Manage Success by Objectives
By Keith Randall | February 28, 2002
Are we there yet? That's a key question for parents in the family SUV and for pressured small-business owners. What if we don't even know which road goes THERE, how will we know if we're ever there yet? A simple map exists to guide us through the darkest business night. Management by Objectives is as handy a guide to business success as hard work and inspiration.
Set a clear goal
Your goal is not your mission statement. It is not a corporate boilerplate designed to satisfy bankers, shareholders, and stakeholders. It is a clear, simple expression of what you want your company to become by a reasonable time in the future. Complete this sentence: "In five years, this company willâ€¦"
Objectives involve the concept called Key Result Areas (KRAs). In what parts of the business can you spend time, energy and resources with the greatest effect? Don't bother paving the parking lot, for example, if the assembly line is outdated. Identify four or five KRAs, and for each write an objective to achieve within one year. Your statements must be concrete, realistic and measurable, and begin with a strong action verb. "Make customers happy" may be a worthy and possibly realistic wish, but is neither concrete nor measurable. "Reduce goods returned from 10 per cent to 5 per cent of sales within 12 months while maintaining production volume" is concrete, realistic and measurable, as well as contributing directly to the bottom line.
For each objective, write out the steps to accomplish it.
The process – mutual agreement
Senior management must establish overarching objectives. Assume that the company under discussion has a President, three Vice-Presidents – Manufacturing, Sales and Finance – each with two or three Supervisors and their staffs. The President should propose his objectives to the three VPs, and modify them if necessary to harmonize with their abilities, resources and views of the company. As the MBO process filters through the organization chart, the objectives of upper management become the goals of the next level down. Thus, the President's quality control objective becomes the goal of the Manufacturing VP and, essentially, the action plan for his objectives, and so on down the line.
Employees must agree to their personal objectives; they must "buy into" the process, for when evaluation time arrives, managers will reward them, or not, according to their success. Objectives and KRAs should help form the agenda for every regular meeting throughout the company. As well, they should be modified continually, but carefully, as events unfold. Some recent experiments in basing evaluations on objectives for which others are accountable have been fruitful. In our example, the Finance VP could contribute to the success of Manufacturing by finding means to fund new equipment; as well, the VP Sales could contribute to that success by better explaining company products to customers.
Throughout the long business voyage, if you implement the three MBO steps, and stick to the process, you will have a ready answer when people ask if you're there yet.