1.9 most important Characteristics of Management by Objective (MBO)

1. Goal Orientation:

MBO focuses on the determination of unit and individual goals in line with the organizational goals. These goals define responsibilities of different parts of the organisation and help to integrate the organisation with its parts and with its environment.

MBO seeks to balance and blend the long term objectives (profit, growth and survival of the firm with the personal objectives of key executives. It requires that all corporate, departmental and personal goals will be clearly defined and integrated.

2. Participation:

The MBO process is characterized by a high degree of participation of the concerned people in goal setting and performance appraisal. Such participation provides the opportunity to influence decisions and clarify job relationships with superiors, subordinates and peers.

It also helps to improve the motivation and morale of the people and results in role clarity. Participative decision-making is a prerequisite of MBO. MBO requires all key personnel to contribute maximum to the overall objectives.

3. Key Result Areas:

The emphasis in MBO is on performance improvement in the areas which are of critical importance to the organisation as a whole. By identification of key result areas (KRAs), MBO ensures that due attention is given to the priority areas which have significant impact on performance and growth of the organisation.

Goals of all key personnel are properly harmonized and they are required to make maximum contribution to the overall objectives. Key and sub Key areas are identified for each function as shown in the following example:

Finance (Key Area)

Sub-Key Areas:

(a) Cash flow

(b) Dividend Policy

(c) Debt-equity Ratio

(d) Sources of Funds

The role of each department towards the Key and sub-Key areas 15 also specified.

4. Systems Approach:

MBO is a systems approach of managing an organisation. It attempts to integrate the individual with the organisation and the organisation with its environment. It seeks to ensure the accomplishment of both personal and enterprise goals by creating goal congruence.

5. Optimization of Resources:

The ultimate aim of MBO is to secure the optimum utilization of physical and human resources of the organisation. MBO sets an evaluative mechanism through which the contribution of each individual can be measured.

6. Simplicity and Dynamism:

MBO is a non-specialist technique and it can be used by all types of managers. At the same time it is capable of being adopted by both business and social welfare organizations. MBO applies to every manager, whatever his function and level, and to any organisation, large or small.

7. Operational:

MBO is an operational process which helps to translate concepts into practice. MBO is made operational through periodic reviews of performance which are future-oriented and which involve self-control.

8. Multiple Accountability:

Under MBO, accountability for results is not centralized at particular points. Rather every member of the organisation is accountable for accomplishing the goals set for him.

Multiple centers of accountability discourage 'buck-passing' and 'credit-grab-bing'. MBO establishes a system of decentralized planning with centralized control.

9. Comprehensive:

MBO is a 'total approach'. It attaches equal importance to the economic and human dimensions of an organisation. It combines attention to detailed micro-level, short range analysis within the firm with emphasis on macro-level, long range integration with the environment.

2. The Concept Of Management By Objectives (MBO)

The concept of MBO is closely connected with the concept of planning. The process of planning implies

the existence of objectives and is used as a tool/technique for achieving the objectives. Modern

managements are rightly described as 'Management by Objectives' (MBO). This MBO concept was

popularized by Peter Drucker. It suggests that objectives should not be imposed on subordinates but

should be decided collectively by a concerned with the management. This gives popular support to them

and the achievement of such objectives becomes easy and quick.

Management by Objectives (MBO) is the most widely accepted philosophy of management today. It is a

demanding and rewarding style of management. It concentrates attention on the accomplishment of

objectives through participation of all concerned persons, i.e., through team spirit. MBO is based on the

assumption that people perform better when they know what is expected of them and can relate their

personal goals to organizational objectives. Superior subordinate participation, joint goal setting and

support and encouragement from superior to subordinates are the basic features of MBO. It is a result-

oriented philosophy and offers many advantages such as employee motivation, high morale, effective and

purposeful leadership and clear objectives before all concerned per-sons.

MBO is a participative and democratic style of management. Here, ample a scope is given to

subordinates and is given higher status and positive/participative role. In short, MBO is both a philosophy

and approach to management. MBO concept is different from MBC (Management by Control) and is also

superior in many respects. According to the classical theory of management, top management is

concerned with objectives setting, directing and coordinating the efforts of middle level managers and

lower level staff. However, achievement of organizational objectives is possible not by giving orders and

instructions but by securing cooperation and participation of all persons. For this, they should be

associated with the management process. This is possible in the case of MBO and hence MBO is

different from MBC and also superior to MBC.

MBO is an approach (to planning) that helps to overcome these barriers. MBO involves the establishment

of goals by managers and their subordinates acting together, specifying responsibilities and assigning

authority for achieving the goals and finally constant monitoring of performance. The genesis of MBO is

attributed to Peter Drucker who has explained it in his book 'The Practice of Management'.

