‘management by objectives’ is misidentified more often than not. Most persons give credit to Peter Drucker. Others, George S. Odiorne, who authored a text with that title in 1965. But the term was coined first by Alfred P. Sloan in the early 1950’s. Drucker’s contribution was to place the term in a central position and add flesh to its bones by emphasizing the results of managerial actions rather than the supervision of activities. Thus, he introduced the present conceptualization of MBO to the world. His vehicle: the 1954 classic The Practice of Management.
First, it is important to remember that MBO is a philosophy. It is not a step-by-step prescription for running any business. Secondly, MBO encompasses the idea that a business has many objectives and all businesses do not have the same objectives. There is only one common to all – “the customer is king.” That is, the core purpose of a business is to satisfy the customer. Third, MBO shifts the focus of management though to productivity – output – away from work efforts – inputs. The key question then becomes: “What is the objective toward which we are working?” Expressed differently, Drucker saw management that concentrated on processes – rather than goals – as inadequate to meet today’s challenges from foreign and domestic competition. Process-oriented management, dating back to Adam Smith’s 1776 volume The Wealth of Nations and extending beyond Frederick W. Taylor to the Hawthorne studies in this century, was adequate for that 150-year span. Old-time managers were expected to learn the ins and outs of a business and to keep people busy. MBO shifts the focus to goals, to the purpose of the activity, rather than the activity itself. The operative question shifts from “What am I supposed to do?” to “What is the objective toward which I am working?”
As is the case with most seemingly straightforward ideas, there have developed cleavages between the way Drucker conceived MBO, the way others have promulgated it, and the way it is practiced. Under the concept, Drucker wished managers to be accountable for results, not activities. The number of meetings they attended, reports generated and other measures do not count. What is crucial is how those activities pay off in terms of contributing to the objectives of the organization. There are no smoke and mirrors to the concept; it is not meant to give managers a sense of participation – real or phony. By definition, managers have responsibility. Thus, managers know the purpose of MBO, and the goals of the unit of which they are a part (e.g., sales units, etc.) because MBO encompasses the idea of participation in individual goal-setting. Managers also have control over the way the goals are achieved. A unique feature of MBO is that the control is self control. With objectives being the objective word, not management, self-control implies enhanced freedom to choose and to act. If behavioural science has taught us anything, it is that all wish freedom to participate more fully in work situations and to share ideas. MBO encourages sharing and harmony.
Those who misunderstand MBO or give it lip service include some of the Nation’s foremost CEOs. This is unfortunate because business is complex and tough. Some managers never tire of hearing and reading about things that may enable them to see a little more clearly and be a little more successful. MBO can do both. A little more concentration on its proper application could result in real dividends to many firms. Not only financial dividends, but those associated with increased employee esteem, development of goals by teams of employees, self-control rather than management pressure to perform and the motivation that often accrues when information is shared more widely.
Following are some negative reactions to MBO found in three of the most quoted management texts available at this time:
Steve Jobs, co-founder and chair of the board of Apple Computer, is quoted in Naisbitt and Aburdene’s bestseller Reinventing the Corporation as saying: “The way we run Apple is by values. You’ve heard of management by objectives? We don’t use that management system. Apple’s the fastest growing company in American corporate history and when you’re growing that fast, the only thing you can do is hire incredibly great people and let them go to it. In general, we hire people who were to tell him what to do didn’t have a firm grasp on what they were to do.
In Beyond Quality, Bowles and Hammond speak to CEOs “consigning quality improvement to the executive closest, alongside “excellence” and “management by objectives” and all the other quick-fix management toys of Christmases past.”
Equally hard on MBO is Reengineering the Corporation. Hammer and Chompy state that: “not one of the management fads of the last twenty years – not MBO, diversification, zero-based budgeting, Theory Z, matrix management, value chain analysis, decentralization, quality circles, “excellence,” restructuring, portfolio management, or one-minute managing – has reversed the deterioration of America’s corporate competitive performance. They have only distracted managers from the task at hand.”
Hammer and Champy’s answer to the Nation’s competitive dilemma: “Companies must organize work around process.” To quote the authors: “We define a business process as a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer.” Thus, as with MBO, outputs are the key. Later: “Under the influence of Adam Smith’s notion of breaking work into its simplest tasks and assigning each of these to a specialist, modern companies and their managers focus on the tasks in this process: receiving the order form, picking the goods from the warehouse, and so forth – and tend to lose sight of the larger objective, which is to get the goods into the hands of the customer who ordered them. The individual tasks within this process are important, but none of them matters one whit to the customer if the overall process doesn’t work – that is, if the process doesn’t deliver the goods.” Drucker could not have expressed these words any clearer. MBO, as a concept, emphasizes the future, is optimistic about it and how managers will cope with change. I see it, when properly applied, as the dominant concept in management today. It reminds me of an anecdote dating back over 150 years. In the 1830s de Tocqueville asked an American sailor why American ships were built to last for only a short time. The sailor replied that “the art of navigation is every day making such rapid progress, that the finest vessel would become almost useless if it lasted beyond a few years.”
One of the central problems today’s manager must face is that there are too many theories, not too few. Dozens appear in crowds of expert opinion and reports. All contain statistics (some contradictory) on most every aspect of every issue. Unfortunately, some of these theories are untried in real life situations, some in organizations dissimilar to the manager’s, some are the results of “studies” conducted by persons with no or little corporate experience and others are reformulations of theories already being used by companies with solid success records. Turmoil is the result of this bumper crop of new-found wisdom.
I am not a champion of MBO. But I have seen nothing on how to manage, organize and succeed which contains more wisdom than this 50 year-old concept. It avoids the criticism other concepts have suffered – too analytical, too quantitative, unconcerned with consumers inside and outside the organization, too conservative, too shortsighted or too uncreative. On the other hand, it has withstood the test of time (seven texts were written about MBO during the 1960s and 1970s), has been scrutinized by practitioners and theoreticians and hits the reason for an organization’s being squarely on the head – to satisfy a customer. Until a philosophy equally complete and personalized appears, MBO looks like the most sensible route to success for the thoughtful manager.
Paul N. Romani is President of R3, a consulting firm in Alexandria, Virginia, specializing in cost containment, proposal development and network selection and configuration. Earlier in his career, he served for nine years at the White House, three as deputy director of the computing center and six as director of administrative operations for the White House and the 17 agencies of the Executive Office of the President. He holds a doctorate in public administration and an MBA in information technology.