3 Deming-based alternatives to management by objective

If we consider that innovation and productivity are key aspects of creating sustainable profits and indeed, of creating a sustainable world, then we have to ask, "Does Management by Objective (MBO) as typically practiced help us achieve greater innovation, productivity and competitiveness?" If you’ve read my earlier columns you can guess that my answer is: "Why would you want to waste your time on an approach that has been mis-taught, misapplied, and is hated by so many?"

As one reader submitted: instead of trying to figure out a "right way to do MBO," look to Deming. Stop trying to make a failed approach work. Overcoming the historical problems and unintended consequences of MBO just is not worth the effort to try to make it work, especially when Deming’s proven, effective alternative is well-documented.

In my previous column "Why There’s No Right Way to Do MBO" I took cues from reader’s comments to write about the problems with trying to make Management-By-Objective effective. Today’s reality is there is no right way to do MBO because MBO has been so corrupted through well-intentioned but poor understanding of the essential value of MBO. I think MBO is a lost cause. As typically understood, taught, and practiced, MBO destroys people and organizations. Exactly the opposite of what Peter Drucker had hoped for when he wrote about MBO.

So, what to do instead of MBO? I encourage three simple and effective Deming-based alternatives. 

Alternative #1: Use the quality tools to assess the capability of the organization

The setting of objectives does not assess capability. If the capability does not match the need, take actions to increase the capability. Further, the quality tools help us hear the voice of the process and the voice of the customers –and show us the way to get better outcomes. By focusing on analysis, synthesis, and methods – rather than on quotas and objectives virtually everything improves. Quality goes up, productivity goes up, employee turnover goes down, and costs go down.

So simply stop managing via objectives. Why? Because assessing capability is different from setting objectives. Objectives are almost always disconnected from demonstrated capability, and as a result they manipulate people (who in turn manipulate processes, resources, numbers, and other people). Stop using objectives to rate and rank people and departments, and to set pay raises, bonuses and the like.

Instead, take actions to increase the capability of people and processes; those actions usually involve training, more collaboration, and more communications about inputs, outputs, methods and tools.

I know that may sound too easy to be effective, but it is effective. Replace hands-off objective-based management with hands-on understanding of how to improve capability. It really is that easy as a first step.

Alternative #2: Apply the quality tools and thinking to strategy and planning

You want to create an organization that works as a system rather than as independent silos that compete for attention, resources, and rewards. Alas, analysis of causes, capability studies, force-field analysis, and the other tools are usually applied to production and service processes, not to strategy and improving the insight of senior leaders about the capabilities of the business. And, as every quality/productivity practitioner knows, the tools don’t convince senior leaders to abolish MBO.

There are many reasons for this, but one is that executives have been taught that the quality tools are the tools the Quality Department uses, and that "MBO" (and its cousins: quotas, incentives, punishments, pay-for-performance) are the tools the "leadership department" uses. If you are a leader who uses MBO or its cousins then you have a gigantic opportunity to help your organization leap ahead of competitors. Specifically: a) abolish MBO and its cousins in your organization and have managers focus on suggestion #1 to increase capability, and b) use the quality tools in strategy and planning activities. You’ll get better insights and better results.

Alternative #3: Learn Deming’s Management Method of the System of Profound Knowledge (SoPK)

If you want to make REALLY big leaps forward in productivity, innovation, and competitiveness, you need to get exposure to the Deming management method of the System of Profound Knowledge (SoPK). We must move beyond the quality tools alone and start really understanding Deming’s SoPK. Most people know of Deming-based quality but 80 percent or so of the power of Deming’s overall approach which is embedded in SoPK is unknown by 99 percent of leaders.

SoPK is virtually an untapped source of incredible insight about much simpler and more effective ways to manage. MBO looks simple on the surface, but the unintended consequences of achieving short-term numerical objectives through soul-destroying means causes most everyone to hate it. However, using the elements of SoPK is not only humane but truly straightforward –and the results are sustainable and well-above that which is obtainable without the insights from SoPK.

To give you a taste of the main topics included in the Deming Institute Seminars, I’m providing an over-simplified but perhaps helpful summary of the four elements of Deming’s SoPK:

• Understand variation: Understanding variation (and NOT just statistical variation) provides senior leaders with ways to separate the "important few from the trivial many" and reveals the meaningful multiplicity of root causes of performance that are difficult to see via spreadsheet analysis. Insight about variation causes leaders to wipe away unproductive and even harmful practices, such as punishing or rewarding sellers because of their monthly and quarterly results. Getting rid of the MBO management practices unleashes intrinsic motivation, innovation, and productivity. Senior leaders will have more time to work ON the business, rather than IN the business. For an article on Deming’s Variation see: Variation, So Meaningful Yet So Misunderstood

• Understand systems, systems thinking, and how to lead systems: A system must be optimized. Senior leaders know this at some level. However, most have been taught that the way to do that is to have each silo optimize its own results based on the objectives it must meet. In the Deming management method leaders learn to remove the barriers between departments and assure everyone is working to optimize the overall system, rather than just their piece of it. The results are dramatically different and better. For an article on Deming’s System’s thinking see: Systems Thinking and the Three Musketeers

• Understand the theory of knowledge: We really can learn from experience, but usually only if there is a disciplined approach. Plan-Do-Study-Act (PDSA) efforts can be applied very simply and effectively by the very top levels of decision-makers as well as by people in the "quality department". Executives typically find more joy in work (and find more people want to be led by them) when they can explain and prove "How we know what we think we know" via thoughtful PDSAs rather than by using spreadsheet analysis to make their points. Remember Deming’s admonition of the dangers of management by visible numbers alone. For an article on Deming’s theory of knowledge see: How do we know what we know?

• Understand the psychology of leadership: In Deming’s management method there is no place for the manipulation of people through incentives, rewards, punishments, and other forms of extrinsic motivation. The reason is because it gets in the way of – and indeed drives out — intrinsic motivation. Extrinsic motivation also creates praise junkies, grade grubbers, favor curriers, organizational politics, jockeying for position, deceit, manipulation of data, and unfairness that drives away the conscientious, committed, moral, and insightful people. For an article on Deming’s Psychology see: The Trouble with Motivation

If you want to delve deeper into the topic of Deming’s SoPK I’d recommend reading Deming’s second book, The New Economics which outlines it. (Or you could also attend seminars provided by the non-profit The W. Edwards Deming Institute (WEDI) with which I’m affiliated.)

I encourage you to take the next small step to get big returns: try one of my three suggestions –or better yet, try all three.

Editor’s Note: The columns published in THE DEMING FILES have been written under the Editorial Guidelines set by The W. Edwards Deming Institute. The Institute views these columns as opportunities to enhance, extend, and illustrate Dr. Deming’s theories. The authors have knowledge of Dr. Deming’s body of work, and the content of each column is the expression of each author’s interpretation of the subject matter.

PEX Report 2024 global state of process excellence

PEX Network's annual report reveals the current state and future trends of process excellence. Based on a study profiling hundreds of global process excellence leaders, the report provides insights on how to leverage innovation, generative AI, and process intelligence to achieve operational excellence, customer-centricity, and organizational growth. Download your copy of the PEX Report 2024/2025 today and benchmark your process excellence journey against your peers.

Download Now