Can management by objectives and total quality management be reconciled?

Passi, Wolfgang J. Can management by objectives and total quality management be reconciled? “Total Quality Management,” Mar 03, Vol. 4, Issue 2, p. 135, 7 p.

MBO and TQM
Management by objectives (MBO) goes back to 1954 when Peter Drucker (Drucker, P. F., (1954). The Practice of Management (London, Pan Books)) proclaimed it as the management system of the future. It was credited with the flourishing of Western business in the 1950s and 1960s and seems common sense.

The tasks to be carried out are described.

They are associated with expected outcomes.

These are quantified, and time constraints and conditions are specified.

The people entrusted with carrying out the tasks are accountable for achieving these defined, measurable objectives.

The system is based on a hierarchical structure where the objectives and sub-objectives and sub-sub-objectives are passed ‘down’ in a cascade, so that each employee is governed through a set of performance standards or work quotes. Reddin (1977) defines MBO as: The establishment of effectiveness areas and effectiveness standards for managerial positions and the periodic conversion of these into measurable time-bounded objectives linked vertically and horizontally and with future planning. (Reddin, W. J. (1977), Effective MBO (New York, McGraw Hill)

Unfortunately, MBO often encourages quantity over quality, short-term over long-term success, controls over dynamic improvements and innovation, the emphasis on results rather than on the processes leading to them, individual accountability rather than scrutiny of the systems within which staff work, individual performance over team work, and inward orientation over customer orientation. Since all this is happening despite warnings from interpreters of MBO, the system appears to be somewhat conducive to these pitfalls.

Over the last couple of decades the success rate of MBO-led companies and organizations has become less spectacular in comparison with a new management philosophy which established the relationship between quality and competitiveness and which has been used by Dr Edwards Deming and other consultants (Deming & Edwards, 1982 a/b; Scherkenbach, W. W., (1987) The Deming Route to Quality and Productivity (Washington DC, Ceep Press); Deming, E. W. (1982a) Quality, Productivity and Competitive Position (Cambridge, MA, MIT Centre for Advanced Engineering Study); Deming, E. W. (1982b) Out of the Crisis (Cambridge, MA, MIT Centre for Advanced Engineering Study). It has, in particular, helped Japan to overtake the US economically. This philosophy is called total quality management (TQM).

TQM seeks continuous improvement in the quality of performance of all the processes, products and services of an organization. It emphasizes the understanding of variation, the importance of measurement, the role of the customer, and the involvement of employees at all levels of an organization in the pursuit of such improvement. An important feature of this philosophy is that management plays a key role and carries the responsibility for the bulk of mistakes, defects and waste.

When comparing modern texts of MBO and TQM, there seems to be no striking contradictions, rather shifts of emphasis. However, MBO is built on old ingrained attitudes, and some modern aspects are emphasized inadequately. Although MBO could claim flexibility at the time of its formation, it now appears rigid when contrasted with TQM. Table 1 contains a brief comparison of the two management systems.

Table 1. Comparisons of MBO versus TQM

	MBO	TQM
Company culture	Emphasis on financial management	Emphasis on customer satisfaction (quality)
Focus	Result orientation	Process orientation
Organizational structure	Hierarchy	Matrix (network)
Strategy	Three-step: 1 set objectives 2 direct their attainment 3 measure results	Four step: similar to MBO but includes additional improvement step
Operation	Setting of numerical objectives	Designating of desired outcomes = quality into performance systems

Never the Twain?
Is there a question of choice between the two systems, exchanging one for the other? I think not. According to my own experience and that of others, TQM ideas may be used to further develop and modernize MBO. However, this will make attitudinal changes necessary, which is difficult within an established system. T QM thinking would improve the traditional MBO system in several areas as outlined below.

Dedication to quality and improvement
Although MBO includes improvement in its system, in particular concerning organizational and staff performance, progress and competitiveness are founded on financial strategies. There is some talk of customer orientation. The term ‘quality’ is often missing in the indices of MBO texts (Drucker, P. F., (1979), Management (London, Pan Books); McConkey, D. D., (1983), How to Manage by Results (New York, AMACOM)). The TQM principle of continuing improvement is much more comprehensive. Dedication to quality in TQM becomes the organizational culture, with much greater emphasis on the processes leading to the ‘results’. Thus, the organization, the ‘system’, becomes much more ‘staff friendly.’ By tailoring quality precisely to the customer’s needs, TQM is also by far more ‘customer friendly’ than MBO.

We must not forget that MBO was formulated at a boom period, when manufacturers and providers of service could sell almost any product or service because of great demand, with only limited need for ‘quality’.

Organizational structure
MBO is based on the outdated hierarchical system, with the general manager at the top of a pyramid and managers at the tops of the sub-pyramids. There is continuous talk of ‘up’ and ‘down’. The reliance on status and superior-subordinate relationships bears the historic shackles of the master-slave (later servant) polarity. This attitude also ignores the fact that most modern economies have comparatively highly educated workforces whose potentials are inadequately tapped.