Definitions Of Management By Objectives MBO :-

1. According to George Odiome, MBO is "a process whereby superior and subordinate managers of

an Organisation jointly define its common goals, define each individual's major areas of responsibility

in terms Of results expected of him and use these measures as guides for operating the unit and

assessing the contribution of each of its members."

2. According to John Humble, MBO is "a dynamic system which seeks to integrate the company's

needs to clarify and achieve its profits and growth goals with the manager's need to contribute and

develop himself. It is a demanding and rewarding style of managing a business."

Features Of Management By Objectives MBO :-

1. Superior-subordinate participation: MBO requires the superior and the subordinate to recognize that

the development of objectives is a joint project/activity. They must be jointly agree and write out their

duties and areas of responsibility in their respective jobs.

2. Joint goal-setting: MBO emphasizes joint goal-setting that are tangible, verifiable and measurable. The

subordinate in consultation with his superior sets his own short-term goals. However, it is examined

both by the superior and the subordinate that goals are realistic and attainable. In brief, the goals are

to be decided jointly through the participation of all.

3. Joint decision on methodology: MBO focuses special attention on what must be accomplished (goals)

rather than how it is to be accomplished (methods). The superior and the subordinate mutually devise

methodology to be followed in the attainment of objectives. They also mutually set standards and

establish norms for evaluating performance.

4. Makes way to attain maximum result: MBO is a systematic and rational technique that allows

management to attain maximum results from available resources by focussing on attainable goals. It

permits lot of freedom to subordinate to make creative decisions on his own. This motivates

subordinates and ensures good performance from them.

5. Support from superior: When the subordinate makes efforts to achieve his goals, superior's helping

hand is always available. The superior acts as a coach and provides his valuable advice and guidance

to the subordinate. This is how MBO facilitates effective communication between superior and

subordinates for achieving the objectives/targets set.

Steps In Management By Objectives Planning :-

1. Goal setting: The first phase in the MBO process is to define the organizational objectives. These are

determined by the top management and usually in consultation with other managers. Once these goals

are established, they should be made known to all the members. In setting objectives, it is necessary

to identify "Key-Result Areas' (KRA).

2. Manager-Subordinate involvement: After the organizational goals are defined, the subordinates work

with the managers to determine their individual goals. In this way, everyone gets involved in the goal

setting.

3. Matching goals and resources: Management must ensure that the subordinates are provided with

necessary tools and materials to achieve these goals. Allocation of resources should also be done in

consultation with the subordinates.

4. Implementation of plan: After objectives are established and resources are allocated, the subordinates

can implement the plan. If any guidance or clarification is required, they can contact their superiors.

5. Review and appraisal of performance: This step involves periodic review of progress between

manager and the subordinates. Such reviews would determine if the progress is satisfactory or the

subordinate is facing some problems. Performance appraisal at these reviews should be conducted,

based on fair and measurable standards.

Advantages of Management By Objectives MBO :-

1. Develops result-oriented philosophy: MBO is a result-oriented philosophy. It does not favor

management by crisis. Managers are expected to develop specific individual and group goals, develop

appropriate action plans, properly allocate resources and establish control standards. It provides

opportunities and motivation to staff to develop and make positive contribution in achieving the goals of

an Organisation.

2. Formulation of dearer goals: Goal-setting is typically an annual feature. MBO produces goals that

identify desired/expected results. Goals are made verifiable and measurable which encourage high

level of performance. They highlight problem areas and are limited in number. The meeting is of minds

between the superior and the subordinates. Participation encourages commitment. This facilitates

rapid progress of an Organisation. In brief, formulation of realistic objectives is me benefit of M[BO.

3. Facilitates objective appraisal: NIBO provides a basis for evaluating a person's performance since

goals are jointly set by superior and subordinates. The individual is given adequate freedom to

appraise his own activities. Individuals are trained to exercise discipline and self control. Management

by self-control replaces management by domination in the MBO process. Appraisal becomes more

objective and impartial.

4. Raises employee morale: Participative decision-making and two-way communication encourage the

subordinate to communicate freely and honestly. Participation, clearer goals and improved

communication will go a long way in improving morale of employees.

5. Facilitates effective planning: MBO programmes sharpen the planning process in an Organisation. It

compels managers to think of planning by results. Developing action plans, providing resources for

goal attainment and discussing and removing obstacles demand careful planning. In brief, MBO

provides better management and better results.

6. Acts as motivational force: MBO gives an individual or group, opportunity to use imagination and

creativity to accomplish the mission. Managers devote time for planning results. Both appraiser and

appraise are committed to the same objective. Since MBO aims at providing clear targets and their

order of priority, employees are motivated.

