Management by Objectives part 1

The success of a business will depend on its long-range goals for sales, profits, competitive position, development of personnel. To accomplish these goals, the company will need to identify intermediate goals that it can work toward each year.

The planning and controlling functions of management (Planning, Organising, Directing, Controlling, and Coordinating) often receive less attention from the small business owner manager than they should. In my experience a way to more effectively fulfill these two functions of controlling and planning is through effective goal setting.  

Objectives Management
Traditionally, people have worked according to descriptions that list the activities or functions of the job. The management by objectives (MBO) approach, on the other hand, stresses results. For example, a credit manager's job description states that he or she will supervise the credit operations of the company. This description simply lists the functions of the credit manager. Under the MBO approach, the owner-manager and the credit manager would identify five or six goals covering important aspects of the manager's work (some would call them Key Performance Indicators - KPIs). For example, one goal might be to increase credit sales enough to support the 15 percent increase in sales expected by the sales department. With MBO, jobs are viewed in terms of achievements rather than simply functions. Activity alone is not enough; each activity must bring the worker closer to achieving his or her goals. 

MBO requirements
However management by objectives has certain minimum requirements: Goals must be expressed in specific and measurable terms (SMART) and each employee proposes 5 to 10 goals to cover those aspects of his or her job important to successful performance. A final written statement of each goal is prepared, including a statement of the goal, method of evaluating the goal, work steps needed to complete the goal and an estimated time needed to complete the steps. Progress must be evaluated at regular intervals (at least quarterly) and compared with the original goals, while problems that hinder progress are identified and corrected. Goals are related to each level of management, both those above and those below. 

Defining Your Business

The first step in developing an effective MBO program is to define your business. Ask yourself the following questions: 
What business am I in? 
Is my definition right for today's market? 
Do I need to change my business to meet emerging customer needs?
A clear vision of your business is crucial for planning your marketing, product development, buildings and equipment, and financial and staff needs. For example, a drop in sales caused a small business manufacturer of metal trash cans to re-examine its product. To regain lost sales, the owner decided to redefine the product as metal "containers" and to develop a new marketing plan. 


Setting Goals will be discussed in part 2...