Air University Review, January-February 1977

MBO

Experiences in a Nonprofit Government Agency

MILLIONS of words have been written about management concepts. After twenty years or so one concept still remains controversial. It appears periodically in the management world, with successful results in some cases and disaster in others. The unique feature of this one theory is that .it resurrects and starts over in another location despite its spectacular failure elsewhere. The name of this management concept changes with each rebirth. It has been called "management by objectives," "managing for results," "management by commitment," "goals management," and other variations. In spite of the name changes, it is still basically the same management concept that Peter Drucker wrote of in the early sixties. It was actually Dr. Kurt Lewin who coined the name "management by objectives" in the forties. ¹ The changing of names is not arbitrary, nor is an attempt to disguise the system for a new try. The title change is usually indicative of a change in the overall system for that particular instance. That, perhaps, is the reason for the overall success of management by objectives (MBO). In order to succeed, each program must be fitted to the organization it is to serve.

The purpose of this article is not to explain the inner workings of these many programs, their individual differences, or the general managerial technique itself. Explanations and interpretations of the mechanisms will be inevitable. The main purpose is to share some observations made while taking part in the implementation of such a system in a government agency and possibly demonstrate some of the pitfalls that might lie in the path of a newly implemented program.

MHO programs are relatively new to the general public. Originally, it was thought that MHO would not fare well because of the lack, of a proper measurement system, namely profit. ² It seems, that MHO was initially predicated on the profit-loss statement as the best measurement of success or failure. In some cases this was the best measurement; in others it was inconsequential. Drucker concluded very early in his writings that a business should not be inbeing entirely for the profit motive. A business concern was also in operation to make a contribution to the society. ³ If his thought on the matter has merit, then the profit-loss statement does not have to be the sole indicator of success or failure of the enterprise or of the management system that guides it. In keeping with this line of reasoning, the absence of profit-loss measurement, or even some form of cost-benefit measurement, would be inconsequential to assessing the progress of an, MHO system.

There are other methods of measuring the success of management. The successful, timely accomplishment of routine tasks, the successful implementation of an innovative system, the successful, completion, or, better yet, the start of a developmental program brought out of the conceptual phase because of the impetus of a goal oriented management system-all are indicators of management's success. This is not to say that profit is not an important and effective measurement. The comparison of last year's profits to this year's is a necessary, valuable indication of growth and health. However, in addition to the comparison of yearly profits, or the comparison of costs incurred to benefits derived, the overall results of the organization's activities should also be measured. MHO is a system that can do just that. In fact, MHO might be better suited to a nonprofit organization because it can concentrate on actual results.

Management by objectives started as a government-wide effort in 1973 by the Office of Management and Budget, in reaction to a presidential memorandum. ⁴ Some twenty-five or more government agencies have instituted MHO in one form or another, and they have had tentative success in some of the systems. In the published literature on the subject, there are numerous ways listed of "how not to" achieve program success. Dale McConkey lists twenty ways to kill MHO. John Humble, the leading British management expert and a staunch proponent of MHO, has also outlined a number of ways that MHO can fail. ⁵ The list inevitably grows-things to do, things not to do-as more and more organizations try MHO. This is good! Critical analysis provides for a healthy attitude, and a way to further perfect the concept. Judging from experience, gained in the involvement of the field implementation of the management by Objectives/Results (MBO/R) program by the Air Force Contract management Division (AFCMD) of the Air Force System Command, one realizes that the list can be amplified. The MBO/R program evolved as a result of the development and test by the headquarters staff of a system fitting the organization’s environments and needs. ⁶ The program has now completed two years, and an overall promise of good things is indicated, if care is taken to avoid certain obvious pitfalls.