7. Facilitates effective control: Continuous monitoring is an essential feature of MBO. This is useful for

achieving better results. Actual performance can be measured against the standards laid down for

measurement of performance and deviations are corrected in time. A clear set of verifiable goals

provides an outstanding guarantee for exercising better control.

8. Facilitates personal leadership: MBO helps individual manager to develop personal leadership and

skills useful for efficient management of activities of a business unit. Such a manager enjoys better

chances to climb promotional ladder than a non-MBO type.

Limitations of Management By Objectives MBO :-

1. Time-consuming: MBO is time-consuming process. Objectives, at all levels of the Organisation, are set

carefully after considering pros and cons which consumes lot of time. The superiors are required to

hold frequent meetings in order to acquaint subordinates with the new system. The formal, periodic

progress and final review sessions also consume time.

2. Reward-punishment approach: MBO is pressure-oriented programme. It is based on reward-

punishment psychology. It tries to indiscriminately force improvement on all employees. At times, it

may penalize the people whose performance remains below the goal. This puts mental pressure on

staff. Reward is provided only for superior performance.

3. Increases paper-work: MBO programmes introduce ocean of paper-work such as training manuals,

newsletters, instruction booklets, questionnaires, performance data and report into the Organisation.

Managers need information feedback, in order to know what is exactly going on in the Organisation.

The employees are expected to fill in a number of forms thus increasing paper-work. In the words of

Howell, "MBO effectiveness is inversely related to the number of MBO forms.

4. Creates organizational problems: MBO is far from a panacea for all organizational problems. Often

MBO creates more problems than it can solve. An incident of tug-of-war is not uncommon. The

subordinates try to set the lowest possible targets and superior the highest. When objectives cannot be

restricted in number, it leads to obscure priorities and creates a sense of fear among subordinates.

Added to this, the programme is used as a 'whip' to control employee performance.

5. Develops conflicting objectives: Sometimes, an individual's goal may come in conflict with those of

another e.g., marketing manager's goal for high sales turnover may find no support from the production

manager's goal for production with least cost. Under such circumstances, individuals follow paths that

are best in their own interest but which are detrimental to the company.

6. Problem of co-ordination: Considerable difficulties may be encountered while coordinating objectives of

the Organisation with those of the individual and the department. Managers may face problems of

measuring objectives when the objectives are not clear and realistic.

7. Lacks durability: The first few go-around of MBO are motivating. Later it tends to become old hat. The

marginal benefits often decrease with each cycle. Moreover, the programme is deceptively simple.

New opportunities are lost because individuals adhere too rigidly to established goals.

8. Problems related to goal-setting: MBO can function successfully provided measurable objectives are

jointly set and it is agreed upon by all. Problems arise when: (a) verifiable goals are difficult to set (b)

goals are inflexible and rigid (c) goals tend to take precedence over the people who use it (d) greater

emphasis on quantifiable and easily measurable results instead of important results and (e) over-

emphasis on short-term goals at the cost of long-term goals.

9. Lack of appreciation: Lack of appreciation of MBO is observed at different levels of the Organisation.

This may be due to the failure of the top management to communicate the philosophy of MBO to entire

staff and all departments. Similarly, managers may not delegate adequately to their subordinates or

managers may not motivate their subordinates properly. This creates new difficulties in the execution

of MBO programme.

Essential Conditions for Successful Execution / Implementation of MBO Or...

Q.How To Make MBO Effective?

1. Support from all: In order that MBO succeeds, it should get support and co-operation from the

management. MBO must be tailored to the executive's style of managing. No MBO programme can

succeed unless it is fully accepted by the managers. The subordinates should also clearly understand

that MBO is the policy of the Organisation and they have to offer cooperation to make it successful. It

should be a programme of all and not a programme imposed on them.

2. Acceptance of MBO programme by managers: In order to make MBO programme successful, it is

fundamentally important that the managers themselves must mentally accept it as a good or promising

programme. Such acceptances will bring about deep involvement of managers. If manages are forced

to accept NIBO programme, their involvement will remain superfluous at every stage. The employees

will be at the receiving-end. They would mostly accept the lines of action initiated by the managers.

3. Training of managers: Before the introduction of MBO programme, the managers should be given

adequate training in MBO philosophy. They must be in a position to integrate the technique with the

basic philosophy of the company. It is but important to arrange practice sessions where performance

objectives are evaluated and deviations are checked. The managers and subordinates are taught to

set realistic goals, because they are going to be held responsible for the results.

