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Mangement by Objectives essay

Management by objectives is a common principle discussed by several respected authors including Peter Drucker whose 1954 book entitled The Practice of Management has long been held in high esteem and is regarded as a definitive treatise on management theory.

The truly mechanistic as expressed by the classical or scientific management writers (Brech, Fayol & Taylor et al) are perhaps considered best suited to a factory or mass production environment where there are repetitive tasks. Many of these scientific management theories were derived from the scientific analysis of tasks.

However the business processes within many modern organisations including my company, have both mass production elements and other service type functions associated with other activities where the concept of output is difficult to quantify. In this common situation the truly scientific approach is not easily applied and an alternative model needs to be applied.

Thus Peter Druckers model of management by objectives was selected for study in the my company environment as this appeared to be the most appropriate. Additionally, this objective led management style is in common use and current practice at my company suggests that the existing Performance Development review process was largely based on Druckers model as it relies heavily on objectives as a means of assessment.

The application of this Performance Development Review process conforms to a common activity diagram for the management cycle.

Goals

A goal can be defined as a future expectation, a point at which the organisation striving to reach. These organisational goals are high level targets developed from a wide yet concise definition of the primary purpose of the corporate entity. Often this high level statement is constructed as a mission statement and affects all areas and parts of the organisation. Mission statements frequently include philosophical and cultural elements together with more visionary statements.

These missions are developed by top management in response to a strategic direction usually agreed at Board level and are intended to give the organisations workforce guidance in achieving the company’s success.

Corporate goals strive to connect the mission with current capabilities. They form the basis for action plans, which as Miner has outlined are provided by management theory. These corporate goals and action plans are then developed into operational or functional unit objectives and are devolved by first level line managers to individuals or function leaders. Objectives must be carefully considered and have personal commitment from senior management in order to achieve the desired improvement in measurable outcomes.

Goals at different levels within an organisation my contribute to different interpretations and hence may provide alternatives to decision making. Where objectives are developed for an individual they may also be used as part of a performance appraisal and this is prevalent within my company.

There are different classifications of goals and Etzioni suggested, among others, order, economic and cultural goals. Often commercial organisations have a blend of order and economic goals. At my company for example, corporate goals could be classified as consumer, output and process goals. Consumer and output are really the same as they are driven by economic considerations. Process goals, management activities focussed on business process, can be interpreted as an embodiment of what Etzioni refers to as order.

There are difficulties with the corporate goal, functional unit goal and individual objectives. Frequently the high level mission statement and corporate goals derived from it are difficult for the individual to understand. The relevance of highly specific individual objectives to the corporate goals and mission is often missing or difficult to explain. Hence the requisite actions of individuals and operational units can be significantly off target. A significant burden of responsibility rests with managers to clarify these corporate goals and integrate them with personal objectives. As McGregor has pointed out, perfect integration is not a realistic target but the best that exists is to attain a level of integration where the efforts of the individual are directed to the success of the organisation.

Other disadvantages exist however, and Etzioni suggests that goals are ideals and are more attractive than measurable achievements.

Objectives

An objective sets out to specifically the actions or aims to be achieved. Drucker listed eight areas where he considered that objectives should be set. In the my company environment, in contrast to difficulties in relating mission statements to objectives, many of the eight that Drucker identified are clearly identifiable:
- Innovation – we are a research led company
- Productivity – we need to make more for less
- Profitability – we need to contain costs
- Essential behaviours – in part what Drucker referred to as worker attitude

Whilst other classifications exist but in the current workplace environment, these are the major types in use both for the management of capital and time and especially for the assessment of performance.

Objectives are set in a consultative and participative process with the individual prompted to establish appropriate and meaningful objectives which are then agreed by their line manager or direct supervisor.

Objectives have to right for the individual and for the organisation. However, an exhaustive search for the one absolutely right objective is unlikely to be successful and may actually be counterproductive by over commitment of time.

Objectives are the driving force in the management cycle as they are the trigger for any planning of activities. Each objective has to be clearly stated in unambiguous terms and the mnemonic SMART is often used to assist in the definition:

S : Specific – one key result or deliverable
M : Measurable – the end point or outcome can be easily quantified
A : Achievable – any objective must be possible to complete
R : Relevant – the objective must fit with the mission and goals of the organisation
T : Timely or time bound – must include a delivery or completion date

This scheme for setting objectives is applied to both specific tasks and more soft areas e.g. ‘customer service improvement’ but endpoints or measurements of completion for these soft tasks are difficult to establish. There is a tendency therefore to use more easily measured items and this leads to the use of the process as an appraisal system although by definition and careful use of language it is portrayed as a development process.

Setting Objectives

Management by objectives is commonly applied throughout my company although it is known to be applied with differing vigour in different parts of the company. This is a reflection of the nature of the organisation as it comprises three separate operating companies which in itself creates difficulties in the clear recognition of corporate goals which are set at the ‘holding company’ level.

Personal objectives are prioritised according to functional unit business priorities derived from the corporate goals. Each objective is planned separately including appropriate phase as necessary and taking account of dependencies. The overall plan is set by the immediate manager but individual activities leading to completion of the objective are handled personally and often by way of an undocumented plan.

