Why Management by Objectives Fails (and so may OKR)

Mary Parker Follett (1868-1933)

With the annual Drucker Forum now taking place in Vienna it’s timely to reflect on Management by Objectives (MBO), the most enduring and popular of the ideas that Peter Drucker championed. MBO was not original to Drucker. He probably owed the idea to Mary Parker Follett and her concept of the law of the situation, expressed thirty years before him: “My solution is to depersonalize the giving of orders, to unite all concerned in a study of the situation, to discover the law of the situation and obey that…. One person should not give orders to another person, but both should agree to take their orders from the situation.” (The Giving of Orders, 1926).

In Chapter 11 of his 1954 book, The Practice of Management, titled “Management By Objectives and Self-control”, Drucker wrote, “A decision should always be made at the lowest possible level and as close to the scene of action as possible. Moreover, a decision should always be made at a level ensuring that all activities and objectives affected are fully considered. The first rule tells us how far down a decision should be made. The second how far down it can be made…”

Unfortunately, the tension between the two rules and the “self-control” aspect of MBO was soon lost in translation from a German cultural context (shared by both Drucker and Follett) to an American one. Here it morphed into a six-step, top-down process:

  1. Define organizational goals
  2. Define employee objectives
  3. Continuous monitoring performance and progress
  4. Performance evaluation
  5. Providing feedback
  6. Performance appraisal

In many organizations these performance goals are numerical and still linked to the budgeting process. Performance appraisal is based an employee’s ability to reach targets set at the beginning of the fiscal year…. The result in many organizations is an annual ordeal preparing budgets that are linked to individual compensation. The corporate head office tries to push the numbers as high as possible, arguing for ‘stretch’ goals, while operating managers try to get them as low as possible, theoretically to maximize their income but often just to make organizational life bearable. The resulting bad-tempered, adversarial process and the accompanying zero-sum game-playing perpetuates top-down, command-and-control management cultures. It wastes a prodigious amount of time and prolongs destructive competition within the organization, damaging trust and cooperation. It is the opposite of the “win-win” process proposed by Drucker that would, he hoped,  “harmonize the goals of the individual with the common weal.”

The European Context and the Giving of Orders

Why did this happen? To help answer this question it’s useful to examine the difficulties in translation of another Continental theory of management, that of mission command, first developed by the German General Staff in the 19th Century.

Mission Command

Helmut von Moltke the Elder (1819-1888) was the legendary chief of the German General Staff from 1857 to 1888.

Helmuth von Moltke the Elder

The Staff had been born in crisis in the aftermath of Prussia’s defeat by Napoleon, and it grew up during a time when Prussia’s principal industry and export was war. The German General Staff reached the peak of its powers during Moltke the Elder’s era, as Germany became a united nation.

Moltke believed that strategy was a system of ad hoc expedients and that no plan could survive beyond the first contact with the enemy. This meant that commanders in the field had to have the maximum freedom of action and that the strategy should outline what was to be achieved without specifying how it was to be done. Moltke became an outspoken advocate of what came to be called “mission command”. Cascading sets of orders specified a superior’s intent, while leaving a clear space in which subordinates were expected to exercise their discretion. The emphasis was on taking those actions the situation demanded, and the best judge of that was the person on the spot. Sins of omission were seen as far more serious than sins of commission. This meant that the subordinates had to be highly competent and trusted; maximum freedom required great self-discipline, starting with selection and inculcated through rigorous training.

Auftragstaktik, “mission tactics”, as the Germans called it, wasn’t just tactics but a complete command philosophy of “leading by task”. The idea was to set boundaries, to bracket the options and to create spaces where everyone from the highest general to the lowliest enlisted man had discretion to act in the interest of achieving the overall mission. No commander should issue an order that went into more detail than the scale at which he could appreciate the situation. A commander should never tell a subordinate exactly what to do, for that would remove the subordinate’s discretion at precisely those scales where only the subordinate could take effective action. The same caution applied to the subordinate’s subordinate, and so on down the line. If subordinates did not have the leeway to make decisions and take action on their own, each at their own unique scale, then they – and their organization – could not learn.

The Prussian Army was hierarchical, but it was a hierarchy of constraints, not command-and-control. It embraced radically different theories of the nature of war, character and leadership, senior-subordinate relationships, training and education and so on.

Translation Problems

American military observers in Europe in the 19th Century seem to have had as much trouble grasping Auftragstaktik as their modern management counterparts have had in understanding the Drucker/Follett concept of Management By Objectives. In both cases the practitioners tended to look for tools and techniques, trying to strip the methodology from the philosophy and ignore the deep philosophical differences and assumptions about human nature. The American Army had no trouble translating the field manuals, often replicating them word for word, but reproducing the behavior was another matter.

Mission command, like MBO is not just a set of tools and techniques that can be learned and “applied”. If humans and their organizations were computers that could be programmed, then such a cut-and-paste approach might work, at least in principle. But they aren’t and it doesn’t. One has to adopt the whole philosophy and take the time to develop the individual habits and institutional disciplines that allow it to work effectively.