4. Organizational commitment: MBO should not be used as a decorative piece. It should be based on

active support, involvement and commitment of managers. MBO presents a challenging task to

managers. They must shift their capabilities from planning for work to planning for accomplishment of

specific goals. Koontz rightly observes, "An effective programme of managing by objective must be

woven into an entire pattern and style of managing. It cannot work as a separate technique standing

alone."

5. Allocation of adequate time and resources: A well-conceived MBO programme requires three to five

years of operation before it provides fruitful results. Managers and subordinates should be so oriented

that they do not look forward to MBO for instant solutions. Proper time and resources should be

allocated and persons are properly trained in the philosophy of MBO.

6. Provision of uninterrupted information feedback: Superiors and subordinates should have regular

information available to them as to how well subordinate's goal performance is progressing. Over and

above, regular performance appraisal sessions, counseling and encouragement to subordinates

should be given. Superiors who compliment and encourage subordinates with pay rise and promotions

provide enough motivation for peak performance.

3. Essential Characteristics or Features of Management By Objectives

A careful study of the above definitions bring out the following features of MBO.

1. Management by Objectives is a philosophy or a system, and not merely technique.2. It emphasizes participative goal setting.3. It clearly defines each individual responsibilities in terms of results.

4. If focuses attention on what must be accomplished (goals0 rather than on how it is to be accomplished.

5. It converts objective needs into personal goals at every level in the organization.6. It establishes standards or yardsticks (goals ) as operation guides and also as basis

of performance evaluation.7. It is a system intentionally directed toward effective and efficient attainment of

organizational and personal goals.8. MBO process (or management by Objective cycle or key elements of management

by Objectives or minimum requirements of management b y objectives.

There are four important and essential steps or elements in the management by Objectives process as follows :

Setting Objectives.

Goal-setting or objective setting is a multistage process. It starts with the examining of the current stat3e of affaires, level of efficiency, threats, and opportunities. Then the key result areas are identified, such as product markets, improved services, lowered costs, work simplification, employee motivation, profitability innovation and social responsibility. The performance of these areas is critical for organization in the sense that failure in these areas may result in failure of the organization. And this is why they are known as “key” result areas. Peter says, objectives are important in every area where performance and results directly affect the survival and prosperity of business.

Thereafter interacting or joint goal setting takes place. Subordinates are actively involved in formulating goals at every level in the organization such goals are finished with reference to the overall objectives of the organization. Care is taken to establish goals that are measurable and contribute to the element also. Such goals may be long rang, medium rang, or short range. Further, resources availability also becomes an important consideration in goal setting. There is always need to decide priorities among the different objectives keeping in view the environment within which business operates as well as possible further changes in it.

Developing Action Plans.

Set objectives must be translated into action plans. It requires assignment of specific responsibilities to different departments, division, and individuals. It also requires allocation

of necessary resources needed to perform the assigned responsibilities. Time dimensions are also to be decided in order that targets are reached without any unwarranted delays.

Periodic Review or Monitoring The Progress.

After setting objectives and developing action plans, it is necessary to establish a proper monitoring system with a view to regularly keeping the activities. He progress is monitored without day path leading to the ultimate objective. It is ensured that the deviations found, if any, are thoroughly discussed and immediate corrective actions are taken to set them right on the course. Such a regular monitoring and periodic review not only provide feedback which is essential for completion of work in time. But also motivates the managers accountable for performance. Periodic review and monitoring are done at departmental level generally.

Performance appraisal.

This is the last phase of MBO program that evaluates performance annually. The annual review or appraisal is comprehensive and is done at the organization level. The actual annual results are evaluated against the set objectives. Such assessment is also used for determining targets for next year, for modification in standards (goals0 if needed, and for taking corrective actions in order to avoid deviations form predetermined objectives.

4. How to Measure Progress Against Work Objectives

by Charlie Gaston, Demand Media

An objective is a short-term, measurable step that brings you closer to accomplishing a larger, overarching long-term goal. For an objective to be effective it must be clear, measurable and have a time element. For instance, a small business owner might seek to increase revenue by 10 percent in one year, which is an example of a highly effective work objective.

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Step 1

Define your company's work objectives. Define the nature of the work to be performed and guidelines for determining whether its performance is satisfactory. According to Distance Consulting LLC, a work objective is executable if it contains a verb-object component specifying what is to be accomplished and a standards component indicating acceptable performance.

Step 2

Measure the quantity of work output. For instance, if your company wants to increase its revenue potential, measure the total number of units your company has manufactured or sold. To measure whether quality is suffering in the face of high productivity, measure the percentage of work output that must be redone. A low percentage is an indicator of high quality.

