МВО, BSC, PM, OKR
In the early 1950s, some companies became so large and complex that traditional methods of running them were no longer effective. Managers, busy with a multitude of current tasks, forgot about the main tasks aimed at achieving the strategic goals of the company. A way out of this situation was proposed by Peter Drucker (German Peter Ferdinand Drucker). In 1954, in his book The Practice of Management, he introduced the term and concept Management by Objectives (MBO).
Management by goals is the work of management to formulate the goals of the organization, communicate them to employees, provide them with the necessary resources, as well as distribute roles and responsibilities for achieving the goals.
There are other definitions of Goal Management, such as:
A method of personnel and organization management, which ensures the setting of goals and objectives for the implementation of the company's business plan, monitoring their implementation, and assessing the effectiveness of the results of the activities of employees and departments.
Basic principles of MBO
1. Goals are developed not only for the organization but also for each of its employees. At the same time, the goals of employees should directly follow the goals of the organization.
2. Objectives are designed top-down to link the organization's strategy and bottom-up so that they are understandable and achievable for employees.
3. Participation in decision-making. The goals are not just "coming down from the top", they are really developed by the leader and subordinate together. As they discuss, they both begin to better understand what needs to be done and how.
4. Evaluation of the work done is carried out promptly and constant feedback is provided.
5. All goals must comply with the "SMART" rule, then they can be used to build an effective personnel motivation system.
According to the SMART rule, goals must meet the following requirements:
S — specific (specificity) — to be specific, to lead to the achievement of specific results for the organization/department/employee.
M — measurable — to be measurable, to be measurable.
A — achievable — the organization/department/employee must have all the resources necessary to achieve the goals.
R — relevant (relevance) — to be really necessary, and precisely in a given period of time.
T — time-bound (limited in time) — have a date of achievement, be defined in time.
The experience of many companies shows that the MBO method is very effective in creating an ideal bonus system. This method should be implemented from top to bottom. The company forms goals for 1-3 years, then the goals are prescribed for time periods by divisions, after which short-term goals are distributed among employees.
In 1992, David Norton, director of the Nolan Norton Institute, and Harvard Business School professor Robert Kaplan modified the MBO method and supplemented it with a Balanced Scorecard (BSC) and a KPI system (key performance indicators, key performance indicators, KPIs).
Norton and Kaplan concluded that financial performance alone is not enough for the successful leadership of modern companies. Reducing marketing, training, and customer service costs to improve short-term financial performance will further negatively impact the overall financial health of the company. Employees often lack the motivation to improve the efficiency of operations and implement long-term plans, and also do not understand the importance of their role in the implementation of the company's strategy, so a new, "balanced" approach is required. After two years of work, Norton and Kaplan developed a new strategic management method in which the company's financial performance was supplemented with data that reflects customer satisfaction, internal business processes, and the company's ability to develop and grow.
When using the MTP, the organization is proposed to be considered from the point of view of four aspects of its activities:
- traditional financial indicators;
- successful work with clients;
- optimality of internal business processes;
- personnel training and development.
The main components of the organization's activities (customer service, operational and financial efficiency) are presented in the form of a set of KPIs. By balancing these indicators, it is possible to align the company's short-term goals with its long-term strategy. Thus, in order to create a BSC, you must first build a system of indicators themselves, that is, KPIs.
Following the BSC methodology, the company's management identifies areas of activity that are significant for it and determines in them a set of indicators that are subject to regular measurement. When forming the composition of KPIs, it is important to determine such indicators that will be understandable to all personnel involved in the affected processes. Only then will the indicators contribute to the achievement of the desired result. The individual motivation of personnel should be tied to these indicators, followed by their monitoring, so that it is possible to understand which business processes need to be improved, how to achieve a rational allocation of limited resources to achieve the company's strategic goals.
With the help of KPIs, you can create a perfect and effective system of motivation and incentives for company employees, therefore KPI and personnel motivation have become inseparable concepts.
Motivation (monetary incentives) of personnel when using KPIs, in contrast to the basic salary (salary), should be focused on achieving the long-term and short-term goals of the company. The system for the formation of the variable part of the monetary remuneration based on KPI should stimulate the employee to achieve high individual results, increase his contribution to collective results and ultimately fulfill the strategic objectives of the company. At the same time, KPI indicators in the system for forming the variable part of wages should be quite simple and understandable to employees, and the size of the variable part of wages should be economically justified.
KPIs are used not only in the BSC system. The idea, which turned out to be fruitful, uses the model of strategic maps by L. Meisel (1992), the EP2M model (Effective Progress and Performance Measurement) by K. Roberts and P. Adams (1993), Total Performance Scorecard, Rampersad's universal scorecard Hubert (2003) and others.
Moreover, the motivation system based on KPI indicators turned out to be so effective that they are often used independently, without reference to the goals management systems listed or described above and below. For example, KPI modules are part of such solutions offered by IT-Enterprise as "Sales" (business analysis of sales), R&D (business analysis of production preparation processes), "Personnel" (personnel motivation based on KPIs), "Document flow and BPM "(business analysis of workflow and business processes), etc.
