Management by Objectives: What is it?

Peter Drucker has seen a great many of his ideas gain general acceptance. But sometimes in practice they don’t come out quite the way he envisioned them.

In the book ‘Drucker’ written by John J. Tarrant, he writes about Peter Drucker and his many accomplishment and contribution to the study of management. In the book, Tarrant writes; “Management by Objectives” is a dominant concept in management and it has been for some years. The term was introduced by Drucker in his book ‘The Practice of Management’ in 1954, and he is recognized as a leading pioneer of the concept.

This idea is thought by a good many people to be the most important and influential concept Drucker has ever generated. Richard H. Byskirk says: “His (Drucker) emphasis upon the results of managerial actions rather then the supervision of activities was a major contribution for it shifted the entire focus of management thought to productivity output, and away from work efforts, the inputs.”

Management by objectives was a natural development in Drucker’s thinking. He had described the new order of Industrial Man, and identified the corporation as the representative entity of that society. He had outlined the concept of the corporation in philosophic terms. Corporations must be managed. The manager was the key individual in this vision of the future. Therefore, the next need was for a strong central principle by which management could be conducted to meet the requirement of the new world.

Drucker comments, “I didn’t invent the term ‘management by objectives’; actually Alfred Sloan used it in the 1950s. But I put it in a central position, whereas to him (Sloan) it was just a side effect”.

Drucker sketched the broad framework of the concept. Since the mid-1950s there have been numerous books and articles on management by objectives. Accepting the principle, managers and academicians have refined it, applied it to a wide variety of situations, and debated many of its implications.

What is it? At this point we are faced with a distinct split between the ideas as Drucker conceived it and as others have promulgated it, and the way it is often thought of in practice.  In his book ‘Management by Objectives’, Geroge S. Odiorthne gives this definition:

“In brief, the system of management by objectives can be described as a process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individual’s major areas of responsibility in terms of the results expected of him, and use these measures as guides for operating the unit and assessing the contribution of each of its members.”

This principle has come into such wide acceptance that the reader who comes upon it for the first time might well say, “Of course. Is there any other way to run a company?” There were other ways, and there still are. In first talking about management by objectives, Drucker was responding to the inadequacy of an older idea of management that concentrated on processes rather than goals. The old-time manager was expected to learn the ins and outs of the business and to keep people busy. His operative question was, “What am I supposed to do?”

Management by objectives shifts the focus to goals, to the purpose of the activity rather than the activity itself. Instead of asking, “What do I do?” the manager is lead to ask, “What is the objective toward which we are working?”

Under the concept, the manager is held responsible for results rather than for activities. It is no longer a matter of how well he understands the machinery or how many meetings he holds or what volume of correspondence he is able to turn out but, rather, how his activities pay off in terms of the objectives of the organization.

In practice, however, we often see the concept of management by objectives translated totally into a formulation that night be called “bottom-line management” or management by results.  More and more an upper-echelon executive holds himself aloof from what is going on beneath him. He figures that his responsibility lays in hiring somebody to do a job, telling him the “bottom-line” results that are expected, and then rewarding the subordinate if he delivers or firing him if he does not deliver.

This bastardization of management by objectives has had some unfortunate consequences. One obvious one is that organizations are not run well. But there are other elements of fallout. The executive who knows that he must deliver, or else is apt to be an extremely insecure person. He deals in abstractions rather than concrete entities; he finds less pleasure in his work; and he is subjected to greater tension.

Another offshoot of management by objectives has been the notion of the transferable manager. According to this view, the superior manger is so involved with broad-gauge objectives – to the exclusion of details about how they are to be attained – that it does not make much difference what kind of company he works for. So we have seen numerous examples of top executives taking on big jobs in industries with which they are unfamiliar.

The idea that a manager who has mastered his craft can carry his briefcase into any situation and be a success is often attributed to Peter Drucker.

Drucker realized in the 1950s that management by objectives was susceptible to this kind of misguided application and warned against it. Always conscious that people are the vital resources of an enterprise, he cautioned that the bottom-line should not become an obsession, and that managers should not subject the organization to pressures approximating those in the Mindanao Trench in the quest for results.

His fears have been realized in no small degree.