Step 3

Establish checkpoints to determine whether your timelines or implementation plans should be modified. If your company is meeting work objectives ahead of schedule, modify the timeline. Set up a checkpoint at varying intervals such as the six-month mark or the second quarter in a calendar year.

Step 4

Talk to your employees about how their doing with the work objectives. Have each employee measure his performance. Often, self-appraisals can highlight discrepancies between what the employee and management think are important performance factors and provide mutual feedback for meaningful adjustment of expectations, according to the website for HR World.

Step 5

Increase company morale by offering written or oral feedback to teams and individuals for their contributions and valiant attempts at success. Positive feedback boosts company morale and sees team members through to the completion of company goals

5. SMART

Characteristics of Good Objectives

by Phil Bartle, PhD

Workshop Handout

An objective is more specific than a goal; in what ways? A Good Objective is SMART

In preparing a project design, and when writing a proposal (for approval or for requesting funds), the goals of the project are stated. The goal is easily defined as the solution to the problem that has been identified. The problem with such a "goal" is that it is too general; it is not easy to obtain consensus as to when it has been reached.

That is why, when preparing project documents, a distinction is made between a "goal" and an "objective." An objective is derived from a goal, has the same intention as a goal, but it is more specific, quantifiable and verifiable than the goal.

Let us say that the problem identified by community members is "Lack of clean drinking water." The solution to that problem, the goal, then is "To bring clean drinking water to the community." You can demonstrate to the group the vagueness of this goal by going out of the room and returning with a single glass of water, showing it to them. "OK, here is some water. I have brought it to the community. Now, is the project complete? Have we achieved the goal?"

Of course they might laugh or say that it was obvious that they did not mean only a glass of water when they said, "To bring clean drinking water to the community." Your reply is then that the project design or proposal must be very specific about each objective, so that there can be no room for different interpretations.

Remember, every objective must start with the word , "To." An easy way to remember the characteristics of a good objective, is the acronym, "SMART." It stands for "Specific, Measurable, Achievable, Realistic and Time-Bound."

S pecific

M easurable

A chievable

R ealistic

T ime-Bound

When identifying objectives as part of an exercise in preparing a project design or proposal, use the SMART acronym as a check list, to see if the objective is a good objective. (Making sure each objective begins with the word, "To.") The objectives must be derived from, and consistent with, the intention of the identified goals.

The objectives of a project should be "SMART." They should be:

S pecific: clear about what, where, when, and how the situation will be changed;

M easurable: able to quantify the targets and benefits;

A chievable: able to attain the objectives (knowing the resources and capacities at the disposal of the community);

R ealistic: able to obtain the level of change reflected in the objective; and

T ime bound: stating the time period in which they will each be accomplished

APPENDIX GCharacteristics of Successful Objectives

Identifying and articulating appropriate objectives for the "refocused GILS" is essential. One approach, adapted from Total Quality Management, identifies five aspects in articulating objectives: Specific, Measurable, Accountable, Realistic, Time-Phased. The deployment of TQM

and its associated requirements for expression of organizational mission statements and policy has given rise to this mnemonic device called "SMART."

The aspects of SMART objectives outlined below can be contrasted with current language of goals, objectives, purposes, and expectations in GILS policy. The GILS II initiative can refocus the goals and scope for GILS, but that is just the first step. Policy, as articulated by OMB, then needs to be translated in SMART objectives.

Specific: This characteristic provides focus, or an ability to visualize a clear outcome or planned state. Definitions must be operationalized and understood (but not necessarily agreed upon) by everyone that is expected to participate. Examples of nonspecificity in OMB Bulletin 95-01 that have hindered GILS implementations to-date include:

– "public information resources"– "automated information system"– "…all departments and agencies in the Executive Branch" [and] "Independent regulatory commissions and agencies"

The lack of specificity in just these three items alone limit one’s ability to envision GILS outcome or a state of requirements satisfaction. The record aggregation issue also is consequence of nonspecificity, as is the confusion surrounding the concept of "US Federal core" locator records. OMB Bulletin 95-01, FIPS 192, and the NARA Guidelines fail to specify precisely what these are and what purpose they serve beyond that of "non-Core" items.

Measurable: If progress toward an objective can’t be measured, it won’t be accomplished. It goes hand-in-hand with specificity; if something can’t be visualized, it can’t be broken down into recognizable/countable units. The objectives of GILS have not been measurable. For example:

– "Assistance" in obtaining the information and "help" the public and agencies are goals not easily measurable (or at least the instruments are not available to, trusted by, or usable by the implementors). Such goals need to be described in terms of measurable criteria.– "improve agency electronic records management practices" [and] "agencies' abilities to carry out their records management responsibilities and to respond to Freedom of Information Act requests"—what are the benchmarks? "Improvement" implies they are known.– "…agencies should inventory their existing holdings and institute adequate (how to measure "adequate"?) information management practices. To the extent practicable (how is practicality measured?), agency GILS should contain automated links to underlying databases to permit direct access to information…"– "Reduce (to what level?) the information collection burden on the public by making existing (at what point in time?) information more (how much more?) readily available for sharing among agencies.

