Eliminate Management By Objectives

I’m deep into the annual review cycle and struggling with not-so-SMART objectives for employees that I inherited during the year.  The frustration is acute enough that it makes me want to channel Deming and eliminate management by objectives.

For those who may not remember, Deming is best known for his work in the 1950′s during which he taught top Japanese management how to improve design, product quality, testing and sales.  In fact, Deming is often cited as having more impact on Japan’s rise to greatness in manufacturing than any other individual not of Japanese heritage.  Despite this, Deming was largely unknown in U.S. until shortly before his death in the early 90′s.

I consider Deming one of the fathers of performance management.  This characterization is largely based on his fourteen key principles for management to transform business effectiveness:

  1. Create constancy of purpose for the improvement of product and service.
  2. Adopt the new philosophy of cooperation (win-win) in which everybody wins.
  3. Cease dependence on mass inspection to achieve quality.
  4. End the practice of awarding business on the basis of price tag alone.
  5. Improve constantly and forever the system of production, service, planning, or any activity.
  6. Institute training for skills.
  7. Adopt and institute leadership for the management of people, recognizing their different abilities, capabilities, and aspiration.
  8. Drive out fear and build trust so that everyone can work effectively.
  9. Break down barriers between departments.
  10. Eliminate slogans, exhortations, and targets asking for zero defects or new levels of productivity.
  11. Eliminate numerical goals, numerical quotas and management by objectives. Substitute leadership.
  12. Abolish the annual rating or merit system that ranks people and creates competition and conflict.
  13. Institute a vigorous program of education and self-improvement.
  14. Put everybody in the company to work to accomplish the transformation.

While many of these are now common practice, some (especially 10, 11, and 12) are potentially counter-intuitive and often ignored by managers.  In fact eliminating management by objectives is probably the most controversial of the fourteen points.  The problem, according to Deming, is that quantative targets are typically set by picking what an average person can do with a particular job.  As a result, half of any group will be below average and therefore will never be able to meet the standard. To make matters worse, the above average half  will be pressured to produce no more than the average so as not to make their peers look bad. As a result, overall production will fall.

It’s a vicious cycle.  MBOs that measure outputs, rather than impact, might actually cause outputs to decrease.  Which encourages more bad management by bad objectives.  Instead of the vicious cycle, let’s follow Deming’s advice and substitute leadership for MBOs.  And remember to lead by example.

Who else is ready to abolish management by objectives?

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18 Responses to Eliminate Management By Objectives

  1. Timo Elliott February 3, 2009 at 2:23 am #

    Jonathan,

    Thank you for asking the question! It’s almost a modern taboo not to believe in MBOs.

    Personally, I’m a huge believer in management by objectives, but only when they are used to ensure coordination and priority setting, not when they are used to reward or punish. The problem is that most organizations don’t seem to have decided which of these very different philosophies is the corporate standard. The result is each manager applying the rules as they see fit — and chaos.

    The MBO-as-coordination systems involves the manager and employee looking at the priorities and deciding how best limited time and resources should be spent. The objectives are the short-list of things that should be achieved this quarter. Having payment associated with the objectives help ensure that the process is taken seriously. And if the manager comes with new work, it’s easier for the employee to say “well, these were the objectives — now that we’ve added this new task, what should drop off”?.

    A very important part of this system is that the expected payoff is 100% — i.e. the boss and employee agreed on the priorities and executed them — and shouldn’t really be thought of as a “bonus”.

    BUT this very sensible system runs into a knee-jerk tendency to use the MBO system as a carrot and stick.
    Despite the results of every study done on motivation over the last fifty years (summary: people are not pigeons that you can train to do more work for more feed), some managers and companies use the system to reward, not coordinate. A big tell-tale symptom of this is when a manager is accused of being “soft” because all of his or her employees are gathered around the 100% bonus mark.

    So, rather than abolishing management by objectives, companies should just make it clear what they are trying to achieve with their MBO system: Either top to bottom alignment of resources with strategic goals, OR an assessment of employees’ work. The first works well, the second is more questionable, and trying to do both doesn’t work.

    [I'm passionate about using information to improve the performance of organizations. See my BI Questions blog for more]

  2. ewH February 3, 2009 at 12:53 pm #

    Amen, Jonathan. Even outside of manufacturing type jobs, I also think MBO can discourage the push for innovation. In the end, MBO is usually just the lowest common denominator, to make average the end goal for everyone.

  3. Robert E February 3, 2009 at 1:55 pm #

    Too often objectives revolve around a series of self-involved activities with no clear connection to outcome or impact.
    Although there is lip-service given to collaboration, the competitive nature of ranking and achievement means that people, and departments, work against one another to appear better in their own ranking.
    It reminds me, once again, of the difference between responsibility and accountability. Responsible people are motivated to find the best ways to achieve, and typically exceed, goals. Those who are accountable find any dodge, trick, or ruse to meet their obligations.
    Managers hold people accountable, leaders inspire people to take responsibility.

  4. Kevin Cox February 4, 2009 at 11:14 am #

    I believe MBOs are as dated as the furniture sitting in many corporate lobbies. They are obviously an invention of and for large companies trying to manage vastly extended structures. I grew up in the small company world–this stuff would neer fly there. Technology seems to have a knack for turning best practices into anachronisms–maybe this is one of them.

