Q 647. What is Management By Objectives (MBO)? How does Lean Six Sigma principles integrate with the MBO framework? Illustrate by providing examples.

 

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Management by objectives: Its a name given to a process in which a top level manager and  a bottom level employee agree on particular performance goals and then decide to develop a plan to reach those goals. Its a strategic management approach or model that focuses to improve the performance of a company by clearly defining objectives that are agreed by top brass and employees of an organisation.Management of objectives has become a vital component of performance management.

The four major elements of MBO process which are believed to contribute the best management performances are:

1.Setting specific goals

2. Standardising acceptable and appropriate realistic goals

3. Collective participation in goal setting, planning and controlling

4. Final feedback of the project performance

To achieve the goals and objectives effectively Lean Six sigma can comply with MBO framework by providing ideologies, tools and techniques.In lean Six sigma lean mainly focuses on eliminating waste whereas six sigma focuses primarily on reducing defects.Here’s how Management by objectives can integrate with the tools of lean six sigma:

1.MBO setting objectives with LSS tools:

Methodologies of Lean Six Sigma like DMAIC can be used to define objectives,measure the present performance, analyzing the root causes of the issues,implementing improvements try establishing controls to sustain the improvements made.

2.MBO’s continual improvement with lean principles:

MBO highlights on continual improvement by focusing on lean principles and techniques such as KAIZEN,5S,Value stream mapping.

Example for MBO integration with lean six sigma principle:

Lets say a pharmaceutical company which manufactures Active Pharmaceutical Ingredients sets an objective to reduce production cycle duration by 30% within a year.Below is how they can achieve their goal by using Lean Six sigma DMAIC principle:

DEFINE: The objective of the project should be clearly defined and stated.

MEASURE: The current cycle time of the production has to be measured and wastes should be identified by using lean techniques like Value stream mapping.

ANALYZE:In analyze phase identify the root cause of the problem by using tools like Fish bone diagram or Pareto analysis.

IMPROVE:Enhance the performance of the process by updating operational procedures, layout optimisation.

CONTROL: Establish certain controls and parameters  to monitor the cycle time of the production continuously and sustain enhancements by using the tools of LSS.

With all these certain examples we can say that by integrating Lean Six Sigma principles into Management by Objective framework, the company can improve their ability to achieve tactical and strategic objectives efficiently and effectively.

 

 

Management by Objectives (MBO)- MBO is a strategic management model that focuses on setting clear, measurable goals for the organization & its individual employees. It involves a collaborative process where management and employees jointly define objectives, develop action plans to achieve them, and track progress regularly.

 

MBO works on some basic principles as mentioned below: 

 

Goal alignment: All objectives should be aligned with the overall organizational strategy.

Employee participation: Employees should be involved in setting their own goals, making them more invested in achieving them.

Performance measurement: Progress towards goals is tracked and evaluated regularly, providing feedback and facilitating adjustments.

Communication and feedback: Open communication and continuous feedback are crucial for successful MBO implementation.

 

 

MBO leveraging Lean Six Sigma (LSS) concepts: 

 

MBO greatly leverage the waste elimination techniques of Lean concepts & the data - driven approach of Six Sigma to translate its goals. Below are some of the examples of the same.

 

Translate MBO goals into actionable steps: LSS tools and techniques can be used to define specific projects and activities needed to achieve the established objectives.

Focus on process improvement: MBO goals can be linked to LSS projects aimed at streamlining processes, reducing waste, and improving quality.

Drive data-driven decision making: LSS emphasizes data analysis and statistical techniques, which can be used for setting realistic goals, monitoring progress, and evaluating results within the MBO framework.

 

MBO & LSS integration example:

 

Scenario: A hospital sets an MBO goal to improve patient satisfaction scores by 15% within the next six months.

Integration:

LSS project: A team is formed to identify and address factors influencing patient satisfaction using LSS tools.

Actionable steps: The team might identify areas like waiting times, communication with doctors, or hospital room cleanliness as key factors impacting satisfaction. They can then develop specific action plans, for example:

Implementing appointment scheduling systems to reduce wait times.

Improving communication channels for patients to reach doctors and nurses easily.

