This article is written as requested by some in the Forums.
Before the early 1970s, managers who made long range plans generally assumed that better times lay ahead. Plans for the future were merely extensions of where the organization had been in the past. However, the energy crisis, deregulation a celebrating technological change, and increasing global competition as well as other environmental shocks of the 1970s and 1980s undermined this approach to long range planning. These changes in the rules of the game forced managers to develop a systematic means of analyzing the environment assessing their organizations’ strengths and weaknesses, and identifying opportunities where the organization could have a competitive advantage. This is precisely how Hero Cycles grew from a small local manufacturer to become the largest manufacturer of bicycles in the world today. At the time, market leader TI Cycles was focusing on producing high quality bicycles through a strategy of vertical integration, based on elegant designs that came from England. Hero Cycles decided to design a low cost rugged bicycle that could carry heavy loads, more uniquely suited to Indian needs. Hero Cycles was able to achieve this by outsourcing most of the components to a local network of suppliers and concentrating on increasing the efficiency of in house assembly operations. Today the company has a 48 percent market share with a sales turnover of Rs 895 crores.
The value of strategic planning is evident. Those companies that plan strategically appear to have better financial measurements than those organizations that don’t. Today’s strategic planning has moved beyond the private sector to include government agencies, hospitals, educational institutions, and NGOs. For example, the Strategic Planning, Monitoring and Evaluation Group of UNICEF India is actively involved in developing UNICEF’s India plans. A situation analysis of women and children is carried out every five years. This is to update data that UNICEF uses in its programs; it is also provides to field offices and partners. The group identifies strategies that need to be worked out all over the country. In the yearly work plan and discussion documents, the group addresses issues like where the government is putting in money, and from what other sources a certain area is getting funding. Based on this, they decide where UNICEF assistance is required.
Does setting objectives have a downside?
Despite some strong evidence indicating that specific employee goals are linked to higher performance, not everyone supports the value of setting objectives. One of the most vocal critics of processes such as MBO was the late W Edwards Deming. Deming argued that specific goals may, in fact, do more harm that good. He felt that employees tend to focus on the goals by which they will be judged so they may direct their efforts toward quantity of output (what’s being measured) and away from quality. Specific goals also, say some critics encourage individual achievement rather than a team focus. In addition, Deming believed that, when objectives are set, employees end to view them as ceilings rather as floors. That is after setting a goal and achieving its employees’ potential and discourage efforts for continuous improvement.
These criticisms of specific goals are potentially correct. However, they can be overcome. One answer is for managers to ensure that employees have multiple goals and that they address quality of output as well as quantity. For instance, an insurance claims adjuster should be evaluated not only on the total number of claims processed but also on the number of errors made. Managers should treat MBO as an ongoing activity with regular review for goals and an update of goals as necessary. Furthermore, individuals should be rewarded for setting difficult goals even if they aren’t fully achieved. Goals are more likely to limit individual effort when people believe they’ll be punished for not reaching them, so employees should be encouraged to set ambitious goals that stretch their capabilities, and they should not be made to fear repercussions if they fail. Managers should regularly review goals with employees and make changes when warranted.