"What's your MBO?"
That was a frequent question at one of my past companies. MBO meant management by objective, and was a way of asking someone what their goals were for that year. It's funny, thinking back on it, that the goals culture was so strong that we never gave MBOs a second thought. And who doesn't sit down with her manager at the beginning of each year to set out objectives?
In a new working paper by Max Bazerman, Lisa Ordonez, Maurice Schweitzer, and Adam Galinsky of Harvard Business School ("Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting"), the authors take a fresh look at the goals culture and see that, rather than be a driver of effective performance, "goals gone wild" have caused much damage in the business world. Here are a few examples:
Enron's growth objectives created an out-of-control culture inspiring market manipulation and outright fraud.
Ford's goal to build a small car weighing less than 2000 pounds and costing under $2000 by 1970 caused the Pinto to be rushed to market, with safety checks unperformed or ignored. The car's gas tank was prone to rupture in an accident and, as was learned, the car tended to explode on impact from the rear.
Sears' goal to increase auto service sales in the early 1990's to $147/manhour resulted in overcharging and unnecessary repairs.
Bazerman's work on behavioral effects in negotiation (including one of my favorite books of 2007) and decisionmaking is uniformly excellent and insightful. In this paper, he and his co-authors survey research showing how challenging goals, while creating a powerful incentive, also create significant negative side effects, including:
- focus on short-term results over long-term benefit
- favoring the easy-to-measure over the difficult to measure, independent of importance
- goals creating performance ceilings (e.g., the salesperson who stops selling after reaching her quota)
- reduction in cooperative behavior
- reduction in learning
- unwillingness to experiment and innovate
- decrease in intrinsic motivation ("Show me the money!")
It's not a pretty picture. I doubt after reading this that anyone would be more eager to set goals for their employees. It does a great job in laying out the risks of overreliance on goals. There's more work needed on how to deploy goals effectively, because that's the question that we're left with at the end.
Thursday, February 05, 2009
"What's your MBO?"