In High Output Management, Andy Grove presents the following parable about MBO (management by objective):
To familiarize ourselves with the MBO system, let’s look at a case history, Columbus’s discovery of the New World, though how I tell the story takes considerable liberties with the grammar-school version of the event. Thanks to its annual planning process of 1491, the government of Spain concluded that it could not continue a war everybody felt was utterly necessary unless money became available to buy weapons and ammunition. Since pushing the Moors out of Spain was the supreme goal of Queen Isabella’s government, the Queen needed the funds to do it. Isabella decided she would get money by dramatically improving Spain’s foreign trade balance. She then talked to her subordinate – Christopher Columbus – and told him about her objective. Columbus agreed to think about various ways to do what she wanted and after a time went back to her with several suggestions, which included finding pirate-free passage to England and perhaps finding a new route to the Orient. Isabella and Columbus discussed the entire matter freely, eventually reaching a clear decision that he would look for a new route to the East.
Once the decision was made, Columbus began to think of all the things that he would need to accomplish his intent. In MBO terms, the Queen defined her own objective (increase Spain’s wealth); Columbus and the Queen then agreed upon his objective (find a new route to the Orient). Columbus then went on to formulate the key results by which he would pace himself, which included obtaining several ships, training crews, conducting a shakedown cruise, setting sail, and so forth, with each possessing a specific deadline.
“The relationship between Isabella’s and Columbus’s objectives is clear. The Queen wanted to increase her nation’s wealth, while Columbus wanted to find a safe trade route to the Orient. And we see a nesting hierarchy of objectives; if the subordinate’s objectives are met, the supervisor’s will be as well.
Now, the key results can come in like clockwork, but the objectives can still be missed. For Columbus, the key results are relatively easy to achieve, but he most certainly did not find a new trade route to China, and therefore failed to meet his objective.
Did Columbus perform well even though he failed by strict MBO terms? He did discover the New World, and that was a source of incalculable wealth for Spain. So it is entirely possible for a subordinate to perform well and be rated well even though he missed his specified objective. The MBO system is meant to pace a person – to put a stopwatch in his own hand so he can gauge his own performance. It is not a legal document upon which to base a performance review, but should be just one input used to determine how well an individual is doing. If the supervisor mechanically relies on the MBO system to evaluate his subordinate’s performance, or if the subordinate takes uses it rigidly and forgoes taking advantage of an emerging opportunity because it was not a specified objective or key result, then both are behaving in a petty and unprofessional fashion.
While this story effectively illustrates the concept of MBO, it doesn’t deal with some of the main challenges I’ve encountered in my years working within this system. In the course of managing many intelligent and ambitious people, the same questions and skepticism about MBO have come up again and again. Rather than the problem outlined above where Columbus doesn’t meet his defined objective but does meet the objective of his boss, the opposite problem is more common: Columbus does fulfill his objective as defined but doing so does not have the intended impact. Should Columbus get the full recognition and reward for his objective being met? No. But navigating this is tricky. If Isabella denies Columbus recognition in the wrong way, Columbus will be demoralized and, in the best case scenario, take a job from another monarch, and in the worst case, stick around leaking negative energy and undermining the organization from within.
The solution lies in the past, before the objective was set – it lies in the leadership qualities of the manager (and his or her manager, and his or her manager, up the ladder).
Let’s unpack two such scenarios to see how this works.
- Say Queen Isabella communicates her objective of improving foreign trade, and they both agree that Columbus’s objective is to find a route to Asia.
- Then, let’s say he does find the route, but the trade balance is not improved within the timeframe that matters to Isabella.
Business, like the Age of Exploration, is unpredictable. While all signs pointed to this objective being a good one, an unknown unknown emerged to make it ineffective or even worthless. As a result, Isabella might say, “I know you met your objective, but my overarching objective wasn’t met – so I don’t recognize your objective as complete.” Columbus might respond, “But I made many sacrifices to meet my objective, and the reason for Spain’s position not improving has to do with other executive decisions.”
Avoiding this cycle of waste depends on commitment and (justified) trust on the part of Columbus, and leadership on the part of Isabella. If Columbus is committed to Spain’s success and trusts Isabella’s leadership, he will agree to mark his objective incomplete, even though he technically completed it as written. But if he cares more about his own benefit than Spain’s, and doesn’t trust Isabella’s decision making process, he will read the technical objective literally and be discontented. In my view, while both bear responsibility, Isabella’s choices have more of an effect than his. She needs to make the improvement of Spain’s trade balance their objective, rather than her’s.
Additionally, as a result of the failure, if Isabella visibly sacrifices her own personal benefit before Columbus’s, then Columbus will better trust Isabella’s motives. By denying Columbus a reward at the same time as denying a larger one herself, she can use this negative outcome to strengthen trust between them. From Leaders Eat Last:
“Trust is not simply a matter of shared opinions. Trust is a biological reaction to the belief that someone has our well-being at heart. Leaders are the ones who are willing to give up something of their own for us. Their time, their energy, their money, maybe even the food off their plate.”
Here’s another alternative outcome:
- As before, let’s say again Queen Isabella communicates her objective of improving foreign trade, and they both agree that Columbus’s objective is to find a route to Asia.
- Then, let’s say he does find the route, the trade balance is improved to the desired extent, but the real objective of defeating the Moors fails.
Isabella could again say that Columbus’s objective was not completed, and Columbus could become disgruntled and lose trust in the MBO system. Avoiding this scenario depends on Isabella’s vision – not only communicating it to Columbus, but inspiring him with it. That is, the vision must draw upon values they both share. Gaining Columbus’s understanding and buy-in for Isabella’s vision is even better than getting his commitment to Spain in the abstract or to Isabella personally, because the vision can be utilized directly by Columbus and his team to guide autonomous, day-to-day decision making.
If Columbus is inspired and motivated by Isabella’s vision (a Spain free of Moorish rule), and the above scenario transpires, he will accept that his objective cannot be counted as complete – he will not even want it counted as complete.
In both of these scenarios, the failure of the objective to have its intended impact should trigger a reflection in both Isabella and Columbus about why and how they both defined the wrong objective. After all, Columbus effectively said, “I intend to find a route to Asia,” and Isabella effectively said, “Very well.” They both bear responsibility for the poor decision, and should openly recognize it to each other, learn, and iterate their strategic thinking.
Cross posted from LinkedIn.