Management by Objectives
as a possible concept for the UNICON Mangement Game TOPSIM - Manager
In the Course of studies International Business (Außenwirtschaft) Department III: Economic Studies (Wirtschaftswissenschaften) at Fachhochschule Mainz, University of applied sciences
Presented on: 02 November 2002
TABLE OF CONTENTS
page 1. Management systems and concepts 1 1.1. The main Management by … concepts - A Brief description 1 1.2. Focussing on Management by Objectives 2 2. Management by Objectives - Definition 2 2.1. Conditions for Management by Objectives 3 2.2. Instruments of Management by Objectives 3 3. Implementation of Management by Objectives into the UNICON Management Game TOPSIM - Manager 3 3.1. The strategy of company no.1 4 3.2. The performance of company no.1 4 3.3. Possible ways for improvement by considering Management by Objectives 5 4. Results 5 Literature Index 6
improving the subsystems planning and organization and relying on performance oriented salary and incentive systems.
Management by systems (MBS) is similar to MBO with additional use of computer assisted information and steering systems. 4.2. Focussing on Management by Objectives
MBO is according to Schierenbeck one of the most modern, global and furthest developed general management systems which takes into account the modern leadership theory and the central role of objectives for steering social systems.
As it is a complete system which applies itself to all aspects of management that are the subsystems planning, controlling, organization, information and human resources management it seems an appropriate means to solve the management tasks in the TOPSIM Management Game. 5. Management by Objectives - Definition
As mentioned above MBO aims at clear definition of objectives and derivation of strategies and programs. This means implementing a system of goals and strategies from top-management down to each employees` responsibility and the constant measuring and controlling of performance in a defined period of time.
The most important condition for a successful MBO is the organizational embodiment of the goal system. Breaking down the business mission to goals, strategies and programs for each responsibility in a company must be done consequently and the performance must be regularly audited to avoid misguidance. The process is a cybernetic cycle as shown below.
Source: Kotler, P.: Marketing Management, Analysis, Planning, Implementation and
Control,7th edition, Englewood Cliffs, 1991, p. 47
5.1. Conditions for Management by Objectives
MBO is only possible if the management is willing to delegate and the employees are qualified to perform in order to achieve their goals. It also is mandatory that goals are set in cooperation of both employees and managers. The goals must be defined precisely and clearly and be measurable. A goal oriented conception of all managerial subsystems is necessary. Also commitment of employees to business mission is a necessary condition 2 . This way MBO improves the business process periodically. 5.2. Instruments of Management by Objectives
The instruments which can be used are for example job descriptions, checklists, standardized processes, defined performance goals and controlling standards. Periodic performance control must be integrated into the business process. The most sophisticated form of these instruments is the Balanced Scorecard System by Kaplan / Norton. Not only does it define scores for quantitatively measurable goals but also for qualitative aspects like customer relationships, employee satisfaction or learning and growth 3 .
6. Implementation of Management by Objectives into the UNICON Management Game TOPSIM - Manager TOPSIM - Manager is a business management simulation which represents a realistic model of an industrial company lead by the board of directors, who are the participants. The task of each group is to take decisions to realize commercial success throughout five economic periods while taking the given information about companies and economic situations into consideration. In the participants` manual one of the training objectives is “defining goals and strategies and realizing them in an economic and ecologically-oriented environment” 4 which can be adequately realized by MBO.
6.1. The strategy of company no.1
Company no.1 had no division of task areas, each decision was made unanimously. Each member of the group had the same responsibilities. There was no hierarchy and no head of board of directors. Goals for all important sections of the company that are finance and accounting (F&A), research and development (R&D), production, personnel, purchasing, and sales had to be formed.
No business mission was defined but it was understood that the company wanted to produce and sell the best copier on the market. The group defined their goals as: higher percentage of market share high quality standard in production environmental protection gaining profits. Strategies to achieve these goals were to expand the production to five production lines in order to penetrate the market. R&D as well as marketing expenses were set to a high standard in order to have the highest product quality and ecological standard as well as the best advertisement. A further decision was to produce just in time which implies having no stocks of unfinished or finished goods in order to keep costs low.
6.2. The performance of company no.1
The given goals were not defined according to MBO. Company no.1 only set vague goals that were described in general terms. No quantification was made. Therefore monitoring performance was also vague because it could not be measured against defined goals. For example if the goal “higher market share” had been defined as “market share of 25 %”, monitoring its achievement would have been possible in a precise way. Also the goal “environmental protection” could have been defined as “product index for ecology of 115%” as a sufficiently high standard. Then achievement could have been stated in period four and further costs could haven been saved.
Nevertheless some strategies were implemented and goals achieved, as the market share grew up to a percentage of 23 % at maximum. Product indices for R&D rose constantly. The index for technology grew up to 111,3 % as the number of staff was almost doubled at the end of the fifth period. Company no.1 had the second highest quality standard closely following company no.2 which had 111,4 %. The expenses for external consultancy services in the area of ecology caused an index increase up to 117 % by the end of period four which means that the aspect of environmental protection was taken into account during production, selling and recycling the product. The aspects of R&D had an impact on the market share as well as on the image of the company. Stocks of finished goods were minimized. Revenues were always high as the supply was covered by a high demand which probably was caused by the high expenses on advertising. But from the fourth period on the group failed to realize profit. At this point a closer analysis of the performance figures would have been necessary. “A failure to convert improved operational performance into improved financial performance should send executives back to the drawing board to rethink the companies strategy or its implementation plans.” 5 6.3. Possible ways for improvement by considering Management by Objectives
According to MBO each goal may not be seen isolated. The interaction between goals is an important aspect to monitor during performance. Measuring and monitoring
instruments are to be defined under this consideration. So at the very beginning company no.1 should have quantified the goals and defined the instruments. During the five periods a consequent monitoring should have been executed before making further decisions. By taking a closer look at the figures of company no.1 it is obvious that costs especially in advertisement and ecology were too high in comparison with the achieved effects of these tools. By using scores as an auditing instrument it would have been obvious that costs did not relate to changes of indices or market share in the desired way. Periodic monitoring of these scores could have assured an earlier realization of this problem so that overspending to achieve goals could have been avoided. 7. Results
Finally it can be said that the performance of company no.1 could have been more effective, if managers had paid more attention to defining the business mission and quantifying goals in order to monitor performance periodically. This way false decisions could have been prevented and higher profits realized.
Kaplan, R.S. / Norton, D.P.:
The Balanced Scorecard, Translating strategy into action Boston Mass., 1996,
Marketing Management, Analysis, Planning, Implementation and Control, 7th edition, Englewood Cliffs, 1991
Schierenbeck, Dr. H.:
Grundzüge der Betriebswirtschaftslehre, 14. Aufl., München, 1999,
UNICON Management Game:
TOPSIM Manager, Participants` manual, Edition 8.0-English, Meersburg