Enhancing cleaning protocols and patient room amenities.

Data analysis: LSS techniques like surveys and patient feedback analysis would be used to measure current satisfaction levels and identify areas for improvement.

Performance evaluation: The MBO framework provides a structure for tracking progress towards the goal (15% increase in satisfaction scores) and evaluating the impact of LSS projects through patient feedback data analysis.

In this example, LSS provides a structured approach to identify and address root causes of patient dissatisfaction, while MBO establishes a clear objective and facilitates monitoring progress towards achieving the desired outcome. This integration helps the hospital focus on continuous improvement in patient experience and satisfaction.

 

Management By Objectives (MBO)

Management By Objectives is a strategic management model or tool which aims at improving the performance of an organizations by clearly defining the objectives which are totally agreed upon by the management and the employees.

In this way, employees also get freedom to put in their say and input in these goals, hence encouraging the participation and commitment resulting in alignment of objectives all across the organization. It is totally dependent on the goals being set or planning being done between the management and the employees, for the same reason MBO is also sometime called as Management by Goals or Management by Planning. 

 

The MBO process has following steps, mentioned below:

1. Goal Setting: As explained above, MDO ia all about setting Goals/Objectives that are very clear and measurable and set in collaboration of management and employees ensuring alignment at various level of organization. 

2. Planning: Objectives set, needs to be acheived and for that we need action plans that are in alignment with the objectives. This may require breaking down big goals into smaller goals and tasks, allocation of resources and finally setting timelines.

3. Monitoring: As the actions and timelines are freezed, regular tracking of the progress is done by team to ensure that the objects are met. 

4. Evaluation: Progress made by the team is assessed against each objective. By this, identification is made of the areas where we need improvement and actions that have been succesfully executed. 

5. Feedback: Feedback of the progress is given to employees about the performance. Achievements are recognized and guidance is provided in areas that need improvement.

6. Review and Adjustment: Periodic reviews of objectives are conducted to assess the performance. Accordingly adjustments are made due to change in circumstances or to adress issues being faced. 

MBO in Lean Six Sigma

MBO and Lean Six Sigma have a very similar approch when it comes to achieving objectives. Below are the points that make them part of each other:

• Team Effort : Both need team to work upon the objectives/targets taken.
• Goal Setting : Both of them requires goal setting and that too after discussion with team and alignment with management. 
• Stages/Steps : Six Sigma follows DMAIC approch which completely aligns with the steps of MBO i.e. Define is Goal Setting, Measure is Planning and Monitoring, Analyse is Evaluation, Improve is Feedback , Control is Review and Adjustment. 
• Alignment : Both are aligned with Management's Objectives.
• Recognition : Both give value to recognition for efforts and success. 
• Timeline : Both require timelines that needs to be followed.

There are many more points that makes Six Sigma Projects integrate into MBO.

 

Eg : In a Call Centre, we can target to reduce call time by 30 seconds or increase customer satisfaction by 10%.

Above problem can be solved with MBO as well as Six Sigma. In MBO, we will set goals and then decide what actions need to be taken among the teams to acheive these objectives. Those will then be divided into sub actions assigned to indivisuals and then further monitoring will be done along with evaluation, feedback and adjustment as per the scenerio.

In Six Sigma, we will define goal staement and prepare project charter, measure as is processes and then apply statistical tools for reaching the root cause, and taking action for elemination of the same, improve and then control as per the senerio.

 

Management By Objectives:

It is a strategic management used to improve the performance of the company by clearly defining the objectives of the company by both the management and employees. It focusses more on the results rather than the activities involved.

In this, the Manager and employee decide a specific goal and then decide a plan to achieve it.

It enhances employee participation and commitment.

There are 6 steps in MBO:

• Define Objectives of organization: Involves all the employees and looks at the day-to-day activities and it focusses on answering the question ‘what are we trying to accomplish’
• Define objectives of the employees: Clearly deliver the objective of an employee.
• Encourage employees to participate.
• Monitor Progress: It ensures that action plans are working. If goals are not being met, we can change the action plans.
• Evaluate performance and reward achievements. Looks at individual and overall company’s performance.
• Feedback: Giving Feedback after the performance review.

