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Management By Objectives ‘MBO’

Management by Objectives is a well-established, effective set of principles for bringing an organized approach to business management. As the name implies, MBO establishes objectives as a means for guiding and directing the business toward achievement of desired results.

Vital Signs and Short Interval Management are also introduced in this article as companion approaches for running your business in a planned, organized and disciplined manner. The basic objectives of these approaches are to:

  1. Enhance management focus and efficiency
  2. Promote behaviors among employees that are proactive and accountable
  3. Implement practices for consistent follow-through among managers and employees
  4. Improve the organizations ability to achieve desired results.
  5. Establish communication tools for ensuring clarity of expectations and purpose.

There are five basic steps to MBOs:

  1. What do we want to do?

    What is it exactly that we want to accomplish? This may be a simple statement or a more detailed plan, but an objective must be clearly stated if we are expected to achieve it.

  2. When do we want it done?

    What is the schedule? How long will it take to accomplish the objective? What is the ending or due date for completing the initiative? The time element must always be includedto ensure progress and efficiency.

  3. How is it to be done?

    What is the path we need to follow to reach our objective? As the HOW is defined, we will be able to identify the necessary resources and functions to include in our action planning. As a part of resource requirements, we also determine HOW MUCH DOES IT COST? The answers to these questions will become our budget, forecast or pricing model.

  4. By Whom?

    Specifically, who is to be tasked/ assigned to the effort and given the responsibility and necessary authority for attaining the objective? Who needs to be involved, when, and for how long? This is the assignment of accountability.

  5. Short Interval Management and Vital Signs are to ways that we will put Management by Objectives into practice. Except for wine, nothing improves with age – bad news usually gets worse and tactical advantages usually become opportunities lost.

    The goal of Short Interval Management is to reduce management processes to the shortest meaningful cycle. This is defined as that period of time where the most complete information can be accessed that will support effective decision-making. The Short Interval Management approach is simply the application of Management by Objectives within a weekly or bi-weekly cycle.

    A week is the shortest time in which most businesses are able to gather useful information about their performance – and act on that information to ensure profitable operations:

    • Appropriate progress toward objectives

    • Adequate and economical resource commitments

    • Coordinated work activities

    • Satisfied customers.

    Measurement and evaluation of progress/results are most effectively performed in a weekly management cycle because it is a long enough time for meaningful achievements to happen and a short enough period to assure everyone’s complete understanding and retention of what results were expected, what tasks were delegated/assigned versus what actually occurred.

    A week is also a short enough time interval for follow-up to be effective. Problems are attacked sooner rather than later, thereby limiting exposure to risk and curtailing waste of resources on a doomed undertaking, or conversely, to quickly take advantage of favorable conditions and reinforce positive performance.

    When you increase your attention on any desired outcome, you have a better chance of making it happen. Short Interval Management promotes overall corporate discipline because its frequent repetition intensifies everyone’s focus on procedures, systems, expectations, follow-through and accountability.

    The Vital Signs report provides one mechanism by which management can monitor key indicators of the company’s “health” at a glance, allowing prompt investigation and corrective action and rapid follow-through to take advantage of positive conditions. The Bi-Weekly Leadership Meeting is another way that management can apply Short Interval Management by Objectives through the review of results vs. targets.

    The Financial Plan (Business Performance Projection) sets the foundation of objectives for these management disciplines. Each element of Sales, Cost and Expense is assigned a target. SIMs simply breaks these objectives down into weekly increments.

    While the Short Interval approach is extremely effective in focusing management attention, it does not serve the need to periodically perform a more comprehensive review of the company’s overall position. We need to look at financial results after monthly and year-to-date adjustments have

    been made to be able to recognize and adjust to more slowly evolving and emerging trends that might not be sufficiently perceptible in a weekly cycle.

    Vital Signs Meetings are conducted bi- weekly, bringing together the company’s key staff to:
    • Review selected performance measures,
    • Identify and interpret disparities between planned and actual results, and
    • Plan actions that are appropriate to the team’s findings.

