Many authorities on business management identify five functions of management: planning, organising, directing, controlling and coordinating. The planning and controlling functions often get less attention from managers of business than they should. One way to strengthen both of these functions is through effective goal setting.
Long-range goals for sales, profits, competitive position, development of people and industrial relations must be established. Then, goals are set for the current year which will lead towards the accomplishment of the long-range goals.
Traditionally, people have worked according to job descriptions which list the activities of the job. The Management by Objectives (MBO) approach on the other hand, stresses results.
Your long-range objectives will be the cornerstone in the MBO programme for the company. At a minimum, they must be clearly communicated to all members of the executive team; and, for a truly vital programme, all managers should have a part in formulating the long-range goals. Managers should base their short-term goals on these objectives and have a role in establishing the long-range objectives based on achieving their own short-term goals.
Management by Objectives may be used in all kinds of organisations, but it should be noted that not everyone has the same degree of success. Examination of programmes that failed, however, usually indicated that the failure was due to the fact that the programmes were incomplete. Not all of the major ingredients were included.
The minimum requirements for a successful MBO programme are:
1. Each manager's job includes five to ten goals expressed in specific, measurable terms.
2. Each manager reporting proposes his or her goals in writing. When top executives and managers agree on the goals, a final written statement of the goals should be prepared.
3. Each goal consists of the statement of the goal, how it will be measured and the work steps necessary to complete it.
4. Results are systematically determined at regular intervals (or at least quarterly) and compared with the goals.
5. When progress towards goals is not in accordance with set plans, problems should be identified and corrective action taken.
6. Goals at each level of management are related to the level above and the level below.
Goals for each manager are the critical element in any MBO system. Goals at middle levels of management must be consistent with those at top levels. Goals of first line supervisors must relate to those at middle levels. Goals prepared by the manager responsible for certain steps in a printing operation must tie in with those of managers responsible for the other steps in the processing... and all goals must relate to and support long-range objectives for the company.
When all these goals are consistent, then an MBO system will be developed. Until then, there will be many like the middle manager of a research and development company who exclaimed in a seminar: "How can I set my goals when I don't know where top management wants to go?"
MBO looks for results, not activities. With MBO you view the job in terms of what it should achieve. Activity is never the essential element.