Advantages:

·       It helps Managers to easily achieve the best results.

·       Employee commitment

·       Based on performance reviews, management can plan for training programs

·       Delivers more certainty in the management in managing a task.

Disadvantages:

·       If the Manager does not have a proper understanding of MBO, then it may fail.

·       Goals should be SMART. If the goal is difficult to achieve, then it decreases the employees' confidence.

·       Setting goals is time-consuming and requires lot of study and experience.

MBO or Management by Objective, a term coined by Peter Ducker in his 1954 book "The Practice of Management" refers to aligning employee's goals with the organization's objective so that employees feel more connected and motivated.

 

Organizations are integrating the LSS principles framework and MBO framework to reap maximum results in terms of operational efficiency, cost reduction, and customer satisfaction. etc.

Tabulated below are a few important aspects in which organizations are benefitting from the integration of the LSS & MBO framework:

 

Aspect	Lean Six Sigma (LSS) Framework	Management by Objectives (MBO) Framework	Examples
Goal Alignment	Projects aligned with quality improvement, cost reduction, etc.	Objectives aligned with strategic goals and organizational priorities	GE aligned LSS projects with its strategic objectives and was able to achieve increased operational efficiency and product reliability. The company was able to reduce 50 % cycle time for their MRI machine production in the healthcare division.
Data-Driven Approach	Emphasis on data analysis and measurement for process improvement	Specific, measurable objectives based on relevant data and KPIs	GE Employee KPIs are set with SMART methodology and were monitored and measured using the LSS framework. Through LSS measurement and analysis tools, the company was able to derive insightful outputs that helped the organization prioritize its efforts for improvement.
Continuous Improvement	Structured methodology for identifying and eliminating defects	Framework for setting goals, measuring performance, and providing feedback	Toyota aligns Lean Six Sigma projects with strategic goals and uses MBO to set objectives for improvement initiatives. This resulted in engagement of all the employees and increased momentum of improvement
Employee Involvement	Encourages employee engagement and empowerment in improvement initiatives	Involves employees in goal-setting and decision-making processes
Training and Development	Provides training in problem-solving and process improvement techniques	Integrates training to develop skills for driving improvement initiatives	Kirloskar's training and development organizational objective is derived considering Lean culture implementation. This is helping the HR department to prepare standard modules for all the employees
Performance Measurement	Tools for tracking progress and measuring the impact of improvements	System for evaluating performance against predefined objectives	LSS tools can be used to evaluate performance against set employee goals and further their alignment with organizational objective

 

 

Management by Objectives – MBO.

How does Lean six sigma principles integrate with the MBO framework.

 

Right from our schools we know the word objective. Before doing any practical / demonstration for science we had to write objective of that exercise. Objective specifies the purpose, expectations, and need of that exercise.

In corporate this word has a great meaning as it defines the direction for the organization for growth. It defines the specific goals to be achieved by the organization to fulfill short term (annual) and long term (as per vision of the organization) goals.

In all this process the word – GOAL – is having complete emphasize and it is at the driving seat of the organization. It further percolates to the senior leadership – middle management and upto the last associate of the organization working on shop floor.

Simply the senior leadership has a vision for its organization for may be next 5 years. This is split into annual target. Accordingly different areas, departments are assigned the targets. Here comes the RACI matrix of lean. To fulfil the sales target, production has to manufacture the required volume and quality has to ensure that the product meets customer satisfaction. Purchases need to maintain the required inventory along with stores and so on for other functions.

One thing to be noted- The goals are SMART.

As an organization visualizes its specific growth (e.g. achieving preferred partnership status with customers) in numbers (increase in volume sold) according to its strength, capabilities, skill sets available within specific time duration of one year. The goals set are-

S – Specific for CEO, every head of function/ dept, manager, engineers and shop floor associates.

M- Measurable – Every aspect of his role and responsibilities, accountabilities are figured in numbers. E.g. per day production, number stoppages of machine, number of new customers brought in for business, volume sold per quarter, cost reduction in %, projects completion within specific time etc.

A-Assignable  – Clearly mentioned who will do what.

R- Realistic – Goals are close to reality of market scenario, available funds, resources etc.

