4 steps for management by objectives (MBO)

My first contact with product teams happened in 2008. Since then, I’ve worked with dozens of teams worldwide, from startups to well-established corporations. After all this time, two things stick out: in teams where purpose or accountability was missing, the results were watered down.

Without knowing why their work matters, teams cannot make better decisions about how to create value. And with limited accountability, team members won’t bring their best to work.

To succeed you need both purpose and accountability. But now comes the trick, I often notice that management sets goals and throws them over the fence to teams. The result is almost always the same, teams complain, don’t commit, and get demotivated.

How do you change this scenario for the better? That’s when management by objectives comes in handy.

In this article, you will learn what management by objectives is, the four steps that go into it, and real world examples of its implementation within product teams.

What is management by objectives (MBO)?

Management by objective is a style of leadership that empowers teams and individuals by setting goals collaboratively. The belief is that individuals are self-managing and fully capable of reaching goals without management telling them precisely what to do.

Unlike the hierarchical leadership style, where the higher you’re in the organization, the more decisions you make, and the lower you are, the more orders you follow. MBO is about collaborating on setting goals and crafting high-level plans together.

MBO relies on trust and strong collaboration that leads to higher accountability and purpose.

How does MBO integrate with product management?

Product management is complex. No matter what you do, you won’t get all the answers right from the first attempt. Yet, where you want to land around a stable objective.

In hierarchical leadership, the C-Suite defines what needs to be done by when and forces teams to commit to it. The challenge is that teams need to focus on outputs without the empowerment to experiment with different solutions to reach the desired outcomes.

This way, they have only one chance of succeeding. If the defined output is correct, they will thrive. Otherwise, they will likely fail.

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Let me illustrate the difference between a classic leadership style and MBO:

• Classic leadership objective — Include product recommendations in the product detail page and cart
• MBO — Increase basket size by 10 percent by the end of Q3

Both approaches can lead to success, but the first would force the team to have a fixed mindset because delivering the solution is the goal. That causes a lack of accountability and purpose.

On the other hand, the second points out the direction but doesn’t define how. The team would focus on reaching the goal while having the chance to explore different solutions.

MBO paves the way for product teams to thrive by allowing them to collaborate on crafting goals together and aligning on a high-level plan. It’s collaborative instead of coordinative.

4 steps for management by objectives

To set up management by objectives, you’ll need to follow the following four steps:

1. Formulate objectives — As a team, craft the objectives. The goal is to align on where to land, instead of how to get there. For example, “Accelerate growth by 15 percent by the end of next quarter even if that means increasing customer acquisition costs by 10 percent”
2. Set a high-level plan — Define what the team will do immediately to reach the desired objective. For example, “Identify successful acquisition channels and double down on them while reducing investments on ineffective channels”
3. Implement the plan — Those responsible take over as much as possible. Following the plan isn’t the goal, but reaching the result. The team has the opportunity to adapt to help them progress toward the goal
4. Monitor performance — After the agreed cycle, the team gets together with management to evaluate progress and assess how effective their plan was

You may wonder, is that all? The beauty of management by objectives lies in its simplicity.

The importance of monitoring performance

Setting goals together is fundamental to enabling accountability and creating purpose, but that alone isn’t enough. Teams get things wrong and will need support. Help find the best way forward.

The shorter the cycle you can measure, the faster you can correct issues.

Some teams create long cycles to monitor their results, but that tends to be ineffective. You may realize you have a problem once it’s already too big. Monitoring your results as fast as possible (weekly is good enough) can identify opportunities to improve the outcomes.

Monitoring enables you to:

• Interact — Evaluate the status quo based on facts and take action to drive results
• Pivot — Change solutions if proven to be wrong
• Drop — Sometimes you realize reaching the goal within the conditions you have isn’t possible, so you can mindfully drop it or agree on changing the

How to make MBO effective

One of the tricky aspects of MBO is learning how to balance collaboration between leadership and individuals. Leadership holds higher cards, and it’s unlikely that individuals will go against them, even though leadership may want to get their perspectives before agreeing on goals.

When leadership names a rough objective, chances are high that individuals won’t challenge the direction. This creates a follow-the-leader approach, and accountability will be lower than desired.

To make management by objective more effective, utilize storytelling. For example, instead of saying that growth is the utmost important metric now, try saying that over the last couple of months, increasing the customer base has been a struggle. Then you can ask for individual feedback.

By involving individuals and teams in crafting the objective, they will feel more accountable for it, and that creates a leader-leader approach.

Management by objectives example

I worked for an agency in Brazil that audited stores nationwide. Our service helped brands like Adidas, Samsung, Philips, and others understand how their products were positioned in stores compared to competitors and how well-prepared the sales representatives were.

The company had more than five thousand employees spread across Brazil, and our biggest challenge was effective route planning. Once the operations director came to our team to align on what we could achieve for the upcoming months. She said, “We’re ineffective. Despite having a strong workforce, we’re not covering the stores we promised our customers. We need to change this situation. I need your help.”

The message was clear, and the humbleness of the director touched us. We bounced ideas, like automating store distribution, partnering with other agencies to outsource the routing, or even creating an advanced routing system. The director liked the direction but told us, “These are solutions. Which objective could we commit to?”

Someone from the team said, “What about Covering 20 percent more stores in three months than we cover now?” That resonated with everyone, and we set the goal. Then, together we worked on a high-level plan, which consisted in trying out three solutions at a high level to evaluate which would yield better results, and we agreed to meet again in two weeks.

Two weeks passed, and we met. Two solutions created nothing relevant, but one looked promising, so we decided to drop the losers and double down on the winner.

We worked like this for the next three months and reached our goal. My takeaway from this lesson was that collaboration beats the process. You will make significant progress once you craft objectives together and collaborate to get there.

Everyone felt accountable for the objective, and we connected to the purpose of it.

Conclusion

Management by objective is potent when done right, but knowing how to get employees to speak up is essential.

Remember these key takeaways from combining MBO with product management:

• Ensure that employees know the context before talking about objectives
• Let employees come up with high-level objectives instead of telling them which objective to pursue
• Measure and monitor results as fast as possible to enable you to correct the course of action quickly enough
• Don’t get bugged with plans. Remember, the goal is reaching the objective, not following the plan

Featured image source: IconScout

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