Jun . 2024 .

Maximizing business performance through Management by Objectives (MBO)

What types of goals does Management by Objectives emphasize, and why should manufacturers implement it?

Henrique Melillo

Maximizing business performance through Management by Objectives (MBO)

In the current economic landscape, manufacturing companies are navigating a dynamic and challenging environment. Key trends such as digital transformation, automation, and sustainability are reshaping the industry. Despite significant effort in strategy definition, many companies falter in effective strategy deployment, with only 30% successfully executing their strategies. This often results from a lack of clear communication and alignment across the organization.

As Peter Drucker famously said, “Culture eats strategy for breakfast,” highlighting the critical role of organizational culture in executing strategic plans. Operational topics have become central to CEO discussions, reflecting a shift towards a more holistic approach that integrates technology and lean methodologies to enhance operational excellence and strategic alignment.

To overcome these cultural challenges, it is important to foster a results-driven culture where every individual has clear targets and understands how their efforts contribute to broader organizational goals.

To thrive, companies must align their strategies with these evolving trends, making methodologies like Management by Objectives (MBO) essential for driving operational excellence and achieving strategic goals.

<< Read more: 6 key steps to implement a successful manufacturing management system >>

Why should manufacturing companies use Management by Objectives? 

Manufacturing companies implementing MBO often encounter several critical challenges. A primary issue is the absence of standardized processes and procedures, leading to inconsistencies in goal setting and performance monitoring. There’s often a disconnect between individual objectives and broader strategic goals, resulting in misaligned priorities and fragmented efforts.

Integrating key performance indicators (KPIs) with individual performance reviews and variable compensation is another challenge, making it difficult to effectively motivate / recognize employees. Moreover, many companies lack comprehensive gap analysis and root-cause analysis capabilities, hindering their ability to set realistic targets and develop effective action plans.

The inconsistent sharing of best practices across operations further complicates the achievement of organizational objectives, making it imperative to address these pain points to unlock full potential.

Furthermore, fostering a culture change and effective change management, including a robust communication plan, is essential to ensure the successful adoption of Management by Objectives practices.

Overcoming results and MBO challenges: a success story

Consider the case of a global firm facing significant hurdles in strategy deployment. The company’s fragmented goal-setting processes and misaligned KPIs were major obstacles to achieving its strategic objectives. Additionally, the strategic initiatives were set unrealistically, with assessments revealing that the plans would not lead to the desired results.

Falconi intervened to streamline their MBO methodology. We began by refining target setting, establishing a consistent KPI catalog aligned with the company’s strategy, and providing clear guidelines for cascading objectives, ensuring alignment across all organizational levels.

Next, we strengthened the connection between operational and strategic objectives by assigning KPIs to the appropriate functions. Through robust planning and monitoring routines, we enabled closer and more effective progress tracking.

Additionally, we implemented a culture change initiative and a comprehensive change management plan, including clear and consistent communication strategies to foster buy-in and engagement at all levels.

As a result, within 14 months, the accumulated result surpassed the goal by 30%, equivalent to exceeding the company’s operating profit target by over $10 million!

This outstanding outcome was achieved through work across 17 different countries and a 25% increase in employee engagement, due to the clear linkage between objectives and individual performance and consistent action plans to cover target gaps.

<< Read more: Unlocking agile operational efficiency: challenges and rewards >>

How to implement Management by Objectives in companies?

As manufacturing companies adopt Management by Objectives, they can expect to evolve through a maturity curve, gaining increased benefits at each stage. The journey begins with the “Crawl” phase, where foundations are created with individual targets based on company strategy, basic monitoring routines, and intuitive decision-making.

Progressing to the “Walk” phase involves standardizing processes, aligning KPIs with budgets, and sustaining goals through action plans and consistent follow-ups. The “Run” phase integrates MBO principles into the business cycle, incorporating successful actions into standard processes, utilizing integrated tools for tracking, and providing structured training programs.

Finally, in the “Fly” phase, companies achieve optimized results with data-driven decision-making, advanced statistical target setting, and leveraging technologies for process automation and KPI measurement.

Falconi’s expertise guides companies through these stages, ensuring continuous improvement and sustained success. Each stage of the maturity curve requires ongoing culture change, effective change management, and clear communication to align all employees with the strategic vision.

Embrace MBO with Falconi

In conclusion, the effective implementation of MBO can significantly enhance a manufacturing company’s ability to achieve its strategic objectives. Falconi’s proven methodologies and tailored solutions help businesses overcome common MBO challenges, leading to substantial improvements in performance and employee engagement.

To learn more about how Falconi can support your organization’s MBO journey, we invite you to schedule a metting with our experts and explore additional resources on our website. Take the first step towards enhanced strategic alignment and operational excellence with Falconi today.

Henrique Melillo

11+ years of global experience

Expertise: Financial and Operational Efficiency in industries such as construction, telecommunications infrastructure, public health, financial, and food & beverage.

Education: BBA & Finance at Insper, Specialist in Operation Management from the Wharton School of Business and Strategy Execution from Erasmus University Rotterdam

You may also be interested

Most seen

triangulo branco triangulo preto