    Adopt the “Big Business” practice of holding Bi-Weekly Vital Signs Reviews as a forum for selected staff to review selected sales, administrative and operational performance measures that are viewed to be critical factors in gauging the health of the business and to monitor progress toward achieving company objectives.

    When you go to the emergency room or your physician, the first task they perform is to take your vital signs (Pulse, Heart Rate, Blood Pressure, Temperature, etc.). These measurements, when compared to the baseline (normal), will lead to a diagnosis of the problem and in many cases the needed treatment of the ailment. Businesses, and departments of businesses, have these same vital signs. From there comparison to the baseline (normal) or an objective set, will again lead our managers to a diagnosis of the problem and then the necessary treatment to make the department or business “healthy”.

    The Vital Signs are set up in a simple format that requires identification of the four to five most critical measurements in each area of management or in each department. These vitals are then shown in the following order:

    1. Objectives: Each Vital Sign has its “norm” or an objective set for each period. These objectives should be based from the Financial Plan and consistent with market conditions.

    2. Results: For each period, the results to date will be tracked and reported on the form. A comparison to the objective is made and pace is determined. Any contributing factors to the result if important are listed to assist in facilitation of discussion.

    3. Action: For each objective and results, action is identified to impact the result enabling an enhancement or improvement to the result through implementation of these strategies.

    Setting a “core” agenda is important to the ongoing success of Operations Reviews or Vital Signs Meetings. Repeated review of the same types of information will improve the team’s ability to recognize trends, to make projections for the likely financial impact if the trends continue and to evaluate what adjustments should be made.

    Bi-Weekly Vital Signs Meetings are established to serve the following objectives.

    • Improved Financial Control and Accountability – With the discipline of bi-weekly preparation and reporting, staff members will become more aware of the specific areas that impact the profitability of the business. Enhanced awareness leads to improved control. Vital Signs meetings also promote increased accountability for financial performance because the results are made more visible and traceable to specific individuals and functions within the organization.
    • Enhanced Communication – Bi-Weekly Vital Signs Meeting participants will exchange information on a new level, promoting clearer understanding of “the Big Picture” and promoting clearer understanding of “the Big Picture” and promoting greater involvement and shared commitment among the staff. Any perceived barriers to communications should disappear as a by-product of Operations Reviews.
    • Clear Expectations – Reviews of business goals and objectives will be linked and tracked with the Employee Performance Evaluation System, the Financial Plan (Annual Budget) and the Incentive Plan for continual reinforcement and emphasis.
    • Organizational and Individual Development – Vital Signs provide an avenue for accelerated management and organizational development. Each participant’s general business knowledge and skill sets will grow as they prepare for and participate in the bi-weekly meetings. Improvements made in one area of the business are often emulated and applied in another.
    • Owner Benefits – Vital Signs Meetings present an opportunity for the “Owners” to: maintain the “Big Picture”; demonstrate leadership; instill drive and accountability in others; and, Assess staff capabilities, delegate more authority down the line and exchange ideas and get buy-in on suggestions for operational and administrative improvements or any other initiatives that have potential for enhancing business results.

    As you grow your company, (and your profitability), you need to realize; “if you don’t run your business, your business will run you.”

    ABOUT THE AUTHOR

    Peter Wallace of RWI BusinessPeter Wallace, RWI Business Solutions, is a strategic and results driven management executive with proven abilities in business management, strategic planning, new market channel development, project management and personnel management.

    RWI Business Services is a diverse team of seasoned business professionals advising clients on all aspects of business ownership and the challenges presented by a dynamic, ever-changing marketplace. Based upon the objectives of a specific engagement, our advice may be limited in scope or broadly applied across such areas as operations, finance, and/or sales and marketing; and it may incorporate business development strategies, process improvement, asset conversion strategies, profit enhancement, or even business turnarounds.

     

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