Why Management by Objectives Supports Your Business Growth

Why Management by Objectives Supports Your Business Growth

There is a powerful tool to manage your company and the people in it. This management tool is called management by objectives.

Management by objectives means that you set objectives that you want to achieve in your business. And then you break each objective down to smaller goals and allocate them to your team members. If they achieve their goals, you pay them a defined bonus payment. If not, then not.

By tying a part of your team members pay to business goals, you ensure that each person contributes to the company’s success. If they want to earn more, they just need to achieve the set goals. And by achieving their individual goals, automatically, your company also achieves its goals.

When to use management by objectives

Although management by objectives is a powerful tool to use in a business, it is not appropriate for every situation. Typically, this type of management is used for upper level management. Also, positions that have an influence on the bottom line of a business, e.g. sales positions, are perfectly suited for this.

By allocating your overall goals to the right job positions – this means to people that have an influence on that goal – you almost guarantee your success.

It helps to keep your employees on track. And if you have employees that are economically motivated (which almost every manager and sales representative is), you can motivate your team to contribute in the right way. By tying their performance to their pay, it is in their hands how much they will earn.

Applying management by objectives the right way

Start with the end in mind

If you want to start managing your company by objectives, you first start with defining your company goals. What do you want to achieve as a company? More sales? More clients? New markets? More market share? If yes, how much? Make it a measurable goal by using the SMART-methodology: specific, measurable, attractive, realistic, and timed.

In a stock listed company, such a target setting process can take several months. If you are still a smaller business, you will do this all by yourself in much less time.

Once you have your goals, you break them down into milestones. If you want to allocate the goals to your staff, you will usually have to negotiate with them. It is an agreement that both sides have to be okay with.

Finding the right balance

The target agreement should be realistic – not too easy but also not too big. If the goals are too big, then the frustration level can be really high at the employee side once they realize that they cannot achieve it.

However, you should also include a bit of a stretch for your team. It should not be too easy to accomplish the goals because otherwise there is no challenge. Furthermore, the goals should also contain a development component – a new skill to acquire, learn something that will help the person but also the business overall.

All in all, it is important to find the balance between achieving the company’s goals, pushing your people and motivating them.

What does your team want?

To make this management system most effective, you should think about something that your employees want to achieve. What does this mean? What personal goals do your employees have? Do they only want to earn more money? Or do they want to have more spare time? Do they want to get promoted? Do they want to grow into a specific position?

Use the target agreement as a mean to support the growth of your employees. If a person wants to be promoted, what do they need to accomplish before they have proven to you that they have the skills they need? Put them in the target agreement. Give them opportunities to grow into these skills.

If one of your team members is rather interested in getting home on time, give them targets that support them in achieving this. Instead of giving them extra pay, offer them extra day’s off. Help them achieve their goals and they will keep your back free as well.

A person that feels understood and valued, is willing to go the extra mile.

Use the management by objectives style to add transparency to your promotion processes, foster competition where it is necessary and motivate your staff in a way they want to be motivated.

Why you need to review goal achievement regularly

Putting up an agreement and never looking into it, defeats the purpose of having an agreement in the first place. If you want to achieve your goals, you need to track them.

Thus, it is too late to look at the status of the achievement at the end of the year. You want to make sure that you set up regular review meetings to check in on the progress. If you meet after three months, your staff had some time to start working on the tasks. In case they underperform, they still have the chance to catch up.

Analyze why you are off track and then discuss corrective action measures. What can be done to fix this issue? How can we still achieve our goals? Consider, at the end, it is not just your team member’s goal, it is also yours. So keep your people on track with their goals. Give them a push if they need one, praise them if they are doing a good job.

If managing by objectives is done right, it can be a powerful tool to more business success.

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Having a hard time staying positive despite of challenges? Check out our article about “How to stay positive despite of challenges” for some tips.