T – Time bound – there should be a time limit to achieve every goal to fulfill all short term projections.

Thus, by setting SMART goals for every individual, every organization starts its financial year. Employees are provided all required resources. The goals are reviewed at defined frequency and there can be small corrections as per reality. Finally, the performance of every individual right from CEO, COO, CHRO, Senior management, middle management, engineers and shop floor associates is measured compared to initial targets given in goal sheet at the start of financial year. Every individual is given a performance rating and accordingly his next year salary hike and bonus is decided.

This system was first popularized by Peter Drucker in his book in 1954. Hewlett-Packard, Xerox, DuPont, intel were the few companies implemented these practices many years ago. Presently there many companies following these practices and getting the required productivity, profitability and growth by systematic tracking this process.

 

In ACG Associated capsule it is a well-documented process and completely digital. Every year from December the strategic meetings are started to finalize Business score cards, to fix Functional score cards. They are split according to different functions and further it is divided into all managers, engineers and shop floor associates. This process is completed in the month of March. From April everybody works for his goals in complete collaboration with all CFT to achieve daily, monthly targets for the organization. In the month of October, the mid-term progress is reviewed and work is done on the gaps. Finally next year’s June annual appraisals are done, and a performance rating is given. There are four categories for performance rating – Basic, good, excellent and outstanding. Previous year’s performance becomes basic for next year’s performance, Naturally excellent and outstanding performance levels are higher than previous year.

To achieve excellent and outstanding performance, every individual has to think out of box, stretch his physical and mental muscles. Every organization need growth without expanding every year, without adding substantial manpower and funds every year.

Then, how come growth comes?

Here Lean six sigma integration supports-

 

Voice of customer – The objectives for the organization are mostly driven by the voice of the customer. What quality (specifications) exactly he wants, how much volume at what time he needs are the key factors to set the goals. What delights him is the hygiene factor. It largely helps to define FSC (Functional score card) and BSC (Business score card)

Value stream mapping / Pareto charts – We always keep track of the flow of materials, process to see the wastages and opportunities to optimize resources. Pareto helps us to focus on specific areas to improve upon.

Control charts – They are the mirror of our regular production, indicating what is going correct and where need correction to produce continuous quality product to delight the customer. It helps to monitor critical quality parameters to keep them on target.

Five why – It helps us to get the root cause of any quality defect or breakdown of machine. With the help of Poka Yoke, Error proofing, OPL we avoid it and sustain the manufacturing of quality and volume to meet the productivity. This is part of weekly review for continual improvement of machine continuity and product quality.

DMAIC approach – The essential tool for six sigma projects, emphasizes the major improvements in the system and gives multifold benefits with respect to cost reduction. It involves lots of Data collection plans – it is essential for the accurate analysis of the process. Project charter – guiding what to achieve from current situation within what time and with which team. Fishbone diagram helps to identify different elements of the process and find where to focus. These are the vital tools in this approach. We improve the productivity by reducing losses by 2 to 3%.

Kaizen – Personally I have made few modifications in the process, methods, spares or developing altogether new components to achieve better quality of product. To get better continuity of machines for on time delivery to the customer. Brainstorming is key to getting valuable insights from all stakeholders. By modifying or introducing new components we improve the continuity of our machines by 1.2 to 1.6%.

 

Conclusion:- The vision and mission of the organization is systematically achieved by dividing it in the annual mission. These are the objectives for the entire team in the form of goal sheet. They are SMART and reviewed by the immediate superior for keeping the employees aligned to the goal of the organization. The performance rating at the end of year is the reward for the employee and achievement for the organization.

The lean concept helps to achieve more, better productivity within same resources with the help of improvements in the system, methods, processes, components, machines. Most of the tools of lean sigma can be integrated to achieve the mission and vision of the organization.

 

 

What is Management By Objectives (MBO)? How does Lean Six Sigma principles integrate with the MBO framework? Illustrate by providing examples.

 

Management By Objectives (MBO):

 

Management By Objectives (MBO) is a management approach which is primarily to align Goals and objectives in an organization. It is a strategic approach to enhance the performance of an organization. In this set up the Managers as well as the employees work together to set up and Goals and collectively monitor the same till closure. These goals are derived from the Organizational goals which is then translated into Personal goals for the employees of the Company.