Of the many woes that can beset an MBO program, lack of top management support is by far the leading killer. Top management support is the first requirement levied by most MBO proponents. This requirement was also stated to be one of primary concerns with the implementation of the AFCMD program:

The first step in implementing MBO is the attainment of top level support. If there is one significant element that can cause MBO programs to fail, it is lack of full commitment by the head of the organization.⁷

This is not a new or profound analysis. Then why reiterate it? Because allowing support to falter under any circumstance or guise will result in the rapid demise of this program. It is very true that in the implementation phase of MBO, much time must be devoted by key personnel to ensure the proper beginnings. It is also true that top level management has limited time, and the key man’s time is extremely valuable. There are many facets of the MBO system that are entirely new to an organization and therefore time-consuming. Training each participant takes time. Writing objectives, defining key results areas, meeting with subordinates to negotiate objectives and the plans to achieve them-all take time. There is also a requirement to meet periodically during the MBO cycle to determine the status of these plans. This process consumes a large amount of the key man's time. Once the program is off and running, the temptation is to back away and reduce time commitments because of the evidence of initial program success. Time constraints should not be used as the rationale for lessening top management involvement. The factors of geographical remoteness, travel time, expense, and key personnel availability should not dictate any lessening of top management involvement. The factors of geographical remoteness, travel time, expense, and key personnel availability should not dictate any lessening of top management involvement. An MBO program will place hardship on key personnel and will place heavy demands on the time of managers. The point that MBO was chosen to be the main method of management can easily be overlooked.

The purpose of MBO is to change the organization Missile-carrying submarines obviously present the greatest challenge, and submarine detection R&D must receive more and more emphasis if additional nations achieve a capability for submerged missile-launching platforms.

1. identify the command's direction,
2. #9; prioritize resource allocation, and the head of the organization.
3. #9; measure effectiveness.

These improvements cannot be made unless management support is indicated and perceived by subordinates.

Management has made the commitment to this program for the long run, but management in military and government organizations changes frequently. MBO can tie this transience together. Top management must support the continuing program, not only the initial phases. The MBO system does provide a vehicle for continuing management support, the review cycle.

Most experts agree with the idea of total management involvement, including frequent review. John Lasagna makes the proposal that "an ideal review date seems to fall between two and six months, preferably closer to the former period the first year or two in an MBO effort."9 Humble writes, "Review is not an isolated event once a year, but rather an additional occasion for taking a total view of results and resetting objectives. This total review supports an ongoing day to day, week to week management review." ¹⁰ Any lessening of the review sessions, which allow face-to-face contact between superior and subordinate, is debilitating. Using another medium for determining the status of objectives would have the same effect. It would be perceived by the subordinates that top management is no longer concerned with the program. They will perceive a program started and left to run on its own momentum.

The inherent quality of an MBO program is to give management more time to concentrate on the future because through this MBO tool the short term is more efficiently managed at the proper lower echelon. This is not to say that MBO will eliminate all the fires needing to be fought, but it will eliminate those that are fought unnecessarily due to misguided planning.

Perhaps the most difficult problem of a new MBO program is that of measurement. Even in the private sector (which has an obvious return on investment measurement capability) some objectives can only be subjectively measured. The majority of goals in the public sector are beyond quantification because there is no product involved. Cost-benefit analysis, another method of objective measurement, is also very difficult, if not impossible, in the public sector. Trying to measure dollars spent per value gained in the realm of public service is a nebulous concept. What then can a manager or commander do to ascertain whether or not the newly instituted MBO program is achieving success?

Actually, this measurement is contingent on the objectives that are originally written and agreed upon by the subordinate and his boss. The more specific and understandable an objective, the easier it is to evaluate its progress. An objective that pinpoints a singularly responsible .manager to a measurable result, within available resources, will allow for unbiased evaluation. ^ll Remember, the subordinate manager and his superior have to agree on all of the objectives written.

The training manual used for the AFG MD MBO/R program lists five levels of quantifiable objectives. In descending order of abstraction, they are hard numbers, ratios, scales, verbal descriptors, and condition descriptors. An example of the concreteness of hard numbers would be an objective that stated, "to recruit five people within ninety days." This demonstration of hard numbers leaves no room for confusion as to what the outcome should be. The more vague verbal descriptor might read, "to write a report during the next fiscal quarter." An example of a condition descriptor might be, "to improve the morale of the organization."

Keeping the objectives in the higher levels of abstraction eases the problem of measurement but does not solve it entirely. Continuous review of the objectives and the progress made along the plans to achieve them assist in the solution of the measurement problem. Progress. can be analyzed, plans altered, and objectives can be further refined (moving up on the abstraction ladder). These actions further ease the problems of measurement and also provide a yet stronger case for frequent-review.

