I’ve written from time to time about the fallacy of MBO – Management by Objectives – in contrast to the fundamental lean principle of MBM – Management by Means. MBM is process centered management, while MBO is pretty much ‘process be damned’ management. At last week’s Lean Accounting Summit in a session concerning metrics I explained the point as follows:

MBO-v-MBM-1

If we are tracking the results of some process and we get the above, the basic question is why we are going to the time and trouble to measure it? The process is clearly under control, and it results in 83% performance to some standard or target, +/- 5%. What would be the point of measuring it again next week? We already know that it will result in the same 83% +/-5% it always does.

MBO-v-MBM-2

On the other hand, let’s say we are tracking the same process with the above results. Clearly out of control – one or more of the basic drivers of the process is in the make-it-up-as-we-go-along mode. With a driver of the process acting rather randomly, the results of the process are pretty random. So we know that it resulted in 68% performance to the standard one week. So what? We can draw no conclusion from that information since it results in 93% the next week. The 68% doesn’t mean someone did a bad job any more than the 93% reflects good work on someone’s part. Both data points are little more than proof that we have no standard work – no consistent way of getting things done.

The same question yields the same answer: Why bother to measure it? It serves no useful management purpose since the results are random and tell us nothing about the process or the people working in it other than that it is out of control, which we already knew.

Of course there is a point to measuring this process and that is to determine whether it is under control or not, although we don’t need to put much effort into making that assessment – a little bit of data every once in a while will tell us that.

And the metric we create based on that occasional bit of data doesn’t need to be in the form of some precise number. In fact, it doesn’t need to be a number at all. It can be a smiley face indicating the process output is consistent within some reasonable range – some control limit; or a frowning face indicating it is not.

As far as management’s reaction to the results of measuring the process results the numerical value someone can assign is largely irrelevant. If the result is a smiley face indicating the process is under control then management should launch an effort to reengineer the process to improve its output performance. On the other hand, if the result is a frowning face telling us the process is out of control, then management’s reaction should be a problem solving effort – an effort to find out where the random input is and fix it. The goal is not to improve the process. That can’t be done until the process is stabilized. Attempting to improve a process that isn’t stable is a colossal waste of time since it won’t be performed the same way the next time.

This is the essence of MBO versus MBM. Management by Objectives – basically standing around at the end of the process measuring the results and either giving the manager a carrot or whacking him with a stick is not only ineffective management it is pretty lazy management. Real management is MBM. It is managing the process with the understanding that the business’ results are the inevitable product of the business’ processes, and that management is all about – and only about – designing, controlling and improving those business processes.