WELCOME TO CHECK POINT 10

HOW CAN YOU BENEFIT FROM CHECK POINT 10?

LEAN MANAGEMENT GUIDELINES FOR CHECK POINT 10

WHAT IS MANAGEMENT BY OBJECTIVES?

Business owners and managers must be fully familiar with all procedures related to management by objectives (MBO) which represents one of the most important and practical techniques for implementing strategic and operational planning in every business organization.

The term "Management By Objectives" or "The MBO Process" was popularized by Peter F. Drucker in 1954 and soon thereafter became a useful approach to planning. According to Drucker:

"All managers within the organization must have a clear set of objectives which are aimed at supporting those of their superiors. By adhering to this approach, all managers will have a better understanding of what the organization expects of them, of the organization's objectives, and of specific objectives of their superiors." (23)

The prime purpose of the MBO Process is summarized below. (24)

THE PRIME PURPOSE OF THE MBO PROCESS

CRITICAL IMPORTANCE OF MANAGEMENT BY OBJECTIVES

Management By Objectives is a key management method which entails establishing planned operational objectives (expected results) by business owners, managers and employees on a joint basis, completing actual operational activities and measuring results (measured results), identifying the variance between both results, and taking corrective action. Management by objectives plays a critical role in ensuring effective performance of every business organization.

ARE YOU A ONE-PERSON BUSINESS OWNER?

If you are a one-person business owner, you may adopt a less formal approach regarding some elements of Management By Objectives (MBO) discussed in this check point. However, you should adhere to the MBO guidelines regarding your personal activities within your business and develop an effective Management By Objectives Program and a Plan Of Action.

Moreover, it will be very beneficial for you to become familiar with the content of the entire check point, because one day you may decide to take your business to the next level and employ additional employees within your organization. In that case, the MBO process will prove to be invaluable in helping you to maximize your company's future performance.

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THE MBO PROCESS

THE MBO PROCESS: IMPLEMENTATION REQUIREMENTS

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THE MBO IMPLEMENTATION PROCESS

A typical MBO Process entails a number of tasks and steps, as outlined below. Although this process may appear to be a bit complicated at first, it is actually a very simple process to implement in any organization. You certainly owe it to yourself to initiate this process within your organization to ensure the successful performance of your company. Once you get started, you will never want to abandon this practical and highly effective business management method.

THE MBO PROCESS: TASKS AND STEPS

TASK 1: SET GOALS.

Step 1: Formulate long-term objectives and strategies.

Step 2: Develop specific overall organizational objectives.

Step 3: Establish objectives for each department.

Step 4: Set job objectives for individual employees.

TASK 2: PLAN ACTION.

Step 5: Formulate specific plans of action.

TASK 3: IMPLEMENT ACTION.

Step 6: Implement each plan of action and adjust it when necessary.

TASK 4: REVIEW ACTION.

Step 7: Review the progress toward achieving objectives.

Step 8: Appraise overall performance and reinforce it with training and compensation.

TASK 5: REPEAT TASKS 1 - 4.

Step 9: Repeat the above steps whenever necessary in accordance with the ever-
changing conditions.

STEP 1: SETTING OF OBJECTIVES

The first step, formulation of clear and concise Objectives, is consistent with the overall planning process. Once short-, medium-, and long-term objectives are formulated by top management for the organization and their own work, it becomes necessary to establish detailed objectives for subordinates.

Each subordinate is required to participate with his or her immediate superior in the individual goal-setting process. Joint Setting Of Objectives by subordinates and their superiors helps to secure the firm commitment and active participation of each employee in the MBO implementation process.

Setting of objectives in a small or medium-sized company is illustrated next.

THE MBO  PROCESS: SETTING OBJECTIVES

The executive management team formulates the Company's Objectives in the following operational areas:

• General Management - President.
• Human Resources Management - President and all vice-presidents.
• Financial Management - President and vice-president, finance.
• Operations Management - President and vice-president, operations.
• Marketing And Sales Management - President and vice-president, marketing and sales.

GUIDANCE IN SETTING OBJECTIVES

According to Peter F. Drucker:

"The objectives of all managers' jobs must be defined by the contribution they have to make to the success of the larger unit of which they are a part. 

The district sales manager's objectives should be defined by the contribution they and their district sales force have to make to the sales department, the project engineer's objectives by the contribution they, their engineers, and their designers make to the engineering department". (26)

To ensure that the Company's Objectives are clearly formulated, it is necessary to establish effective two-way communication between management and subordinates. Doing so will stimulate a continuous exchange of information between employees and help clarify what is expected of each individual within the organization.

MANAGEMENT BY OBJECTIVES PROGRAM

STEP 2: ACTION PLANNING

Once specific objectives are formulated for the company and each employee within the organization, it is necessary to develop an effective Plan Of Action. 

"Plan of action entails determining who, what, when, where, and how much is needed to achieve a given objective. It is a practical way of providing a connecting link between the statement of objectives and a more complete program of implementation." (27)

A clearly defined plan of action provides managers with a number of important advantages outlined below. (28)

ADVANTAGES OF A PLAN OF ACTION

IMPLEMENTATION OF THE ACTION PLANNING

Each manager must follow these steps to ensure effective implementation of the MBO Process. Once the plans of action are prepared for each department, the executive management team must verify the detailed cost estimates and deadlines in terms of the company's overall requirements and objectives.

STEP 3: EVALUATE  RESULTS

The next stage of the MBO Process entails review and evaluation of results achieved by each department and by the company as a whole. The prime purpose of this stage is outlined below. (30)

THE MBO PROCESS: EVALUATION OF RESULTS

IMPORTANCE OF THE MBO PROCESS RESULTS EVALUATION

Evaluation of the MBO Process Results is very important for several reasons. It enables all managers within the organization to evaluate their own performance, to assess results attained by their subordinates, to evaluate the overall performance of their sections or departments, and to prepare concise reports for their superiors. In addition, such an evaluation promotes self-control in each employee and provides guidance for taking corrective action.

A typical process of Reviewing And Evaluating Performance in a small or medium-sized company is illustrated next.

THE MBO PROCESS: EVALUATION OF RESULTS

The president receives Reports from vice-presidents, evaluates their performance and results attained by financial, operations, and marketing and sales departments. The president also evaluates his or her performance and examines the overall results attained by the organization.

STEP 4: PROGRESS REVIEW

Once the review and evaluation of results are available, each manager must take necessary Corrective Action in order to complete the MBO Process. Taking corrective action is similar to the last step of the Controlling Process which is discussed in detail in Tutorial 1.

Consider, for example, that certain objectives of the company have not been accomplished during the predetermined period of time. In this case, each manager is required to identify such occurrences and to measure differences between actual results and predetermined objectives. 

A thorough Analysis Of Reasons which may have caused the deviation between the actual results and planned objectives will help managers to readjust their plans of action.

Furthermore, managers will be able to provide effective guidance to their subordinates in correcting their individual performance. This, in turn, will help to ensure successful implementation of the MBO procedures and subsequently to initiate effective operational planning within the organization.

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