Another problem not quite so easy to contend with is the difficulty of measuring personal success and performance appraisal. George Strauss, in a critical view of MBO, stated, "MBO is not very realistic if looked upon entirely or primarily as a method of performance appraisal or subordinate goal setting. . . goals mesh with those of the organization: ¹² The system must be able to succeed first, leaving appraisal to a later date if not ignoring it totally. There is a superficially easy link between the accomplishment of goals and the performance appraisal. It would appear that a manager's success or failure in achieving mutually acceptable goals should be reflected in his performance rating. Perhaps so, but then the question comes to mind, "If these are mutually acceptable goals, shouldn't the performance appraisal be mutually shared between the subordinate and his boss?"

A more pertinent consideration is the fact that for the first three to five years of program implementation, a too-close relationship with the performance appraisal can - lead to the establishing of mediocre objectives. It can ultimately lead to the failure of the entire program because of the fear of poor appraisal, or because of the bias and over objectivity of the appraiser. Implementing a new management system, especially MBO, necessitates a wholesale change in attitudes and perceptions. For the first time in the careers of many involved, the subordinate is displaying to his boss exactly how much he thinks he can perform, in what manner, and within what time constraints. This also may be the first time the supervisor is mutually setting the course of his organization. MBO will be, for many, the first experience in participative management. Many traditionally set ways have to be rethought. Only after the supervisor and subordinate are comfortable with the relation, ship can an MBO system flourish and an honest objective appraisal be made. This can come about only after an adequate period of implementation. Even after this honeymoon period, 'linking the MBO program directly to performance appraisal can seriously affect the overall outcome.

In a well functioning management system, there is the temptation to integrate line, and staff MBO programs. On the surface it appears to be a reasonable, expeditious choice to streamline the program. This choice, however, could result in an over integration of functions. MBO can work for a staff function. It has worked successfully for line organizations. Yet it cannot work successfully as a totally integrated system in which the staff participates between command and line-especially where the line organizations are separate entities with command and staff functions of their own. An example would be a corporate body made up of several divisions or separate companies.

Traditionally, staff departments do not work in the mainstream of activity. Line departments do mainstream work. Even in the public sector there is the distinction where activities usually are not associated with generating a product. Staff serves, advises, and solves problems for the commander. AFCMD'S MBO/R program started with staff implementation in February 1974. The staff was the test bed for the program. Line implementation followed a year later and has just completed the first cycle.¹³ The program was probably divided this way for ease of implementation because of the geographical dispersion of the operating locations of the command. The mission statement and command objectives were transmitted to both line and staff organizations at the start of the cycle to provide direction.¹⁴ Each function determined objectives from its perception of the mission statement and negotiated its objectives with the command section. One of the policies stated in the field implementation was, "the command section will only review objectives of field organizations. "¹⁵

Whether it was done to facilitate implementation or in recognition of possible conflict of command lines, separate line and staff program implementation was the proper choice. Line-staff coordination of objectives is of no value if the mutual objective negotiations between the subordinate and his boss are done properly. Objectives of both line and staff functions are presented to and analyzed by command. Any actual or potential conflict between line and staff objectives should be identified and resolved by the command section. Likewise, any potential windfalls found in the mutual negotiations or review sessions should be transmitted by the command section to both line and staff functions. There is no need for direct line-staff coordination which could result in the disastrous short-circuiting of command communications.

An MBO program can be put into effect without outside consultants. This consideration is very important, keeping in mind the limited availability of funds and the extremely ambitious, innovative program. It was done at AFCMD through a thorough training scheme that utilized, MBO advisors from within the organization. The usual criteria of competence (e.g., motivation, confidence, etc.) were sought, but the most important qualification was that the candidate be not presently serving in a management position.¹⁶ Thus a nonmanager was chosen to educate and advise higher levels of management. It was a very innovative way to go, to provide an outside consultant. There was no chance for interdepartmental conflict because one manager was being chosen over another.

The results were good. Advisors, trained by the command section, passed on the ground rules of the program to their organizations. Clear air, unbiased, mutual-objective setting sessions among the supervisor, subordinate, and advisor resulted because of the expertise and the "special" status of the advisor. Original implementation plans were to educate one advisor in the MBO/R process,¹⁷ Continuing education was to take place on a periodic basis, providing the advisor with up-to-date direction in new MBO systems and ideal situations to be used in the advisory process. This procedure would serve to build a better framework of managerial knowledge throughout the organization. Of course, feedback was a very important by-product. The command section would get some general idea (more specific as the number of continuing education sessions increased) as to the overall status of the new system.

