Results-driven management has become a mainstay of American business since Peter Drucker popularized the concept in his 1954 book, The Practice of Management. Often referred to as “management by objectives” (MBOs), the process revolves around an annual performance review of each employee. Prior to the review, the employee will work with his or her manager to identify a small number (usually three to five) objectives or targets for the coming year. During the review, the manager and employee discuss the results of the previous 12 months’ MBOs, and how the knowledge gained from that discussion can be applied to the coming year. Remedies for shortfalls, and incentives for meeting or exceeding targets, make the employee accountable for his or her results.
“What Gets Measured, Gets Done”
Instituting MBOs or a similar performance-based system in your business needs to be done in as uniform a way as possible. Due to each review being one-on-one, there’s potential for resentment if people believe they are being evaluated by different standards. It’s relatively easy to achieve standardization in a manufacturing company; you can simply count the number of items produced. Although the process can be tricky in a service business, where it’s not always obvious how to measure productivity.
After the proper metrics have been identified, the next big challenge is to collect data, organize it, and analyze it. This can be as complex as installing a specialized performance management system or as simple as allowing employees to track their own results. At large companies, employees’ results are quantified and used to rank them competitively. The upper tier becomes eligible for special bonuses or other incentives. The lowest tier may require additional training or face termination.
Culture Requires Buy-in
To be successful, MBOs needs to be company-wide and to achieve nearly unanimous buy-in. That’s why we talk about creating a results-driven culture. The system has to be championed by the owner, other business leaders, and the individual goals needed to embody the company’s larger goals in a clear, understandable way.
That’s why you’ll see a global company like Anheuser-Busch InBev describe its results-driven culture by starting with the firm’s mission: “Our shared dream energizes everyone to work in the same direction: to be the Best Beer Company in a Better World.”
Whether you’re a fledgling microbrewer, an accounting firm, a medical practice, or an arts and crafts shop, you should adopt an appropriate communication strategy to help your employees understand why you’re expecting them to take responsibility for their results.