In 1954, management guru Peter Drucker came up with a novel way to generate and communicate a company’s intentions (its mission, goals, and objectives): You simply involve all the employees who have to actually carry them out, giving each her or his own specific list. Not surprisingly, he also coined a term for his method, calling it management by objectives (MBO).
MBO turned out to be a wildly successful idea when it was introduced. By the mid-1970s, more than half of the U.S. Fortune 500 companies were using the technique. Granted, not everybody was happy with the process. Some companies balked at the time and effort that it took to set MBO goals and related objectives. Other companies failed to carry out the paperwork that the system requires. Still other companies, basking in an authoritarian regime lodged at the top, found the entire concept of shared decision-making to be just plain weird and the new culture to be too alien. Pity them.
For companies that commit to using it correctly, however, MBO has proven to be a valuable management tool — a process capable of generating new ideas, communicating business intentions, and focusing the company’s energy on an agreed-upon set of goals and objectives. Management by objectives works because it involves people themselves fashioning the company’s future. Employees commit more to that future because they have a greater stake in the process that gets them there. As you begin to work on your company’s goals and objectives, invest some well-spent hours in figuring out ways to bring the spirit of MBO into your collaborative process.
Too many companies simply forget their broad business intentions when they go about the detailed work of setting goals and tying them to measurable objectives. Managers start with what’s close at hand. They look at employee activities and behavior, and they come up with incentives and rewards that seem to do the right thing at the time, motivating workers toward specific objectives. But these types of goals and objectives tend to be nearsighted and may be totally out of sync with the larger aims of the company. So yet again, don’t let the trees shield the forest in which they reside.
Timing is everything
What’s the proper time frame for you to reach your goals and objectives? How far out should your planning horizon be — one year, three years, maybe five? The answer is … it depends on the pace and dynamics of your industry. We live today in a world of constant change and disruption; definitely, it can be confusing out there, so do your homework before blindly setting a timeframe for goal achievement.
HOW GOALS CAN KEEP A MISSION ON TRACK
A recent poll by Gallup found that 74 percent of company employees felt they weren’t getting enough information and news about their firms, and 40 percent couldn’t explain just what it was that their organization did (and as far as we can tell, no spooks from the CIA were surveyed). This is clearly not a good thing — except within our clandestine corps, of course. If your employees feel they’re operating in the dark, then there’s a good chance that their day-to-day work routines can veer from the broader goals that the firm is pursuing. Let’s go back in history for a moment and revisit Cisco Systems in the first decade of this century. As a provider of switches and routers, the network software and hardware “plumbing” used for the booming Internet industry, Cisco rose to the top of the pack and raked in nearly $20 billion in annual revenues by 2000, making it one of the biggest and most successful companies in the world. But in spite of several major advantages, including proprietary products, success was not a slam dunk. In the huge downturn following the dot-com crash in the spring of 2000, Cisco saw many of the customers it served simply disappear. The company managed to stay afloat through rough times by keeping its goals and objectives closely aligned to the company mission statement. Back then Cisco described its mission this way:
To shape the future of the Internet by creating unprecedented value and opportunity for our customers, employees, investors, and ecosystem partners.
Fine words, of course. The challenge, however, was in making progress when budgets tightened and markets shrunk. So to keep everyone’s eyes on the prize, the company’s CEO offered specifics in the form of strategic business goals:
To seek out profitable growth opportunities with a target of 20 percent pro forma profit after tax
To improve productivity, as measured in terms of operating expense as a percentage of revenue
To maintain a healthy and conservative balance sheet
The language of these goals and objectives may not be as stirring as the mission statement phrases. But they represent the nuts and bolts that made the company’s mission a reality. By 2010 Cisco’s revenue more than doubled to just a shade less than $40 billion and head count expanded to nearly 70,000. By 2020 the top line was $50 billion and the mission now read:
To inspire new possibilities for our customers by reimagining their applications, securing their data, transforming their infrastructure, and empowering their teams.
While the heady growth trajectory of the past slowed as the industry matured and powerful new competitors like the China-based Huawei began to poach customers away (by using pirated Cisco product source code in some cases), Cisco didn’t just fade away as market turbulence grew. It stuck to its guns. In its most recent (2020) Annual Report, the CEO said:
“In fiscal 2017, we set a three-year goal for 30% of our revenue to come from software, and while we achieved 29% in fiscal 2020, we did achieve 31% in the fourth quarter. In fiscal 2020, 74% of our software revenue was sold as subscription, exceeding our target of 66%. We also delivered 51% of our revenue from software and services in fiscal 2020, exceeding our target of 50%.”
The firm continues to set specific performance goals that link to purpose, and it conveys results with a transparency visible to all. To Cisco we say, Bravo!
Certain industries seem to remain tortoise-like in their pace, at least at some level of analysis. Small boutique furniture makers in the United States, for example, still operate today much the same as they did 50 years ago, with perhaps the addition of an Internet address. Technological change was minimal at best. Consumer tastes for these products have also changed slowly, and the types of materials used and levels of craftsmanship required have stayed pretty much the same. But while the internal dynamics of furniture making might not have shifted too dramatically, the globalization of markets has utterly and totally disrupted the domestic American industry. Reduced transoceanic shipping costs combined with the communications revolution wrought by the Internet upended the industry, as suppliers from Asia entered the market with look-alike products offered at considerably lower price. High Point, North Carolina, was proudly referred to as “the furniture capital of the world,” but today many of the large, branded firms that operated there no longer exist; next time you’re out shopping for a new sofa or coffee table, try to find something that says “Made in the USA.” In the case of this industry, incumbents might be most comfortable devising a business plan for three years or so at most.
Change, however, is perhaps a daily constant for many other industries. Take traditional “bricks-and-mortar” retailing — that is, a physical store where the customer walks in, wanders the aisles and browses the shelves, and is served by a live salesperson. But then came the advent of online suppliers like Amazon.com. At first they took root slowly (the sorcerer from Seattle first entered into the retail book selling industry way back in 1994). But today almost anyone who sells something in a physical store is subject to disruption. In the past, retailers were judged on four key variables: breadth of available product line; convenience of purchasing; trust (which encompassed perceptions of the firm’s customer service such as returns