Accountable – Policy states that the "head" of each agency is accountable. But for what? The "head" of any organization is always accountable for everything. With the lack of agency management support identified through the study, agencies may have missed the boat here by not specifying responsibilities and authorities in the chain of command. Also, "Independent regulatory commissions and agencies are requested to comply" automatically abrogates accountability.

Realistic -- One tenet of realistic modeling is precedent, which agencies may be lacking in areas of IRM and RM in the evolving networked environment. "Realistic" can be contrasted with "reasonable." The original vision of GILS might have been reasonable, but was it realistic?

– Is centralization or decentralization or some hybrid model realistic?– Information dissemination product means "any book, paper, map, machine-readable material, audiovisual production, or other documentary material, regardless of physical form or characteristic, disseminated by an agency to the public." This scope ("any") may be reasonable, but realistic?

Time-Phased -- The key here is the concept of "sufficiently frequent cause for celebration or reflection." OMB Bulletin 95-01 has several "phases" for the objectives of GILS, but without co-incident S-M-A and R. During the study, no participants suggested that any celebration or reflection occurred on making an OMB Bulletin 95-01 deadline. Objectives need to be associated with specific time frames for their accomplishment.

An example of a "SMART" government-wide objective for GILS implementation might have been:

By January 1, 1996, the manager charged with agency GILS implementation in each Cabinet Department and Executive Agency listed in the 1996-97 Government Manual shall mount on the agency web site, or on GPO Access, a metadata record comprising Title, Abstract, Order Process, and Point of Contact for their 10 most frequently-requested printed publications.

Implicit in this is the idea that, in an empowered culture, the S-M-A-R-Tness gets stronger with every link in the organizational chain—i.e., "granules" of responsibility become apparent. In the above example, the Public Information Officer, for example, would recognize that his/her contribution is to identify the popular resources (and that if he/she doesn’t already collect the data that he/she had better have it by a date negotiated by the team); the webmaster allocates n bytes; etc.

The lack of S-M-A-R-T objectives for GILS could be simply a reflection that at the outset the philosophical mandate for GILS was unclear. It will be necessary to pinpoint as closely as possible who wants what and why from the refocused GILS. That understanding, and necessary buy-in by the agencies, could ease the development of S-M-A-R-T objectives for the "how." Further, the accomplishment of the objectives should lead to tangible benefits to the agencies.

6.3. Characteristics of Effective Goals and Objectives

L E A R N I N G O B J E C T I V E S

1. Be able to set appropriate goals.2. Be able to troubleshoot an existing set of goals and objectives.3. Understand the characteristics of good goals and objectives.

To be clear, this section does not outline which goals or objectives are appropriate or inappropriate, economically, ethically, morally, or otherwise. Instead, you will learn many of the characteristics of good goals and objectives, with the aim of becoming a better organizational

goal setter (in the last section of this chapter, we remind you about SMART criteria, which is the application of many of this section’s takeaways to the development of your personal and professional goals and objectives). At the same time, you should be able to look at a set of goals and objectives and critique them effectively, such that more appropriate goals and objectives can be developed to replace them.

Eight Characteristics of Appropriate Goals and Objectives

Figure 6.7. Characteristics of Appropriate Goals and Objectives

We tend to think that goals and objectives are easy to set, and yet, this intuition is often wrong in the organizational context. Goals and objectives are difficult to set because we might not know what they should cover or because we lay out too many of them with the hope that we are covering all the bases. Similarly, goals and objectives can proliferate in organizations because new ones are set, while old ones are not discarded. Stanford University management professor Kathleen Eisenhardt noted that there must be a certain balance to the number and type of goals and objectives: too many goals and objectives are paralyzing; too few, confusing.[272] In his popular book, Keeping Score, Mark Graham Brown lists several important factors to aid managers in “rethinking” their approach to setting and managing goals and objectives, what we might call the organization’s measurement system more broadly.[273]

1. Fewer are better. Concentrate on measuring the vital few key variables rather than the trivial many.

2. Measures should be linked to the factors needed for success—key business drivers.3. Measures should be a mix of past, present, and future to ensure the organization is

concerned with all three perspectives.4. Measures should be based around the needs of customers, shareholders, and other key

stakeholders.5. Measures should start at the top and flow down to all levels of employees in the

organization.6. Multiple indices can be combined into a single index to give a better overall assessment

of performance.7. Measures should be changed or at least adjusted as the environment and your strategy

changes.