Continuing education is a basic necessity in an MBO program. Any neglect in this area could rapidly stagnate the program and cause it to fail. This education process must not be limited to MBO but should include management skill enhancement as well, particularly in the public sector where job and skill rotation are not as easily achieved as in a private corporation. Any organization needs a sound management development program to go hand-in-hand with the rather different MBO approach.

As stated previously, there are many set ways to overcome. The best way to do it is through a thorough educational process. The matter of resources comes to mind when considering this. Funds as well as productive personnel time are limited.

There are, however, alternatives to costly formal resident education programs. On-the-job training may well be the primary method. One of the best examples is the education of the AFCMD MBO/R advisor. The education this nonmanager is getting, just viewing the mutual negotiations, is invaluable to his understanding of the management process. Conferences of managers to exchange ideas rather than to discuss daily problem areas could also be extremely effective. Using the experience on hand to teach and train each other not only improves the skill of managers but also increases rapport as a side benefit.

There are other alternatives. The point to be made, however, is that management development, a recurring MBO educational process, and a medium for allowing command collection of feedback are necessities of a successful program.

The MBO/R program at AFCMD is a little over two years old and appears to have had a very successful start. There is possibility for improvement, but to their credit, the responsible managers have made an interim assessment and suggested alternative directions. Some of the approaches are in concert with this article; others are not. Yet the purpose of this article is not to judge. Rather it is to share a viewpoint generated while taking part in the field implementation of the MBO/R program. At the working level, where the inertia is strongest and disagreement can be insidious and terminal, the potential pitfalls seem to be more apparent.

The program is good, and it could very well serve as an MBO model for any other government agency. But remember that any spinoff program will have to be fitted to the specific organization. Probably some of the points brought out here will assist in that tailoring.

Armed Forces Staff College.

Notes

1. Glenn H. Varney, "Management by Objectives: Making It Work," Supervisory Management, January 1972, p. 24.

2. For an excellent discussion of the profit, cost-benefit measurements in MBO, see Rodney H. Brady, "MBO Goes to Work In the Public Sector," Harvard Business Review, March-April 1973, pp. 65-66.

3. Peter F. Drucker, Managing for Results (New York: Harper and Row, 1964), p. 11.

4. Frederick V. Malek, "Managing for Results in the Federal Government," Business Horizons, April 1974, p. 25; Mildred F. Bailey, "MBO 3, Action 4: An Effort toward Reporting Efficiency," Defense Management Journals, January 1975, p. 50.

5. Dale D. McConkey, "20 Ways to Kill Management by Objectives," Management Review, October 1972, pp. 4-13; and John Humble, How To Manage by Objectives (New York: AMACOM, 1973), p. 39.

6. Management by Objectives/Results Status Report, Air Force Contract Management Division, Kirtland AFB, New Mexico, 21 August 1974, p. 2.

7. Letter, Director of Research, AFCMD to staff and field organizations, Kirtland AFB, New Mexico, 23 October 1973.

8. Management by Objectives/Results Training Manual, Air Force Contract Management Division, n.d.

9. John B. Lasagna, "Make Your MBO Pragmatic," Harvard Business Review, reprinted November-December 1971, p. 63,

10. Humble, p. 23.

11. Management by Objectives/Results Training Manual, Air Force Contract Management Division, n.d.

12. George Strauss, "Management by Objectives: A Critical View," Training and Development Journals, April 1972.

13. Hq AFCMD MBO/R Status Report, AFCMD, 21 August 1974, p. 5.

14. Ibid., pp. 2-3.

15. Management by Objectives/Results Training Manual, Air Force Contract Management Division, n.d

16. Management by Objectives/Results Field Implementation Plan, AFCMD, n.d.

17. Ibid.

Major Joseph M. Syslo (B.S., The Citadel; M.B.A., Samford University) is a Systems Program Staff Officer, Hq USAF. He has been a C-124, C-97, and C-123 pilot in MAC, DSA, and TAG. He has served in contract administration as Detachment Commander at Fairchild Industries, Florida, and Deputy Commander of the AFPRO at Rocketdyne, California. Major Syslo is a graduate of Squadron Officer School, the Armed Forces Staff College, and the Industrial College of the Armed Forces.

Disclaimer