    PS. I never pay much attention to them in my current large company job- but I always get high ratings. Go figure.

  5. Oski February 4, 2009 at 1:05 pm #

    ” …To make matters worse, the above average half will be pressured to produce no more than the average so as not to make their peers look bad. As a result, overall production will fall.”

    This part of the analysis is spurious. If compensation is tied to performance then your above average performers will be motivated to live up to their potential and reap the benefit of “making their peers look bad”.

    The real issue I’ve seen is that most people (and this includes managers) have no clue how they actually provide value for the enterprise and so could not provide meaningful measurements even if they wanted to.

    This is not entirely a failure of intellect but a consequence of having work silos that stratify the value creation process so most never actually see the entire picture. For example, how many product managers truly understand how their products are sold and why customers make their purchase decisions (at least in the world of enterprise software, consumer software is a bit more straightforward)? In practice, the sales process is way more complicated than the catalog style process most people imagine and the nuances should have a profound impact on product strategy and the behavior of product managers.

    In the absence of this knowledge, some people take an educated guess (which is not necessarily a bad thing depending on how much “education” is behind the guess). Where it really gets bad is when the next person comes along and turns the first guess into a template that gets followed religiously.

    Bottom line, without fully understanding your place in the value chain, it is difficult to figure out the right set of KPIs to set and I suspect this knowledge gap is what leads many to throw up their hands in defeat and set activity metrics

  6. Paul Hanson February 5, 2009 at 6:18 am #

    Another area that can be a challenge for MBO style management is how you manage mavericks in an org. Generally these people do not fit standard structures and goals and yet if an organisation is to survive it needs to nurture and use some off the wall types.
    Often this only works because an enlightened line manager (who can see but not always quantify the value) protects the maverick and bends the rules to allow a little space.

    I have always felt that one objective in an MBO (worth say 10%) should be “do something cool in this job”

  7. Jonathan February 5, 2009 at 8:41 pm #

    Thanks everyone for their comments. Looks like I hit a nerve. I do agree that most people need a way to measure their performance; I’m just not convinced that the current MBO structure provides sufficient value. There are lots of good suggestions in your comments. Maybe together we can change how people get evaluated.

  8. creativedifference February 11, 2009 at 8:27 am #

    The most poisonous thing about MBO is when it creates internal competition rather than cooperation. In the worst cases, we see games about achieving objectives rather than attempting to move things forward. I also see this a lot in the not for profit sector where government contracts are involved, where the objectives set and the returns required are often very crude and focussed on activity rather than impact.

  9. Rodney Re: MBOs February 14, 2009 at 12:27 pm #

    Jonathan, Thought provoking blog. And the comments, as well. Bottom line, there’s a lot of frustration about the process of MBOs. As I read through them, I wonder if MBOs are really the problem, or rather it’s the larger problems underneath, whether it’s planning in a silo, or power grabs, or a lack of alignment – perhaps MBOs just surface stuff – that needs to get cleaned up.

    BTW, you cited Demming as suggesting using Leadership instead of MBOs (Peter Drucker’s model), but actually in Demmings 14 points, doesn’t he suggest substituting “workmanship” and ultimately managing the system or “Develop a horizontal self directed work force” for MBO’s, not leadership per se?

    One of my take-aways, is that any system for targeting a direction, a future goal, including MBOs needs the benefit of alignment and prioritization, and as I was ruminating in a recent blog, the benefits of technology and review.

    Rodney Brim
    http://www.managepro.com/blog/index.php/mbos-the-basic-technology-process-that-makes-it-work

  10. Lisa C. May 5, 2010 at 7:06 pm #

    Just stumbled upon this blog from last year. I was wondering if you knew of any companies that have followed Deming’s advice and nixed their MBO system? I’m doing a presentation on Deming for a quality class at UCLA and attempting to find some info on the effects on incorporating his #12 principle. Any help you can give would be appreciated. Ta.

  11. Claudia January 14, 2011 at 7:22 am #

    I find #14 highly feasible.

    Put everybody in the company to work to accomplish the transformation.

    If everyone has a part, a stake in the performance and if everyone knows what that part is, they’re more likely to work toward a common goal.

  12. Jim April 26, 2012 at 9:58 am #

    If you want to lower cost and align with the customer, dump MBO and use Deming’s system of profound knowledge. This will position you well against the competition that uses MBO. This is because the competitor’s employees will be caught up in “looking good” for the annual performance appraisal instead of the customer. In the U.S., Toyota (TMMK) is example of a non-MBO model as they do not inflict annual reviews on their full time hourly employees at last reading, but, do a modified version on salaried employees, more aligned with Toyota Culture than traditional American style MBO. (see page 410 – 411 of Jeffery Liker / Michael Hoseus “Toyota Culture” for details).

  13. lkafle May 26, 2013 at 6:43 pm #

    Reblogged this on lava kafle kathmandu nepal <a href="https://plus.google.com/102726194262702292606&quot; rel="publisher">Google+</a>.

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