In international practice, the term "performance management" (performance management, PM, sometimes translated as "performance management") is increasingly used today. This technique was developed back in the 1980s, but later it was significantly improved. It is based on principles similar to those that underlie MBO. A significant difference is the responsibility of the manager to support employees in achieving their established goals. In addition, the PM system includes an annual Performance Review — a discussion of employee performance.
Basic PM principles
1. At the beginning of the period (month, quarter) of the organization, divisions, departments, employees, goals (tasks) are set, on the implementation of which the variable part of wages depends.
2. Decomposition, or "cascading" of goals from the upper level to the lower one is carried out:
Company Goals -> Unit Goals -> Department Goals -> Employee Goals.
Goal setting even at the lowest levels of the company occurs in accordance with the goals and strategy of the organization. With an authoritarian management style, goals are set by the immediate manager, based on the goals of the company/division/department. In a democratic management style, employees are introduced to the goals of the unit/department, and then they are given the opportunity to independently develop goals, which are subsequently discussed and agreed upon with the immediate supervisor.
3. To determine the level of achievement of goals, KPIs are established.
4. A culture of dialogue is being formed. The manager should not only assess the employee's performance at the end of the reporting period but also monitor it in the current period, as well as provide the subordinate with the necessary resources to fulfill the goals set for him and provide him with support if he needs it.
5. A clear relationship is established between performance and remuneration, the value of which should correspond to the value of the goal (result) for the organization.
At the end of the current period, or at least once a year, a Performance Review is carried out — a process during which the performance of the employee, as well as his competence, is assessed; the level of material remuneration is determined, a new category is assigned or promotion is planned; goals/tasks for the future period are set and priorities for professional development are determined. In other words, a Development Plan is formed — an employee development plan.
MBO, BSC, PM, KPI are proven and reliable methods of managing goals, motivating personnel, and thereby achieving the strategic and tactical goals of the company. But there is no limit to perfection.
OKRs (Objectives and Key Results) are a method used in modern management to manage projects. Allows you to synchronize team and individual goals and ensure effective control over the implementation of tasks. The OKR method was developed by Intel Corporation and then spread to a number of large technology companies, including Google, LinkedIn, Oracle, and others. Subsequently, the method became popular among leaders of small high-tech startups.
Proponents of this method believe that MBO, for all its prevalence and attractiveness, is too general an approach. Although when using it, goals are developed by the manager and subordinates together, it often boils down to the fact that it is managers who decide what to do, and employees simply carry out the plan. Hence the standard problems of setting goals with MBO — descending goals from top to bottom, performing specific tasks, centralizing decision-making, limiting information, a long bureaucratic process of setting goals, directly linking goals to bonuses, an annual planning cycle.
Basic OKR principles
- Ambitious goals. Goals must be achievable, but challenging so that performers have to be creative and put in significant effort. This is not about setting unrealistic goals, but about finding innovative solutions.
- Disconnection from bonuses and other material motivation. Ambitious goals can only be set if their achievement is not tied to monetary rewards.
Vertical connectivity of goals. One of the key issues that OKRs solve? — focusing efforts on what is really important. To do this, goals must cascade from the top-level (company) to specific people in the field. The goal tree is built in such a way that you can climb from a specific employee (or team) to the goals of the company.
- Publicity. Goals must be public for the entire company. This is the most important point without which OKRs are no longer OKRs. All employees of the company see all goals, in a simple and understandable way, without restrictions. Any employee should be able to trace the logic of the path from his goal to the goal of the company, see what neighboring departments are working on, and find common ground.
- Measurability of results. Targets should be able to measure either absolute (in numbers) or relative (in percent).
In addition to the basic, there are a few good principles, failure to adhere to which OKRs will not discount (as opposed to violating the basic), but still undesirable.
- Goals should inspire and motivate.
- Most of the goals should be formed from the bottom up, and not vice versa.
- Goals should not dictate solutions, but rather pose problems.
- Goals should not be limited to business goals, but also affect personal development.
For each of the goals set, 3-5 measurable parameters are determined by which one can judge the results achieved. After a specified period of time, the degree of readiness for each of the key parameters is assessed on a scale from 0 to 1. The assessment is made by the employee himself; the goal is considered achieved if 70-75% of the target is met in total. If it turns out that the task is 100% completed, then the chosen goal was not ambitious enough. For each year and quarter, the employee sets himself four to five goals. The goals and key results for the year can be periodically revised, which allows the company to respond quickly to the market situation. At the same time, it is not recommended to change the goals for the quarter.
One of the main differences between OKRs and KPIs is the different goal setting. KPI goals are usually easy to achieve and represent the results of an already established process or project. OKR goals are more aggressive and ambitious. By setting aggressive OKR goals, the leader encourages his team to do more.
Unlike KPIs, OKR does not monitor the daily activities of employees and is not used to punish or reward.