8. Measures need to have targets or objectives established that are based on research rather than arbitrary numbers.[274]

Let’s walk through each of these criteria to gain a better understanding of these desirable characteristics of organizational goals and objectives. It is useful here to start by recognizing that goals, objectives, and measures are different animals. As explained at the beginning of this chapter, goals tend to be general statements, whereas objectives are specific and time bound. Measures are the indicators used to assess achievement of the objective. In some cases, a goal, an objective, and a measure can be the same thing, but more often you will set a goal, have a few objectives underlying that goal, and then one or more measures for each of the objectives.

Less Is More

Less is more, fewer is better, and simple rules are the common mantra here. Eisenhardt suggests that organizations should have two to seven key goals, or rules, using her vocabulary.[275] Such goals guide how the firm operates, identify which opportunities to pursue, set priorities, manage timing of actions, and even inform business exit decisions.

If the organization should have only two to seven key goals, what about objectives and measures? Metric guru Graham Brown suggests that managers should not try to follow any more than 20 measures of performance in terms of performance on objectives. Thus, with two to seven goals, and 20 performance measures, this means that you will likely have a number of objectives somewhere between the number of set goals and the number of measures. Why this limit? “No individual can monitor and control more than twenty variables on a regular basis,” says Graham Brown.[276]

Tie Measures to Drivers of Success

One of the key litmus tests for setting goals, objectives, and measures is whether they are linked in some way to the key factors driving an organization’s success or competitive advantage. This means that they must provide a verified path to the achievement of a firm’s strategy, mission, and vision. This characteristic of effective goals, objectives, and measures is one reason that many managers use some form of Balanced Scorecard in their businesses. The Balanced Scorecard process provides a framework for evaluating the overall measurement system in terms of what strategic objectives it contributes to. The big challenge, however, is to verify and validate the link to success factors. Managers who do not scrupulously uncover the fundamental drivers of their units’ performance face several potential problems. They often end up measuring too many things, trying to fill every perceived gap in the measurement system.

Don’t Just Measure the Past

For a variety of reasons it is important to capture past performance. After all, many stakeholders such as investors, owners, customers, and regulators have an interest in how the firm has lived up to it obligations. However, particularly in the area of objectives and measurement, the best systems track the past, present, and future. Echoing this observation, Robert Kaplan, co-originator of the Balanced Scorecard framework, published another book on the subject called The Balanced Scorecard: You Can’t Drive a Car Solely Relying on a Rearview Mirror. A combination of goals, objectives, and measures that provides such information is sometimes referred to as a dashboard—like the analogy that a dashboard tells you how the car is running, and through the windshield you can see where you are going. Indicators on how well the economy is doing, for instance, can suggest whether your business can experience growing or

declining sales. Another leading indicator is customer satisfaction. General Electric, for instance, asks its customers whether they will refer other customers to GE. GE’s managers have found that the higher this likelihood of referral, the greater the next quarter’s sales demands. As a result, GE uses this measure to help it forecast future growth, as well as evaluate the performance of each business unit.

Take Stakeholders Into Account

While it is important to track the goals and objectives most relevant to the needs of the business, relevance is subjective. This is why it is valuable to understand who the organization’s key stakeholders are, and set the goals, objectives, and measures in such a way that stakeholders can be satisfied. Or, at the very least, stakeholders can gain information relevant to their particular interests. Some stakeholders may never be entirely satisfied with companies’ performance—for example, some environmental groups may continue to criticize a company’s environmental impact, but they can be somewhat placated with more transparent reporting of what the company is doing on the environmental front. Similarly, stakeholders with social concerns will appreciate transparency in reporting on the organization’s corporate social responsibility efforts.

Cascade Goals Into Objectives

The less-is-more concept can apply to the way that goals cascade into objectives, which cascade into measures. Tying goals and objectives to drivers of success means that vision, mission, and strategy cascade down to goals, and so on. The first benefit of this cascade approach is that goals and objectives are consistent with the strategy, vision, and mission. A second benefit is that goals and objectives in lower levels of the organization are more likely to be vertically and horizontally consistent since they should be designed to achieve the higher-level goals and objectives and, ultimately, the overarching strategy of the organization.