Whilst in theory the process is a performance development process it is conceived and understood by many to be an appraisal process. The consultative approach defines not just one but proposes that up to six objectives are set one of which includes a personal development objective. This is a large number of objectives to define and results in misdirection of focus to objectives that are of limited scope, adhere to existing ideas of structure and allow little room for innovation or challenging ideas. Some managers agree that this number is excessive and use only four.

Operational objectives are explained by the unit head and the agreed personal objectives are documented. This documentation is the responsibility of the individual and requires considerable time and effort to complete. A large amount of time is consumed in creating a comprehensive understanding of the overall process and its worth and added to this burden is the writing up of all the necessary paperwork.

Managers themselves who are responsible for several direct reports find this burden almost overpowering as the effort and time commitment needed is enormous. Individual meetings with people are difficult to schedule and when the process starts all have to be completed for the start of a new period of ‘assessment’. Bottleneck syndrome is all too apparent and as reported by Kane and Freeman this is a consequence of the annual cyclical nature of this activity.

Each single objective is related to a formal job function described in a formalised job description and without accurate and timely updates to job descriptions, these objectives become unrealistic.

Formal documentation is completed by the individual and then countersigned by their direct manager and often by the next tier of management. This further adds to complexity and time issues already mentioned.

The timing of each objective is the single factor in determining the plan for achieving each objective an is almost always timed to be at the end of a loose time period. Typically completion dates are set as year quarters or at significant senior management review meetings e.g. budget meetings.

Objectives are measurable although as others have observed often objectives that are more easily measured become the focus.

Although in practice the process approximates to formal appraisal scheme there is little or no link between achievement of objectives and rewards irrespective of whether these are economic or promotional. This has a significant impact on motivation and the likelihood of successful outcomes of objectives.

The application of the models

The review process does not encourage commitment as there are no perceived benefits to the individual and hence involvement in the process is passive and may depress staff morale. McGregor proposed two types of human behaviour related to work. Theory X and Theory Y. These two types are opposite in their fundamental assumptions about peoples attitude to work. Theory X says that people are inherently not disposed to work whilst Theory Y suggests that people live to work.

Theory X is a method based on control and authority and McGregor argues that people have to be directed, controlled and even threatened with sanctions to perform adequately. This is analogous to a militaristic dictatorship which is very traditional and hierarchical. Motivation in this environment occurs predominantly through security needs; the need for self preservation of self and ones employment which presupposes an underlying threat born from insecurity of the individual. Whilst this approach may suit some people this method is considered out of favour in modern management theory.

The management styles seen in practice internally demonstrate aspects from both theory X and Theory Y which is consistent with Mullins argument that different job functions i.e. repetitive or intrinsically satisfying, will dictate which approach is more suitable. Some individuals only respond to management on a Theory X basis where, for example, close direction is required due to a lack of knowledge or technical ability.

Theory X principles are observed within my company as the company retains a traditional and benevolent authoritarian approach. There are differences between the individual component companies and in different operational areas and these are most likely due to age related cultural aspects of the existing management structure.
Within many administrative and research and development functions Theory X authoritarianism has been mollified by the inclusion of some aspects of Theory Y. The development review process include many of the Theory Y principles especially the participative and consultative approach to objective setting although control and direction still persist. The retention of the control and direction aspects demonstrates a conflict between the more inclusive aspects of Theory Y with the benevolent authoritarian style of management apparent within my company.

A combination of Theory X and Y added to strong cultural influences produced an alternative management theory based around the Japanese examples. Ouchi described this new model as Theory Z. Significant in this alternative model are the principle of lifetime employment and subordinate welfare. Once again these components are visible at my company although in less obvious ways. Historically, British workers grew up on a lifetime employment belief during the 19th and first half of the 20th century but this is almost unknown in more recent years as employment practices have changed. Re-adoption of this principle ideas seems unlikely due to the competitive nature of the employment market.

Many similarities can be observed in Theory Y and Theory Z. From a simplistic viewpoint, both styles are inclusive, i.e. employees are involved in the management process by collaboration, consultation and decision by consensus. Ouchi identifies trust as a pivotal principle in the Japanese style together with a less hierarchical and bureaucratic structure.

Other writers have suggested that the Japanese style is successful in Japan only because of the unique culture in Japan. Heller however dismisses this notion by citing the obvious similarities in the fundamental process of doing business. Business in Japan is basically the same as business anywhere.

The internal company style is a blend of all of these major theoretical models of management. Elements of the classical scientific or mechanistic approach remain but more general principles of Theory Y and Z are seen. Theory X is applied in isolated situations at the individual manages level. Thus the management theory being used is a polymorphic blend of each of the main theories suggesting that non one their own suits this organisation.

The driving force

Motivation is driven by many factors and the managers skill rests in the ability to identify which motivational factors are most important for individuals and apply the most appropriate methods.

McGregor suggests that commitment to objectives and hence success of the organisation is directly related to recognition.

The relative position in a hierarchy is an important motivator and is manifest by the drive to gain promotion and hence increase perceived recognition. However in a strictly grade based structure the Peter principle may apply “…employees tend to rise to the level of their own incompetence”.

Recognition as a motivational factor can be described alternatively as ‘organisational esteem’ and can be separated form promotional aspirations as high value is attached to being seen to be achieving ones objectives as well as important, influential and of intrinsic value to the organisation. Therefore recognition is the most powerful motivator in many situations and high organisational esteem no doubt assuages some insecurity derived from a fear of replacement.

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