Management And Accounting Web

Levinson, H. 2003. Management by whose objectives? Harvard Business Review (January): 107-116.

Summary by Jenny Hartman
Master of Accountancy Program
University of South Florida, Summer 2003

Behavioral Issues Main Page | Deming Main Page | Management Theory Main Page

This is a reprint of Levinson, H. 1970. Management by whose objectives? Ordinary MBO appraisal process, far from being a constructive technique, raises great psychological issues. Harvard Business Review (July/August): 125-134.

The purpose of this article is to identify and examine the shortcomings of the management by objectives (MBO) process and what improvements could be made. Levinson looks at the ideal process, the major flaws, and then goes on to discuss what changes could be implemented by a company and the impact those changes would have to make the process more beneficial to both the employee and company.

Levinson prefaces his article by telling the reader that the MBO process itself should not be scrapped by a company, but rather revamped in order to develop objectives that are “more constructive devices for effective management” (108).

The Ideal Process

There are eight intentions of MBO and performance appraisal introduced in this article that include measuring and judging performance, defining job descriptions and expectations, cultivating competence and growth, and correlating individual and organizational goals.

In a perfect world, this process would begin as a discussion of the employee’s job description between employee and supervisor. Then short term performance goals would be made. The employee would then have periodic meetings with the supervisor to discuss how he/she was coming along with those goals. Checkpoints would be built into the process to determine progress. And finally, at the end of the given time period, a review would take place between the employee and superior to assess the employee’s performance.

The Problems

This process looks good on paper, but in reality it is plagued with problems. First, an employee’s job description can rarely be reduced to a few sentences on paper, especially as the job becomes more complex. In the same way, the objectives for this employee can not be consolidated to only a few broad objectives to be effective. On this same note, employees can not be evaluated on areas that are not defined as they are evaluated on areas that are spelled out in their job descriptions. Another discrepancy with job descriptions is that they are typically limited to that employee’s position and do not account for the interdependence of other employees in order to successful perform the job function. An additional shortcoming of appraisals is that they fail to incorporate the entire situation that the employee and superior are operating in. They fall short at looking at the relationship between the employee’s job and other jobs. Objective setting is also faulty in the sense that it fails to allow for maximum integration of units that would lead to greater teamwork within the organization. A final discrepancy exists when superiors develop a sense of guilt from having to play the role of bad guy by evaluating and critiquing their employees.

After laying out the problems with MBO, Levinson discusses other areas where the process is missing the boat. One shortcoming is that because there is such an emphasis on objectivity and quantification, more qualitative soft measures are often missed. Measures such as how well employees work with others and the quality of the employees’ performance are two of these commonly missed measures. Another deficit concerns the human piece of the process. This occurs when reporting managers set goals and objectives for their department and then force feed these objectives to their subordinates, expecting and assuming that the employees will whole heartedly buy into them. Levinson describes this as “an underlying reward-punishment psychology” (110).

Levinson also feels that the personal goals of the employee should be incorporated into MBO process. Questions such as “What are the managers’ personal objectives?” and “What do they need and want to get out of their work?” need to be considered (110). An additional consideration builds on this psychological need of not feeling as though the employee is being exploited to reach organization goals, but instead the employer-employee relationship is win-win because the employee is working towards his/her own aspirations and goals that happen to be aligned with the organization’s goals. Levinson suggests that the highest synergies and self-motivation exist when the employee’s goals and the organization’s goals intersect.

Levinson goes on to examine the costs of not taking the employees’ objectives into account. He identifies three costs to the organization for this discrepancy. First, is the cost of employee turnover. Another is the cost of unmotivated employees that are satisfied in performing their jobs, but not taking any pride in the jobs. A final cost also relates to a loss of pride in the workplace such as a decline in the level of customer service provided.

Suggested Steps and Considerations

In the final section of this article, Levinson outlines four suggested steps and considerations to improve the MBO process. First, he feels that there should be a “motivational assessment” in which managers look at how and to what extent employees want and need to be motivated. Also within this assessment, there should be an emphasis on an employee-organization partnership to create a win-win environment. A second step is “group action”. With this step, group efforts and interactions should be discussed and objectives should be placed on the group as a whole to encourage teamwork and a collaborative environment. It is also through these group discussions that threats to group success can be reviewed and addressed before resentment exists. “Appraisal of appraisers” is the third piece of the puzzle. This builds employee feedback into the equation, as well as letting the manager’s superior know how well that manager is developing his/her subordinates. The final area of consideration deals with employee self-evaluation and introspection. The employee should continually have discussions with his/her manager regarding his/her thoughts in relationship to his/her work. This allows for discussion about objective alignment and a criteria for evaluating the relationship between employee/organization. It is also through this evaluation that both the employee and manager can assess whether the employee is in the right area of the business and objectives can continually be realigned.

Levinson’s bottom line is that in order to have the most motivated and satisfied people (which in turn lead to more productive employees and overall organization success), the MBO process should always involve and incorporate the employee’s objectives. This creates a sense of value for the employee and keeps everyone moving in the right direction.


Related summaries:

Bonner, S. E. and G. B. Sprinkle. 2002. The effects of monetary incentives on effort and task performance: Theories, evidence, and a framework for research. Accounting, Organizations and Society 27(4-5): 303-345. (Summary).

Deming, W. E. 1993. The New Economics For Industry, Government & Education. Massachusetts Institute of Technology Center for Advanced Engineering Study. (Summary).

Herzberg, F. 2003. One more time: How do you motivate employees? Harvard Business Review (January): 87-96. (Summary).

Kohn, A. 1993. Why incentive plans cannot work. Harvard Business Review (September-October): 54-63. (Summary).

McGregor, D. M. 1957. The human side of enterprise. Management Review (November): 22-28. Reprinted from the Proceedings of the Fifth Anniversary Convocation of the School of Industrial Management, MIT, April 9, 1957. (Summary).

Nicholson, N. 2003. How to motivate your problem people. Harvard Business Review (January): 57-64. (Summary).

Ouchi, W. G. 1979. A Conceptual Framework for the Design of Organizational Control Mechanisms. Management Science (September): 833-848. (Summary 2).

Ouchi, W. G. and A. M. Jaeger. 1978. Type Z organization: Stability in the midst of mobility. Academy of Management Review. (April): 305- 314. (Summary).

Pfeffer, J. 1998. Six dangerous myths about pay. Harvard Business Review (May-June): 109-119. (Summary).

Ridgway, V. F. 1956. Dysfunctional consequences of performance measurements. Administrative Science Quarterly (September): 240-247. (Summary).

Stevens, T. 1994. Dr. Deming: Management today does not know what its job is. Industry Week (January 17): 21, 24, 26, 28. (Summary).

Sunder, S. 2002. Management control, expectations, common knowledge, and culture. Journal of Management Accounting Research (14): 173-187. (Summary).

Tongtharadol, V., J. H. Reneau and S. G. West. 1991. Factors influencing supervisor's responses to subordinate's poor performance: An attributional analysis. Journal of Management Accounting Research (3): 194-212. Used a field experiment. (Summary).

Weisenfeld, L. W. and L. N. Killough. 1992. A review and extension of using performance reports: A field study based on path-goal theory. Journal of Management Accounting Research (4): 209-225. (Summary).