 

It was 1st termed by Peter Drucker in the year 1954 in his book “The Practice of Management”. However, the concept was derived from multiple other management practices to create the complete model.

 

Lean Six Sigma Principles in MBO:

 

MBO framework adopts most of the Lean Six Sigma principles like Setting SMART objectives, Data Driven approach, Continuous Improvement model, Employee involvement and Performance Measurement

 

1. Setting SMART Objectives:

MBO sets Specific, Measurable, Achievable, Relevant, and Time-bound objectives to various levels of an organization. Lean Six sigma tools like SIPOC, Process Mapping and VSM may help identify areas within each of it’s organization’s Goal that need improvement. In case of VSM, by mapping out the current state and defining the future state can help the teams align their approach towards achieving the goals.

2. Data Driven Approach:

MBO is measured based on the Performance data of each of it’s Goals. Some examples of data driven KPIs: C-Sat Scores, Sales Numbers, NPS Scores, etc., Lean Sixgma Analytical tools like RCA and Statistical tools like Pareto provides excellent opportunity for the Employees / Teams to identify most significant factors affecting each of these metrics and can indeed be improved

3. Continuous Improvement:

Achieving most of MBO’s Goals require a Proper Project management approach. Lean Sigma’s DMAIC (Define, Measure, Analyse, Improve & Control) and DMADV (Define, Measure, Analyse, Design & Verify) provides a structured methodology to ensure sustainable results

4. Performance Measurement:

MBO requires periodic Performance measurement against objectives to track the progress. Lean Six Sigma provides tools and metrics to measure performance and track improvements. For example, the Sigma level can be used to measure process performance and identify areas for further improvement. Similarly, Control charts can be used to enforce Statistical Process Control

 

Integrating Lean Six Sigma principles with the MBO framework enhances Goal clarity, Data-driven decision-making, Continuous improvement, Employee involvement, and Performance measurement, leading to improved organizational performance

MBO [Management by Objectives] is a top-down approach in the management strategy where the Vision, Strategy and Goals will be clearly defined by the Top Management. The MBO has six steps

1.      Determining Organization Goals – Top Management sets out the strategy roadmap for the organization with goals categorized under Short term, medium term and long-term goals

2.      Determining Employee Objectives – Basis the goals of the KRA’s for each function and process is percolated by the Top Management to the Middle Management

3.      Monitoring Progress & Performance – Periodic Performance Discussion sessions are facilitated to track and monitor progress and performance

4.      Performance Evaluation – The performance is evaluated every 3-6 months period basis the goals and improvement plans are put in place to keep up the performance

5.      Providing Feedback – Feedback sessions are an integral part of the performance evaluation and they help to ensure whenever a dip in performance is addressed with the right remedial measure

6.      Performance Appraisal – Periodic Performance Appraisals are performed to ensure employee motivation and help to achieve organizational goals and objectives

On the other hand, Six Sigma as a methodology has some principles which complement the MBO and if they are put together in practice will yield greater results. In my opinion below are my thoughts on how Six Sigma principles can be integrated with MBO

1.      Customer Focus – Any organization whilst defining an organization goal or strategy will keep the Customer focus as a primary objective which can be measured through NPS. In addition the Customer focus will be a part of the employees objectives as well as a KRA

2.      Map VSM to discover the problems – Unless we implement a proven methodology like VSM to map the end-to-end process we won’t have visibility about the NVA which consumes time and effort but doesn’t provide any yield. This will align with Monitoring the progress where VSM can play a key role in identifying where the progress lags and how we can bring it back on track

3.      Once VSM is completed the variations must be removed as they consume unnecessary bandwidth which can be repurposed to other priority areas and this will be aligned with the Providing feedback stage in the MBO

4.      Communication is key in Performance evaluation and providing feedback has to be an iterative exercise in an organisation

5.      The organization has to embed a culture of flexibility across its resources to meet the organizational objectives

After a long time, it was difficult to select the best answer. The quality of all the answers is very good. I strongly recommend you to read each answer to get a good perspective. The best answer has been provided by Sudhir. Well done!