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A Brief History of MBO Grief

        posted by , February 26, 2013

Be careful what you wish for, it might come true.
~ proverb
If you've ever felt that Management by Objectives (MBO) is flawed, you're not alone.

Even Peter Drucker, the management consultant who popularized Management by Objectives in the mid-1950s, might have agreed with you.

Definition: Management by Objectives (MBO)

Management by Objectives (MBO) is a management technique whereby executive management sets achievable objectives for an organization.

Each person in the organization sets their objectives based on the objectives of their boss. For example, the CFO's objectives are based on a subset of the CEO's objectives.

Objectives are designed to be SMART. Each employee participates in setting their objectives with their boss. Employees have strong input into setting their objectives and timelines.

After a predefined period of time (usually half a year), employees are evaluated based on their success in delivering objectives.

In this way, the entire organization aligns behind a single hierarchical set of objectives.

Management by objectives was an overwhelming popular management technique up until the mid-1990s.

It's now widely accepted that MBO techniques tend to over-focus on an unbalanced set of objectives.

Management by Objectives undervalues the qualitative judgment of leadership. In other words, it transforms the role of manager from leader to bean counter.

The MBO Honeymoon

The MBO approach was popularized by the 1954 book The Practice of Management by Peter Drucker.

It appealed to managers as a simple way to align goals across an organization. It also appealed to employees because their objectives were written down. Employees had say in their targets for the year. It seemed simple, fair and efficient.

By 1974, more than half of Fortune 500 organizations were using MBO. By the mid-1990s adoption was almost 100%. However, some organizations were more committed to the approach than others.

MBO's popularity made it a growing list of detractors.

A Brief History of MBO Grief

Eliminate numerical quotas, including Management by Objectives.
~ Edwards Deming
By the mid-1990s, business opinion had turned against MBO. Management consultants who had led the charge into MBO were now leading the charge away from MBO. Even Peter Drucker began to criticize MBO.

Management by objective works - if you know the objectives. Ninety percent of the time you don't.
~ Peter Drucker
The main problem with MBO was that suddenly each employee was measured by a handful of numbers (measurable objectives).

An employee might have 5-10 objectives in a year. Anything that wasn't written down as an objective, was suddenly neglected.

If objectives had production targets but no quality targets — employees would meet their production quota but quality was extremely low.

Management by Objectives was meant to move management's focus from supervision to measurement. This was intended to free management to focus on more important tasks. It's a lot easier to measure an employee's results with a handful of quantitative measures than to supervise them day in and day out.

Employees were happy to have more freedom to deliver their targets as they saw fit. It's no fun having a manager watch your every move.

It became increasingly common for hands-on managers to be accused of micromanagement.

Employee objectives had to be measurable. Anything that wasn't easy to put into a number wasn't targeted or evaluated.

Managers were no longer valued for qualifies such as judgment and creativity. The manager became just another bean counter.

Managers began to lose their status as leaders.

Leadership versus Measurement

Disillusionment with Management by Objectives is widespread.

There are two camps on how to fix MBO.

One camp, wants to continue to manage with measurable objectives but to balance objectives with more complex formulations such as Balanced Scorecard.

The other camp, wants to bring back qualitative judgment — to restore leadership as the primary method of management.

This post is an installment in the ongoing series of articles called Management: The Missing Manual.

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