Management as a separate layer is counterproductive—a manager ‘sitting on top of a pyramid’ can be perceived as a burden. If we have to stick to the pyramidal structure, a useful manager would be one that supports the tip of an inverted pyramid. Managerial positions distinguish themselves by their authority and power to provide resources and to modify the system within which staff work, to enable them to achieve optimum results.

This is not to say that proponents of MBO have not seen the writing on the wall. McConkey (1983) notes: “The traditional, hierarchical form of organisation structure, usually portrayed as a pyramid, will be replaced by ‘matrices’ or ‘networks’ of teams formed to achieve the needs of the organisation.”

Management strategy
MBO states three main steps: (1) establish objectives, (2) direct their attainment, (3) measure the results. This strategy can be represented by a circle which allows comparison of ‘what was wanted’ with ‘what has been achieved’. According to TQM, this is inadequate. MBO underemphasizes the need for a review step which allows improvement of similar processes in the future. Lifting the quality of processes within a category to ever higher levels can be perceived as an upward moving spiral. TQM relies on the participation of the entire staff for continuous improvements everywhere in an organization. Simply ‘doing a job according to the book’ is not enough!

However, it must be acknowledged that with MBO a balanced participative management style replaces the authoritative one. Because of clear definitions of authority, decisions can be made at the point nearest action, at the time when action is to take place. This is helped by in-depth delegation and safeguards that the right information is passed on at the right time, to the right place. Clear accountability prevents ‘decision drift’ and procrastination. At the same time, modern MBO encourages change, and keeps policies and procedures flexible and to a minimum. Controls are tight but minimal. All this ensures a measure of dynamism.

Planning and processes
MBO must be credited with replacing fuzzy objectives with well-defined ones; these are based on goals which in turn emanate from a mission statement. Subordinates participate in objective setting and planning. Results are not (officially) used for immediate apportionment of blame but serve as yardsticks by which the employees can ‘measure their own performances’.

Unfortunately, followers of MBO have gone too far, placing too much emphasis on numbers. Often, the chosen numerical objectives are purely fictitious and often adequate groundwork has not been done. It is interesting to note that McConkey (1983) also lists the tendency to ‘quantify everything’ as one of the pitfalls of MBO.

Proponents of TQM are in total opposition to numerical quotes and performance standards. There is no question that it is always possible to improve on a performance, but what is the setting of a numerical objective to achieve, unless we can calculate the outcome from our inputs? Situations where staff sabotage the achievement of an objective are rare. As a rule, the opposite is the case. Hence, if someone is unable to achieve the target, what advantage is there in making this person feel bad? Or else, do we want to encourage the setting of ‘safe’ objectives? Or, if the target can be surpassed, are we to gain from discouraging overachievement?

Focus on numerical objectives often distracts from the real goals and can even be harmful. There is also, by necessity, a bias in the setting of the so-called ‘performance indicators’ to prove achievement. Since not everything can be measured, management must select them. What if a dieter simply assessed ‘progress’ in losing weight by standing on scales, ignoring body build and state of health?

In line with its axiom that quality must pervade the entire organization, TQM demands the designing of all processes and systems in such a way that the desired results are assured. Building the necessary ‘quality’ into the entire system ensures that delegated tasks have adequate support. There is also less risk of compartmentalization and segmentation of work.

TQM thus focuses overwhelmingly on the planning and design of systems and processes instead of numerical objectives. It is not surprising to find the opposite approach in MBO texts.

Assessment of results
This is the area where TQM contradicts MBO most. MBO is dedicated to the performance appraisal of individual staff, TQM to the continuing critical assessment and improvement of systems. Arguments against performance appraisal are as follows:

(1) With performance evaluation, one may be inclined to disregard that employees work within a group. The individual results are influenced by all members of the group.

(2) With performance evaluation, one may be led to overlook the fact that employees work within a system (for which management is responsible). Mager and Pipe (Mager, R. F. & Pipe, P. (1984), Analyzing Performance Problems (Belmont, CA, Lake Publishing Company) list 12 points to be clarified concerning the system within which the employee works, before the issues of ‘sanctions’ and ‘rewards’ should be tackled. The necessity of investigating possible system failures, and the fact that ‘management’ is responsible for 80% (or more) of failures, are even discussed in MBO texts. Nevertheless, ‘sanctions’ and ‘rewards’ regularly appear as the alternatives in performance evaluation flowcharts!

(3) With performance evaluation, one may tend to ignore that employees work within variability and instability. No jobs are precisely the same. If the variability of a system is due to the ‘common cause’ and inherent in the system, and not to any special cause’, employee performance will be randomly scattered around the average independently of the employee’s efforts! A particularly unfair situation may arise where employees are singled out, often unconsciously, for the performance of certain tasks (because of their special skills or special aptitudes) but are assessed by the number of tasks performed and not the difficulties associated with them.

