5 Steps of Management by Objectives with BSC Designer

One of our clients recently asked if BSC Designer supports Management by Objectives (MBO) framework and how one could use it. We decided to write an article about MBO [1] and today I’d like to show how one can follow MBO in BSC Designer.

Management by objectives in BSC Designer

Step 1. Start with objectives

The first step of the MBO framework is to review and define business objectives. There is certain criterion of a good objective which we talked about before. I believe that it is one of the most difficult steps. One should start with a global objective that the business has and then scale them down to the lower-level.

  • This approach is similar to what managers do in the Balanced Scorecard concept, business objectives should be formalized and scaled down to department and employee level.

I find BSC approach a little bit more insightful. Besides having four perspectives of the Balanced Scorecard, a manager is obligated to find a cause-and-effect relationship between objectives on different levels:

  • Your goal is to increase profits? Fine! What should you offer to your customers to be able to increase profits? Do you want to deliver a new feature in your product? Fine! Then what should you do with your business systems to be able to offer this to your customer and to increase profits?

This chain of questions that one should ask when formalizing objectives for the Balanced Scorecard is really helpful, but as Peter Drucker said: “Management by objectives works if you know the objectives: 90% of the time you don’t.”

I would add that it doesn’t matter what business framework you use, old-fashioned Management by Objectives or buzz-word concept Balanced Scorecard, if you won’t define your objectives in details, you won’t be able to execute the strategy. You can “eat an elephant piece by piece” if you know how to find drivers of your main business objective.

Add some helpful cause-and-effect schemes, use "Strategy map" tab

Let’s review the software part:

  • In BSC Designer adding business goals is simple. You should go to the “Business Goals” tab and add the business objectives you have and optionally, possible solutions for these objectives.
  • Visualization always helps! Add some helpful cause-and-effect schemes, use “Strategy map” tab for that purpose.

Step 2. Setting objectives for employee

On this step according to MBO an objective should be assigned to a particular employee. In BSC Designer you can add a “Business solution” to your “Business Objective” and specify responsible employees in the description. Or when you have a KPI, you can attach an initiative with a detailed action plan and responsible employees to it.

Finally, MBO says that employees need to see KPIs and see its performance. With BSC Designer you can easily share your project with your team so that people can access your objectives and KPIs via any web browser.

Step 3. Monitor Progress

MBO requires managers to monitor employees’ progress constantly. There are different ways to do this, so why not use Key Performance Indicators? It would be great if you can find KPIs that are result-oriented, not action-oriented.

  • In BSC Designer go to the “KPIs” tab and add appropriate KPIs. You have various options, for example with “Optimization” you can specify whether you need to increase a value or decrease it.

It is handy that once you have a KPI you can go back to “Business Goals” tab and link certain business objective with a specific KPI.

Evaluate performance in BSC Designer

By the way, on the strategy map you can put some important KPIs next to business goals or business initiatives. In this way you will be able to have a better picture about employees’ progress.

Step 4. Evaluate performance

According to MBO, on this step you need to evaluate the final performance. It will be easy to do as KPIs in BSC Designer and to have baseline and target values. KPIs are updated by the responsible person according to an employee’s results and in the end it is possible to see the history of changes, as well as the final value. BSC Designer software doesn’t limit you in update intervals. You can update KPI every day or do it just once a year.

Step 5. Reward employee

I believe this is a weak point of the MBO. Rewarding someone according to their performance evaluation is not an easy task. In MBO employees know about KPIs that are used to estimate their performance and it is naturally, that instead of doing the job, employees focus on improving KPIs.

Unfortunately, improving the value of KPI doesn’t always mean that the responsible employee really solves the problem of the business and helps to execute the strategy. I’ve see how this approach worked well for top managers, but for line-level employees it is recommended only when the KPI is 100% linked to tangible results.

Conclusion

Management by Objectives got a boost when was declared as a part of HP management style (“The HP Way” [2]). As any business tools it is not a magic pill that could solve all business problems, but it gave life to the new management approach where managers need to align actions to strategic objectives. The idea of  alignment continues its life in the Balanced Scorecard framework.

Setting of clear objectives is the core part of business frameworks like BSC and MBO. In this sense BSC Designer helps by providing clear interface to manage objectives together with the opportunity to visualize some important parts on the strategy map. Try it for free for your business to see how it works for you.

References

  1. ^ Management by Objective and Balanced Scorecard, Oana Boteanu, 2013, BSC Designer.com
  2. ^ “The Economist Guide to Management Ideas and Gurus”, Tim Hindle, 2012, Econimist Books

Related Articles

Strategy and KPIs Scorecard Expert | Speaker | CEO. Aleksey Savkin (LinkedIn, @bscdesigner) is helping companies to better formulate their strategies and make the process of strategy execution more tangible with KPIs. New book by Aleksey: 10 Step KPI System

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