Managing Outcomes

Management by objectives (MBO), also known as management by results (MBR), is a process of defining objectives within an organization so that management and employees agree to the objectives and understand what they need to do in the organization in order to achieve them. 

The term "management by objectives" was first popularized by Peter Drucker in his 1954 book The Practice of Management.

The essence of MBO is participative goal setting, choosing course of actions and decision making. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. 

The MBO process consists of five steps:

1. Review organizational objectives
2. Set worker objectives
3. Monitor progress
4. Evaluating performance
5. Give reward
   

One of the problems with this type of employee goal setting is that the superior is likely to manipulate the employee into agreeing with a goal that is not achievable but is considered by management to be a “stretch goal” that if achieved will generate X number of dollars in revenue. However, if not achieved the employee has a black mark on his/her record.

However, if the stretch goal is somehow achieved then the following year an even higher stretch goal will be suggested for the employee to agree on attaining.

The other issue here is that monitoring progress does not always take place in an effective and efficient manner resulting in less than appropriate evaluations and rewards.

However, most of the time, supervisors simply agree to whatever their employees tell them that they will be able to achieve. Or, employees figure out what will please their bosses and that is the number they suggest that they should achieve.

Of course, once these numbers are set, there is no clear path as to how to achieve them and bosses focus on outcomes rather on the processes that produced these outcomes. And, nothing is ever put into place of improving the process that produced the outcomes.

Rewarding performance because of a high ranking or ordering does not necessarily take into consideration how the process might have varied in order to produce that outcome. It may just be an anomaly and not replicable as opposed to simply inherent in the process and not any more special than other rankings.

As always, I am reminded of a story many, many years ago when secretaries still used Selectric Typewriters. Management noticed that there were numerous typing errors coming out of the typing pool so they made the assumption that it was a morale issue so they purchased brand new typewriters for all the secretaries in the typing pool. And, management continued to notice that there were numerous typing errors coming out of the typing pool.

What was actually going on in the typing pool once a little data was collected on the process was the fact that all of the errors could be attributed to one person and further analysis of the process yielded the fact that she was absent on the day that training was conducted on the new Selectric Typewriters.

Management by Objectives was never originally designed to look for stuff like this because it was assumed that all our processes were performing exactly as they were intended to perform and consequently needed no improvements.

It is widely believed by many that MBO has been replaced by Hoshin Planning.

Hoshin Planning is a method devised to capture and cement strategic goals as well as flashes of insight about the future and develop the means to bring these into reality.

Hoshin Planning it is a strategic planning/strategic management methodology based on a concept popularized in Japan in the late 1950s by Professor Yoji Akao. "Each person is the expert in his or her own job, and uses the collective thinking power of all employees to make their organization the best in its field."

"Top managers and middle managers must be bold enough to delegate as much authority as possible. That is the way to establish respect for humanity as your management philosophy. It is a management system in which all employees participate, from the top down and from the bottom up, and humanity is fully respected." 
 
Hoshin Planning uses the Deming cycle (Plan-Do-Check-Act) to create goals, choose control points (measurable milestones), and link daily control activities to company strategy. 

Hoshin planning systematizes strategic planning. To be truly effective, it must also be cross-functional, promoting cooperation along the value stream, within and between business functions.

Hoshin planning is a seven-step process, in which you perform the following management tasks:

1. Identify the key business issues facing the organization.
2. Establish measurable business objectives that address these issues.
3. Define the overall vision and goals.
4. Develop supporting strategies for pursuing the goals. In the Lean organization, this strategy includes the use of Lean methods and techniques.
5. Determine the tactics and objectives that facilitate each strategy.
6. Implement performance measures for every business process.
7. Measure business fundamentals.
   

What amazes me and I know that it shouldn't is the fact that both these approaches, Management by Objectives and Hoshin Planning, were developed in the 1950's. Management by Objectives was used by almost every company in the United States and many in Europe and Hoshin Planning was used primarily in Japan.

Hoshin Planning was designed to be integrated into and work with Strategic Planning and its implementation along with 2 other concepts: Design of Experiments and Quality Function Deployment sometimes referred to as the House of Cards all of which is seen as multiple processes that must be continuously improved.

In America, there is an external conflict going on between management and labor (for some reason) that I believe (or so I claimed in a previous article) is perpetuated on both sides. I have been on both sides and have helped this perpetuation continue myself and I cannot tell you why, I just did. And, I know that America could be much, much better if we were able to find a way to put that conflict behind us.

I am not talking about needing to change so that more money can be generated because I think we are already pretty damn good at generating revenues; but, the reason why I think we should do this is that we should all be put in a position to enjoy working since we typically work for about 40 years of our lives and right now most of us hate work, hate what we are doing, hate how we are doing it, and hate who we are doing it for.

That just makes no sense to me at all.