Where Does "Management by Objectives" Come From?

We cannot mention enough Peter F. Drucker if we discuss management by objective, a concept believed to be brought by Drucker in 1954.

When talking about appraisal and performance review in an SME context, a typical trap is that no one can articulate the exact standard that employees should meet. With Management by Objectives (MBO), a systematic approach can be elaborated as follow.

1.It all starts with Corporate Objective

Just make sure profit (or revenue and profit) is not the only one in the equation.

A lot of companies take for granted that "corporate objective" is well-known and explicit mentioning is unnecessary. But when being asked, different employees may have different version of "corporate objective". It should be stressed that objective setting with respect to, for example, 8 key-result-areas suggested by Drucker, should be the result of a dedicated decision process and should not be taken for granted:

  • Market standing
  • Innovation
  • Productivity
  • Physical & financial resources
  • Profitability
  • Management
  • Employees
  • Public responsibility

(As suggested by Drucker in his book "The Practice of Management", 1954)

Meanwhile, there are too many lessons where company's long-term fortune is put at risk due to sole focus on profit objective.

2.How Corporate Objective can relate to Employees' Objectives?

After corporate objectives are clarified, the ultimate key to success in MBO is to empower subordinates to set goals that cascaded from corporate objective, instead of having goals blindly dictated by managers.

It can be done only if employees have the chance to discuss and fully understand why corporate objectives are set as this way. Such deliberation process will increase sense of ownership of individuals' objective, and thus there is higher chance employee will "self-directed" to achieve the goals.

Objectives should be clear so that results can be measured. In the future, we will elaborate on how "SMART" objectives can be set and also other considerations in setting objectives.

3.Making Strength Positive

This is the title of one of the chapters in the book "The Effective Executive" by Drucker. After setting objectives, we all expect to revisit them regularly and measure the results by a monitoring plan.

Both corporate objective and individuals' objective should be evaluated. Feedback should be provided. Achievers should be rewarded.

Nevertheless, it should be cautious that at the time results are measured and evaluated, we should focus more on strength rather than weakness of staff.

"The effective executive makes strength productive. He knows that one cannot build on weakness. To achieve results, one has to use all of the available strengths" - The Effective Executive, Drucker.

4. What's Next

Nevertheless, it should be noted that Drucker's approach of Management by Objective is no short of criticism. Therefore, it should be treated as one of the many possible approaches for performance review. Feel free to read other parts of our guide for supplement.