Simplify

Information overload is a challenge facing all managers (and students and teachers!), and simplification builds on the idea that managers can attend to a few things well but many things poorly. Simplification refers both to the use of fewer, not more, metrics, objectives and goals, and the idea that multiple measures should be distilled down into single measures like an index or a simple catch-all question. For instance, GE’s use of the single question about referring customers is a powerful but effective leading metric and a metric that it can reinforce with its rewards system. When metrics involve multiple dimensions, in areas where the organization wants to gauge customer satisfaction, for example, a survey can have 10 or more questions. Think about the many customer satisfaction surveys you are asked to complete after making an online purchase. Which question is the most important? The challenge, of course, is that a simple average of the customer survey scores, while providing a simpler indicator, also may hide some key indicator that is now buried in the average score. Therefore, the organization might need to experiment a bit with different ways of simplifying the measures with the aim of providing one that best reflects achievement of the key objective.

Adapt

An organization’s circumstances and strategies tend to change over time. Since goals, objectives, and measures need to tie directly to the organization’s strategy, they should be changed as well when the strategy changes. For example, many U.S. automakers set out to dominate certain car and truck segments on the basis of vehicle features and price, not fuel efficiency. However, the

recent fluctuations in oil prices gave rise to a market for more fuel-efficient vehicles. Unless the automakers set some aggressive fuel efficiency objectives for their new models, however, that is unlikely to be a differentiating feature of their cars and trucks. Adaptation of metrics is not the same as adding more or other metrics. In the spirit of fewer and simpler measures, managers should be asked to take a measure away if they plan to introduce a new one.

Base Objectives on Facts

Finally, while goals may sometimes be general (such as performance goals in which managers simply state, grow profits 10%), the objectives and the metrics that gauge them should be quite specific and set based on facts and information, not intuition. A fact-based decision-making process starts with the compilation of relevant data about the particular goal. This in turn typically requires that the organization invest in information and in information-gathering capabilities.

For example, early in Jack Welch’s tenure as CEO of GE, he set out a financial goal for the company of improving its return on assets (ROA), a measure of financial efficiency. One of the underlying determinants of ROA is inventory-turn, that is, how many times a firm can sell its stock of inventory in a given year. So, to improve ROA, a firm will likely have to also improve its inventory turns. One of GE’s divisions manufactured refrigerators and turned its inventory seven times per year. What objective should Welch set for the refrigerator division’s inventory turn? Instead of simply guessing, Welch sent a team of managers into another manufacturing firm (with permission of the firm’s owners and top managers) in a different industry and learned that it was achieving turns of 12 to 17 times per year! Armed with this information, Welch could then set a clear and fact-based inventory-turn objective for that division, which in turn supported one of the overarching financial goals he had set for GE.

Figure 6.8. Steve Jobs Announcing Apple’s Release of the iPhone

Fact-based objectives typically can be clearer and more precise the shorter the relative time to their achievement. For instance, a firm can likely predict next week’s sales better than next year’s sales. This means that goals and objectives for the future will likely need to be more specific when they are fairly current but will necessarily be less precise down the road.

The main challenge with fact-based objectives is that many firms find future opportunities in markets where there is not an existing set of customers today. For instance, before Apple released the iPhone, how big would you expect that market to be? There certainly were no facts, aside from general demographics and the technology, to set fact-based goals and objectives. In such cases, firms will need to conduct “experiments” where they learn about production and market characteristics, such that the first goals and objectives will be related to learning and growth, with more specific fact-based objectives to follow. Otherwise, firms will only take action in areas where there are data and facts, which clearly creates a paradox for managers if the future is uncertain in their particular industry.

K E Y T A K E A W A Y

This section described eight general characteristics of good goals, objectives, and measures. Fewer and simpler goals and objectives are better than more and complex ones. Similarly, goals and objectives should be tied to strategy and, ultimately, to vision and mission, in a cascading pattern so that objectives and measures support the goals they are aiming to help achieve. Goals and objectives must also change with the times and, wherever possible, be anchored in facts or fact-finding and learning.

E X E R C I S E S

1. Why might fewer goals be better than more goals and objectives?2. Why should managers strive for a balance of history-based, present, and future-oriented metrics

of performance?3. What is meant by cascading goals and objectives?4. What roles do strategy, vision, and mission play with respect to goals and objectives?5. What are some ways to simplify goals and objectives?6. When might fact-based objective setting be difficult or inappropriate?

[272] Eisenhardt, K., & Sull, D. (2001, January). Strategy as simple rules. Harvard Business Review, pp. 1–11.

[273] Brown, M. G. (1996). Keeping score. New York: Productivity Press.

[274] Brown, M. G. (1996). Keeping score. New York: Productivity Press.

[275] Eisenhardt, K., & Sull, D. (2001, January). Strategy as simple rules. Harvard Business Review, pp. 1–11.

[276] Brown, M. G. (1996). Keeping score. New York: Productivity Press.