Auftragstaktik and Befehlstaktik

The German General Staff contrasted Auftragstaktik (leading by task) with Befehlstaktik (leading by orders), which tends to be the default mode for armed forces and large-scale organizations everywhere. The U.S. Army, in its efforts to inculcate mission command, put together a table to contrast the outcomes produced by the two. It is reproduced (with a minor correction) below:

When one looks at this table, all you have to do is substitute “MBO in Theory” for “Mission Command” and “MBO in Practice” for “Detailed Command” to have descriptions that match my reading of Drucker intention for MBO versus my experience of MBO in the Anglo-American workplace. Drucker emphasized the need for everyone to understand the mission of the organization and stressed the importance of self-discipline and management by self-control. But in practice this advice was swamped by his injunction to “set clear objectives” and the caution often wrongly attributed to him that “if it can’t be measured it can’t be managed”. The result in most of the corporations that I have been involved with has been numerical objectives, set top-down, cascaded throughout the organization and policed by myriad Key Performance Indicators (KPIs).  Instead of producing the outcomes in the left hand column, which was what most top management said was their intention, the result has been the right-hand column, which is still a pretty good description of the current situation in large organizations everywhere.

Mission command is still the gold standard for armed forces around the world. It has proved successful mainly in special forces, where the numbers are small and the selection rigorous. As soon as one starts dealing with large numbers and conscripts it becomes problematic. The German Army was probably the most successful at it during the two world wars, assisted by geographical and cultural features, some of which are unique to Germany and those conflicts. (See Martin van Creveld’s book Fighting Power: U.S and German Fighting Performance 1939-1945)

One reads that in the digital world many enterprises are replacing MBO with an Intel variation, popularized by their legendary CEO, Andy Grove, as Objectives and Key Results (OKR). Grove’s intent with OKRs sounds a lot like that of mission command: to avoid command-and-control hierarchies and allow every individual from top to bottom of the organizations to set their own ambitious goals. The objectives are quarterly, not annual and are not connected to compensation. Yet OKR seems to be aimed at problems that can be well-specified, with the steps to solve them laid out in advance and measured. In other words, they are designed to deal with complicated, “tame” challenges rather than complex “wicked” ones encountered in battle. Thus OKR may fail in the same way as MBO and for the same reasons: Anglo-American practitioners will try to strip the methodology from the philosophy and ignore the importance of context and the role of emergent strategy in organizational success.

Instrumental Rationality and Drucker’s Philosophy

Why do apparently well-intentioned, competent managers keep on aiming for one outcome and keep on getting its polar opposite? It cannot be about tools and techniques themselves; it must have something to do with philosophy, especially the instrumental rationality that still underpins so much of Anglo-American management practice and thought.

Wikipedia defines instrumental rationality as “a specific form of rationality focusing on the most efficient or cost-effective means to achieve a specific end, but not in itself reflecting on the value of that end”. It became a feature of American management early in the 20th Century as part of the Efficiency Movement in which Frederick Taylor played such a key role. It is the epitome of the “can-do” problem-solving mentality that takes problems as givens and enthusiastically sets out to solve them. It works well on stable, engineering-type, technical problems, where the problem can be clearly specified and decomposed into its constituent parts. It doesn’t work with complex, “wicked” problems, where the problems aren’t given but require framing, where the situation is constantly changing and there is no time to wait for optimal solutions. In short, it doesn’t work in battle and it doesn’t work in much of corporate life.

Drucker’s philosophy was eclectic; he always embraced tensions rather than choosing one side or another of apparent dichotomies. At its roots his outlook was European, heavily influenced by his “Humboldtian” educationand early exposure to the holistic Gestalt movement. His constant emphasis on the need for integration and synthesis, rather than mere analysis, can be traced back to here. But when he came to America and started to write about management, he presented himself as a rationalist. There seem to have been several reasons of this. The dominant view at that time was that management at the top was an art, not tractable to logic and the laws of probability. One of Drucker’s first proclamations was that the age of intuitive management was over and that an active, rational practice of management was not only possible but increasingly demanded by the circumstances.

Another reason, perhaps, for Drucker’s presentation of himself as a rationalist was that in the 1940s many executives regarded him, in his own words, as a “dangerous and subversive radical”.  With rivalry with the Soviet Union growing, it was not a time to be talking about “autonomous plant communities”. There was also a rationalist temper to the times. The Allied victory in World War II showed just how important science and technology were: the launch of Sputnik and the subsequent space race only added to this mood. There was a movement to rationalize management along scientific lines that would culminate in the reform of the leading American business schools in the late 1950s.

Drucker might have represented himself as a rationalist, but he knew that there were limits to rationality. It could be used on its own to deal with the objective world of the natural sciences but was inadequate to handle the all the challenges of the human condition. His profoundly Christian values, stemming from his early discovery of the writings of existentialist thinker Soren Kierkegaard, made ethics an integral part of management

Thus the philosophy that underpins Management by Objectives is an holist one that always combines ends and means in a relationship of “both…and” not “either/or”. This is an organic, ecological relationship rather than a mechanical, economic one and it is no coincidence that late in his career Peter Drucker would describe himself as a “social ecologist”. This is surely why both management by objectives (MBO) and mission command get into trouble when they are used as tools in organizations where people are treated merely as objects – means to another’s ends – rather than also as subjects, that is, as ends in themselves. This thought was most forcefully expressed by Mary Parker Follett, as she struck an emancipatory note, “(P)urpose is involved in the process, not prior to process… the whole philosophy of cause-and-effect must be rewritten….Loyalty is awakened… by the very process which creates the group…Our task is not to ‘find’ causes to awaken our loyalty, but to live our lives fully and loyalty issues…Loyalty to a collective will which we have not created is slavery.” (The New State, 1923)

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