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Unit 4: Area of Planning
increase employee understanding of company goals, focus employee efforts upon organizational Notes
objectives, and provide a concrete link between pay and performance. An important factor in
an MBO system is its emphasis on the results achieved by employees rather than the activities
performed in their jobs.
4.3.1 Implementing an MBO Program
To be successful, an MBO program should be part of a small business’s overall system of
planning and goal setting. The first step in implementing MBO is to establish long-range
company goals in such areas as sales, competitive positioning, human resource development,
etc. A small business owner may find it helpful to begin by defining the company’s current
business and looking for emerging customer needs or market trends that may require adaptation.
Such long-range planning provides a framework for charting the company’s future staffing
levels, marketing approaches, financing needs, product development focus, and facility and
equipment usage.
The next step in establishing an MBO system is to use these long-range plans to determine
company-wide goals for the current year. Then the company goals can be broken down further
into goals for different departments, and eventually into goals for individual employees. As
goal-setting filters down through the organization, special care must be taken to ensure that
individual and department goals all support the long-range objectives of the business. Ideally,
a small business’s managers should be involved in formulating the company’s long-range
goals. This approach may increase their commitment to achieving the goals, allow them to
communicate the goals clearly to employees, and help them to create their own short-range
goals to support the company goals.
At a minimum, a successful MBO program requires each employee to produce five to ten
specific, measurable goals. In addition to a statement of the goal itself, each goal should be
supported with a means of measurement and a series of steps toward completion. These goals
should be proposed to the employee’s manager in writing, discussed, and approved. It is the
manager’s responsibility to make sure that all employee goals are consistent with the department
and company goals. The manager also must compare the employee’s performance with his or
her goals on a regular basis in order to identify any problems and take corrective action as
needed.
Formulating goals is not an easy task for employees, and most people do not master it immediately.
Small business owners may find it helpful to begin the process by asking employees and
managers to define their jobs and list their major responsibilities. Then the employees and
managers can create a goal or goals based upon each responsibility and decide how to measure
their own performance in terms of results. In the Small Business Administration publication
Planning and Goal Setting for Small Business, Raymond F. Pelissier recommended having
employees create a miniature work plan for each goal. A work plan would include the goal
itself, the measurement terms, any major problems anticipated in meeting the goal, a series of
work steps toward meeting the goal (with completion dates), and the company goal to which
the personal goal relates.
Small business owners may also find it helpful to break down employee goal setting into
categories. The first category, regular goals, would include objectives related to the activities
that make up an employee’s major responsibilities. Examples of regular goals might include
improving efficiency or the amount and quality of work produced. The second category,
problem-solving goals, should define and eliminate any major problems the employee encounters
in performing his or her job. Another category is innovation, which should include goals that
apply original ideas to company problems. The final category is development goals, which
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