Management by objectives

What it means

Management by objectives is a management method in which manager and employee jointly set measurable goals and performance is judged by how well they are met. Popularised by Peter Drucker, it rests on the idea that people are more motivated when they help set their goals and understand why they matter.

Individual goals cascade from team and company goals, so everyone sees how their work contributes to the whole. Goals are often framed using the SMART criteria: specific, measurable, achievable, relevant and time-bound.

A newer variant is OKRs, which use more ambitious goals and shorter cycles, usually quarterly. Management by objectives is part of broader performance management, which also includes continuous feedback and development.

How it works in practice

At the start of a period, manager and employee agree a few key goals with clear indicators, such as shortening the monthly close to five working days or reducing payroll errors. Progress is tracked throughout the year, not just at the end.

Goals should not be purely financial. Combining results goals with goals for quality, client satisfaction or development stops people focusing only on numbers at the expense of other important things.

If goals are linked to bonuses, rules must be set in advance: what happens with partial achievement, how circumstances beyond the employee's control are treated and who assesses. Clear rules prevent disputes when bonuses are paid.

What to watch out for

Poorly chosen goals push people to hit numbers at the expense of quality or ethics. A target for documents processed can encourage sloppiness, a sales target aggressive practices. Every goal should be checked for unintended consequences.

Too many goals scatter attention, and overly rigid goals fail to adapt to change. If conditions shift significantly, goals must be revisited, otherwise they lose their motivating effect and become a formality.