(4) Employees are invariably evaluated within an evaluation system that is biased and inconsistent. The evaluator is by necessity under pressure to grade employees as average, above average or below average. The evaluation also depends on current company policy and evaluator philosophy, no matter whether or not these can be sustained. The performance of the employee is also strongly influenced by the Pygmalion and Galatea effects which have been investigated extensively (Livingston, J. S. (1969) Pygmalion in management, Harvard Business Review, July-August, pp. 81-89; Rosenthal, R (1973), The Pygmalion effect lives, Psychology Today, September, pp. 56-63); Babad, E. Y., Inbar, J., and Rosenthal, R. (1982) Pygmalion, Galatea and the Golem, Journal of Educational Psychology, 74, pp. 459-474). The first effect is connected with the phenomenon of a subordinate’s performance rising or falling to meet the manager’s expectations. The second effect concerns a person’s performance rising or falling according to his/her own expectations. In addition, employees themselves may overestimate the influence they may have had on an outcome.

Other disadvantages associated with performance assessment are given below. (1) No one likes assessments.
(2) Competition douses cooperation, team work, the inclination to help others.
(3) Systems are likely to be squeezed.
(4) Spontaneity is discouraged; important tasks not listed as objectives are neglected or at least delayed; this may be particularly detrimental in research and development.
(5) If assessments are to mean more than a toss of the coin, they are prohibitively time consuming.

Some benefits are often listed as results of individual performance appraisal:
(1) Staff receive direction.
(2) Staff receive feedback on their performance.
(3) Staff training needs can be developed.
(4) Communication between management and staff is fostered.
(5) Staff can be promoted and reward according to performance.
All these are better achieved through other means.

Promotions and rewards
A person’s inclination or capabilities to take on a wider range of responsibilities or more demanding work are often not visible in a given job situation and can thus not be detected by performance appraisal. It is better to give staff special assignments, or allow them to show their talents in improvement projects. Listening to ‘customers’ is sometimes revealing; they may prefer the services of certain people. In general, a flat organizational culture is preferable. In an age where most mindless or repetitive jobs are carried out by machines, it is becoming increasingly difficult to decide which job is more demanding than another. Indeed, if there is no machine for mindless jobs, staff assigned to these jobs may have to be paid more than others in less boring jobs.
The Deming school states:

To take something as unreliable and capricious as performance appraisal and use it as basis for salary increase, wages, bonuses, merit pay, etc., turns the reward system into a form of lottery. Flipping a coin would be more fair. (1) Personnel policies must not reward people for being lucky or punish people for being unlucky;

(2) must not induce fear or create barriers; rather fear must be driven out and barriers broken down;

(3) must not tamper with anyone’s system of internal motivation;

(4) must encourage everyone to work together to accomplish the transformation;

(5) must foster a climate of teamwork and trust.

Incentive plans. Proponents of MBO sometimes favour such plans as superior to fixed salaries because incentives can be better tied to performance. Yet there are serious risks associated with incentives as a means of eliciting higher performance. Attainment of short-term benefits may take precedence over long-term benefits. Quantity may be pushed at the expense of quality. The system may be squeezed, short-cuts taken, successes faked. Ultimately, customers may become dissatisfied and markets may be lost. However, incentives may be useful for achievements outside ordinary job performance (improvements, novel concepts, gaining of customers, etc.).

Recommendations
If we wanted to adhere to the MBO approach, but introduce the progressive thoughts of TQM, what would we have to do?

(1) Base long-term competiveness and success primarily on quantity management instead of financial considerations.

(2) Replace any hierarchy with a horizontal matrix where individuals and teams relate to each other as providers and receivers of all services. (This system does not end at the doors of the organization or company but extends to all external suppliers of materials and services as well as to all external customers.)

(3) Extend the MBO strategy by including a review step for continuing improvement.

(4) Thoroughly study system performance. This may be expressed numerically.

(5) Beware of introducing numerical targets into objectives. Go for the ‘optimum achievable’ under the current system. If this optimum should prove unsatisfactory, improve the system.

(6) Replace performance appraisals of individual staff with performance appraisals of systems.

(7) Award salaries according to ‘market rates’, seniority or overall prosperity of the organization. Adopting these recommendations will not only improve staff morale and cooperation, but also help an organization to become more prosperous and more competitive!

If we introduce TQM into MBO by putting into practice these recommendations, have we not changed the salient features of MBO? I believe that only redirecting performance appraisals from people to systems would be a fundamental alteration. MBO showed itself superior to the management systems preceding it and has been refined over the past decades. Introducing the ideas of TQM would mean just another step in the evolution of MBO.