The Idea in Brief
Is this how your company’s performance management system works: it clarifies the overall work to be done, links employees’ performance to company goals, and bases salaries and promotions on individual achievement? You may be surprised to know that your system is founded on “management by objectives” (MBO)—a performance-measurement approach popularized in the 1960s (though the term has since fallen out of fashion).
The trouble with all performance measurement systems based on MBO is that they usually result not in a superior workforce, but in demoralized employees doing mediocre work. Why? Objective-based performance systems utterly ignore individuals’ needs, dreams, and goals—focusing only on what employees can do for their companies. But people feel most powerfully motivated by work that stretches and excites them while also advancing their company’s goals.
To build a dedicated, exceptional workforce, craft performance measurement systems that mesh individual and organizational needs.
The Idea in Practice
Fatal Flaws
Objective-based performance measurement has serious shortcomings:
- It misses the human point by ignoring key questions: What are employees’ personal objectives? What do they need from their work? What relevance do company objectives have to their dreams and aspirations? What will make them feel good about themselves?
Example:
A salesman who relishes cultivating relationships with hard-earned but low-volume customers is pressured by management to focus only on high-volume customers. The shift would cost him his favorite way of operating, demand technical knowledge he doesn’t possess in sophisticated detail—and make him feel like a cog in a machine. Yet no one recognizes his new pressures.
- It sacrifices quality for quantity. By emphasizing quantification, it ignores the subtle, nonmeasurable elements of work that people find most satisfying.
Example:
A company’s appraisal program emphasizes customer-service subgoals (such as “less time per customer” or “fewer customer calls”) over the overarching goal of improving customer service. Costs decline and profits rise—but customer-service managers are killing the business and experiencing no joy in their work.
A Better Way
To build an effective performance management system:
- Appraise your appraisal system. Does it view people as rats in a maze—driven and manipulated? Or, does it foster a genuine partnership between employees and the company—each influencing the other?
- Include group goal setting and appraisal. Employees’ jobs are interdependent. So, formalize group and individual, as well as long- and short-term goal setting. Have people meet regularly to help each other and to assess their effectiveness on shared tasks. Offer bonuses based on group success.
- Appraise appraisers. Have direct reports evaluate their managers’ performance—then compensate managers based on how well they help people do their jobs and develop professionally.
- Encourage self-examination. Hold regular conversations with individual employees to help them clarify their needs and goals. Talk about experiences they’ve found most gratifying or exhilarating. Discern their lives’ central thrusts, then relate these to company objectives. You’ll make it safe to explore such feelings. Your reward? A committed, energized, and focused workforce.
If an individual’s needs don’t mesh with your company’s, evaluate the discrepancy together. Decide if the person would be better off elsewhere—and the organization better off with someone whose needs do mesh.
Despite the fact that the concept of management by objectives (MBO) has by this time become an integral part of the managerial process, the typical MBO effort perpetuates and intensifies hostility, resentment, and distrust between a manager and subordinates. As currently practiced, it is really just industrial engineering with a new name, applied to higher managerial levels, and with the same resistances intact.
