Management By Objectives

It is impossible to prepare you for the use of Management By Objectives in a few short paragraphs. But I would like to use it to introduce the subject of management.

Management By Objectives, or, MBO as it is affectionately called, is a concept popularized by Peter Drucker more than 50 years ago. MBO is a strategy paired with a system for managing people that focuses on their ability to complete individual and team goals. MBO has been widely implemented in large and small organizations since its inception by Drucker in his book The Practice of Management.

Management is about establishing objectives while communicating and developing a dialogue among all people and entities responsible for accomplishing the stated objectives. A successful manager will attempt to align the employees’ goals with the goals of the organization. This ensures that everyone is clear about what should be done, what their role is, and how their performance benefits the objectives of the entire organization. This is not a top-down exercise. It is Senior management outlining a goal and working back up through the ranks on means of achieving that Goal. A Goal is communicated and means of achieved that Goals are worked out from the bottom up.

In defining the tools used in management by objective, proponents created an alphabet soup of acronyms. MBO tools are goals, objectives, action steps, SMART goals, objectives and action steps, SWOT assessment, and measuring progress with KRAs. A definition of terms will get us a lot closer to understanding the theory.

The first step in MBO is to clearly explain to your staff what it is you’re doing and why you’re doing it. The second step is defining the goal and interim objectives to be achieved through actions steps needed to be accomplished to realize the goal. All parts must be measurable and monitored to measure your progress toward success. This can be challenging in its own right, as you seek to find a balance between too much information and the information necessary to realize specific goals.

MBO is meant to help employees assess and prioritize their efforts to make certain those efforts are focused on the bottom line and are congruent with organizational values. The process communicates what behaviors the organization doesn’t value, and what activities may not be contributing to your objectives.

An example of negative behavior is the activity trap. This is seen when people get so busy doing things that they forget to ask whether the things they’re doing are the right things. This is an important concept for everyone in an organization to understand. MBO is designed to help you avoid activity traps by helping your employees understand their goals and making the work that they do more structured toward accomplishing the organization’s goals.

SMART Objectives are:

S = Specific
M = Measurable
A = Achievable
R = Realistic
T = Timed

SMART defines several factors that should be present in your objectives for them to be effective.

First, they should be specific. In other words, they should specifically describe the result that is desired.

To be able to use any objective as a part of a review process it needs to be very clear and measurable, so everyone can see if a person has met the objective or not.

The objectives must be achievable. For instance, an objective that requires “100 percent customer satisfaction” isn’t realistically achievable. It’s not realistic to expect that outsiders will be 100 percent satisfied with any performance. Good customer service is insufficient as a descriptor as it lacks measurability.

Realistic objectives are objectives that recognize some factors cannot be controlled. Said another way, realistic goals are potentially challenging but not so challenging that they cannot succeed. You can only control what you have the power to influence – you cannot control the weather or actions of third parties not related to your enterprise.

The final factor for a good objective is that it is based on time. This is the final anchor in making the objective real and tangible. A time period is identified for completion, and the employee or group will be held accountable for the successful completion of the objective.

Key Result Areas (KRAs) are what you measure to determine your success in accomplishing your objectives. KRAs identify:

• The major metrics to success in a job.
• Critical subjects for the target period.
• Areas in which a manager must achieve results to be most successful.
• Critical make-or-break areas of a job function.
• High priority matters for success during the target period.

An example of a KRA for your studio could be: 1) number of new inquires per week, 2) conversion of new inquires to memberships, 3) membership renewal rate, 4) customer satisfaction, 5) gross revenue per a) square feet, b) instructor, c) member. The most important and valuable purpose of KRAs are to help the manager direct his limited time and resources (time, money, people, plant, and equipment) to the most important metrics, those that actually identify success, and where the effort to improve will provide the greatest returns.

A SWOT analysis identifies:

S = Strengths
W = Weaknesses
O = Opportunities
T =Threats

A SWOT analysis is completed on each KRA – thus a manager who has seven KRAs will have seven different SWOT analysis sheets.

A SWOT analysis is used to provide input as you create strategies. You will add information to the SWOT analysis by asking the following four questions and incorporating your answers into future strategies:

• How can we capitalize on our strengths?
• How can we compensate for our weaknesses?
• How can we exploit and benefit from our opportunities?
• How can we mitigate threats?

Ideally, a team that represents a broad range of perspectives should be assembled to carry out a SWOT analysis. Assemble people from every department in the organization when doing a SWOT analysis – and include people from outside the organization if they can offer constructive advice. Use all of the key people you can assemble to help you with your analysis.

MBO is about making changes that will add information to, and accelerate the performance of, your organization. Your desire is to cultivate growth and efficiencies that will differentiate your organization from others with less information and inferior management.

As already stated, MBO is an effort to align the employees’ goals with the goals of the organization. These efforts can be defeated by such subtle oversights as poorly defined job descriptions. A bad job description is focused on tasks, separation of duties, and is generally territorial in nature. A good job description deals with job-related functions along with the objectives of the employee, the division, the field of endeavor and the enterprise. The good job description is designed to align the employee’s goals with the goals of the organization.

A Summary of the Process

• Objectives are a clear set of planned results. The objectives must be SMART.

SMART = Specific, Measurable, Achievable, Realistic, Timed

• Action Steps are the steps needed, in the aggregate, to accomplish an objective. It is literally identifying the actions necessary to achieve your objectives. Action steps are a day-to-day plan for managing change.

• Goal setting involves establishing a specific set or sets of measurable and time-targeted objectives.

• Achieving a goal is what occurs when all of the objectives have been realized.

Objectives are reached as a result of the completion of a number of action steps.

How it Fails

• Decrees are sent from on high as opposed to bi-level negotiations.
• A lack of commitment from senior management.
• An inability to develop organization goals and objectives.
• A lack of accountability from participants.
• Failure to follow-up.
• Failure to evaluate performance.
• Lack of flexibility.
• Lack of time.

This is a powerful management tool, the most real and authentic I have come across. The process is not difficult, but it will not happen without a focused effort. The challenge is to constructively change what you do every day, and make a habit of following the plan. This is an open process that identifies the goals of the organization for everyone to see. This is a process that gets people out of their pigeonholes and gets them to serve the organizational needs rather than to defend their territory. It is a dynamic process that needs to be reviewed, modified and reviewed again in light of your successes. If you choose to follow this process, you choose to succeed.

I urge you to explore the MBO concept, and, if you are enthusiastic enough, read Management: Tasks, Responsibilities, Practices, also by Drucker.

As in all things, you will get better with practice. Use these tools for everything from managing your enterprise to working around the house.

Intentional direction drives the caravan to arrive at its destination in discreet, objective steps, oasis by oasis, rest by rest, with driving action steps guiding each day of the journey. Detours in the desert increase the chance of banditry and death.

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