SYNCHRONY
THE EVOLUTION AND IMPORTANCE OF MANAGEMENT BY OBJECTIVES
Management by Objectives (MBO) stormed onto the business scene in the 1960s and 1970s, quickly gaining traction as a revolutionary way to align employee performance with organizational goals. On paper, it sounded like the perfect system: managers and employees working together to set clear, measurable objectives and evaluating performance accordingly. But let’s be honest - what seemed like a well-oiled machine was often a clunky, bureaucratic mess that lacked the fundamental ingredient needed for success: trust.
Decades later, it’s almost baffling that MBO still holds any credibility. Businesses have evolved, workforces have changed, and yet, the same old MBO flaws continue to surface. Why? Because the process was built on a shaky foundation, ignoring the complexities of human nature, workplace dynamics, and the often conflicting interests of employees and management.
UNDERSTANDING MBO: A SYSTEM BUILT ON FAULTY ASSUMPTIONS
At its core, MBO is about setting objectives collaboratively between managers and employees and then evaluating performance against these goals. The logic was straightforward: clear goals should lead to better performance, and better performance should lead to better business results. But reality has never been that simple.
The biggest mistake? Assuming that managers and employees could mutually agree upon objectives in a way that serves both parties fairly. That assumption completely ignored the need for trust, transparency, and fairness. Companies exist to maximize performance while minimizing costs. Employees, on the other hand, want to earn as much as possible while keeping workloads manageable.
These competing interests make objective-setting far more complex than the MBO framework would have you believe.
At its worst, MBO turned into an annual box-checking exercise - one where objectives were either forgotten until performance review time or dictated from above without discussion. And when people feel like they have no say in their goals or incentives, resentment follows.
THE FLAWS IN MBO: WHERE IT FALLS SHORT
While the idea of setting mutual objectives sounds great in theory, its execution often fails to address the realities of workplace power dynamics and corporate priorities. Here’s where MBO truly stumbles:
THE CONFLICT OF INTERESTS
Companies want maximum performance at the lowest cost. Employees want to earn more while keeping expectations realistic. When these two forces collide in an MBO discussion, what happens? If objectives are set too high, employees feel exploited. If they are set too low, management sees underperformance. It’s a constant tug-of-war that MBO never really resolves, particularly when incentives and bonuses are at stake.
LACK OF TRUST UNDERMINES THE PROCESS
MBO assumes that managers and employees operate in an environment of mutual trust, but in many workplaces, that’s far from the truth. Employees often suspect that objectives are skewed in favor of the company, while managers may see employees as trying to game the system. Without genuine trust, the entire objective-setting process becomes a hollow formality.
OBJECTIVES ARE OFTEN IGNORED UNTIL PERFORMANCE REVIEWS
In many companies, objectives are set, written down, and then stuffed into a drawer - only to be dusted off once a year for performance reviews. If objectives are not discussed, adjusted, and reinforced throughout the year, how can they possibly drive meaningful performance improvements? This approach makes a mockery of the system and kills motivation.
IMPOSED OBJECTIVES CREATE RESENTMENT
Some organizations pretend MBO is collaborative, while others don’t even try - they just hand down performance requirements with zero discussion. This top-down approach breeds frustration and disengagement. When employees have no real say in their objectives, they don’t buy into them, and without buy-in, motivation and productivity take a nosedive.
THE NEED FOR A NEW SYSTEM
Despite its flaws, the core principle of MBO - that setting clear business objectives is essential - still holds essential. However, the reality is there ought to be a new system. The challenge is making the process work in a way that fosters trust, credibility, and ongoing dialogue. The new system must be formalized and based on trust:
CREATING A CULTURE OF TRUST
Trust is not a buzzword. Trust is the foundation on which any successful business relationship is built. Employees need to believe that their managers genuinely have their best interests at heart. Companies need to prioritize transparency, fairness, and consistency in how objectives are set and evaluated. Without trust, the whole process is bound for failure.
MAKING OBJECTIVES A CONTINUOUS CONVERSATION
Objective setting should not be a once-a-year ritual. It should be a living, breathing process where employees and managers check in regularly to ensure goals are still relevant, achievable, and aligned with the company goals and priorities. The more frequently objectives are discussed, the more likely employees are to stay engaged and accountable.
BALANCING PERFORMANCE EXPECTATIONS WITH FAIR COMPENSATION
When performance-based pay is involved, fairness is critical. If employees believe the system is rigged against them, they’ll stop trying. Companies need to design incentive structures that reward genuine effort and achievement, rather than manipulating objectives to protect the bottom line.
THE POWER OF TRUST
When trust is present in management-employee relationships work moves faster, objectives are clearer, and results improve. Less time is spent debating fairness, and more time is spent getting things done. Employees who trust their leaders take more initiative, collaborate more effectively, and drive better outcomes for business.
At the end of the day, setting objectives should be more than just a bureaucratic exercise. Setting objectives should be an opportunity to align company success with employee growth. By fostering trust, transparency, and real communication, businesses can turn the objective-setting process from a frustrating chore into a powerful tool for engagement and achievement.
Trust is at the heart of business achievement. More on trust and its necessity next time...