Loading ...I’ve talked about MBOs – Management by Objectives – a few times before, but I will dedicate a few posts to this topic. As a quick reminder, MBOs is a process where measurable objectives are set, and the employee performance is then measured against those objectives. The goal is to increase the workforce’s performance and engagement through proper motivation. MBOs are particularly important because they are not only for organizations with a sales force; any employee can be incented with this strategy, and as such, most type of organizations use them in one way or another.
The other reason I want to talk about MBOs is that software vendors are slowly broadening their offerings. Instead of having one IT solution to align objectives to corporate goals, one workflow solution to calculate incentives against these goals, one solution to manage sales compensation, etc, single vendors are starting to cover the entire spectrum with a single variable pay solution. That’s what is called “pervasive performance management”. Software providers in the sales performance space are starting to offer MBO functionality, and MBO software providers are starting to offer sales compensation modules.
So how do MBOs typically work? There are a lot of resources out there on this topic. Typically, the employee is asked to define SMART objectives; objectives that are Specific, Measurable, Achievable, Realistic, and Time-related. These objectives should reflect the organizational goals and be specific to each employee. The reason for using the SMART approach is that we need to be able to verify if the objectives were achieved later.
After some interaction with a manager, the objectives should be approved by both the employee and manager. At the end of the performance cycle, the objectives will be reviewed, and the manager will then decide to which extent each employee has achieved their personal objectives.
The system is not perfect and there are many challenges. How do you make sure the employees define objectives that are “hard enough” to reach? How do you evaluate an employee if an objective is missed for reasons out of his or her control? I will come back to this and share some ideas later.
For now I’ll discuss another major challenge: How do you manage all the workflow of approvals required to incent the employees based on their performance?
Traditionally, this is done using spreadsheets. The employee e-mails a spreadsheet to their manager. The manager reviews and e-mail it back to the employee. The employee makes some changes and e-mail it back to the manager. The manager is satisfied and e-mails the spreadsheet to a senior manager. The senior manager approves the objectives and e-mails back the approved spreadsheet to the manager. At the end of the year, the same process takes place again to distribute performance bonuses to each employee. That’s a lot of e-mails going back and forth, and many companies are struggling to centralize all this objective and performance information. And that’s not mentioning the difficulties to track the trends in the employees’ performance, perform other analysis by strategic objective, by department, etc, and to record information for audit purposes. These are all good examples of why having a solid MBO solution to facilitate this workflow is important.
In the following weeks, I will review many leading MBO solutions and demonstrate the benefits of using them instead of using spreadsheets.
Julien - I have seen MBO work quite well - I believe that in many cases where it does *not* it is due to lack of alighnment - and I mean direct, neasureable 100% specific alignment with corporate goals.
Those cannot be goals like ‘be the best we can be…’
They must be “increase sales by 20% across all regions”
Then the managerial goals must be for their region - & what it will take to meet those goals.
Ditto for the rep athe end!
Great post & thanks….
Elliot -
My read on this post was the application of MBO to operational non selling roles. I could be wrong, but otherwise aren’t we just talking about glorified quota alignment?
JLD -
We had a couple sections on MBO in b-school. I always thought about it from a practical standpoint as glorified goal setting, but this article definitely sheds some new light, great job!
However, as a process and P&L guy I would definitely want to work to understand the clients process around MBO (if one even exist) prior to simply recommending a solution. Spreadsheets and dBs aren’t always the worst options, especially when you examine the costs side of things.
Kerek Taylor
cariboucrossing.blogspot.com
Elliot, I think you’re 100% right. Setting the objectives is the most important part of MBOs, and that’s something that no technology can do for you.
Kerek, spreadsheets are databases are not always a bad option for very small organizations, where it is practical to e-mail things back and forth. However, it doesn’t take very long for an organization to outgrow such a system. That’s a case where more often than not, a client probably has some process in place, but the process can be made much more efficient through technology. Even if the current process does work, the next question is, does it deliver the proper business intelligence. I’ll talk a bit more about the general process in my next post.
Alright now I’m confused. Is this post to advocate for MBO applied to selling roles (i.e. front office) or back office operational type roles?
Kerek Taylor
It applies to both. Selling roles are often compensated based on sales, but MBOs are often used to re-enforce certain behaviors by measuring other metrics, such as customer satisfaction.
However, virtually every job can be and should be rewarded by MBOs. It’s the “art” of tying a reward to a specific outcome.
@Kerek - it works across all roles
I am a tech manager - lets say that the corporate goals are to a) increase sales by 20% b) decrease defects by 20% c) etc.
As a tech manager - my goals can then be aligned - is what I am doing assisting sales meet that target? or reducing that defect rate?
Strategically we can look at the project ‘wish list’ and point to the one or two that affect those goals.
And operationally I could say that ensuring sales has 24/7 support any where in the world if they have a problem, to enable them to reach that goal, or provide whatever necessary support to reduce defects.
So it can go right down the line