MANAGEMENT BY OBJECTIVES AND SELF-CONTROL uves were not necessary tO give the enterprise the umty Of direction and effort of a management team, it would be necessary tO make possible management by self-control. So far in this book I have not talked of “ control ” at all; I have talked Of "measurements. ” This was intentional. For "control" iS an ambiguous word. lt means the ability tO direct oneself and one's work. lt can alSO mean domination Of one person by another. Objec ・ tives are the basis Of "control" in the first sense; but they must never become the basis of "control" in the second, for this would defeat their purpose. lndeed, one 0 [ the major contributions Of manage- ment by objectives is that it enables us tO substitute management by self-control for management by domination. That management by self-control is highly desirable will hardly be disputed in America or in American business tOday. lts acceptance underlies all the talk of "pushing decisions down t0 the lowest pos ・ sible level," or of paying people for results. " But to make manage ・ ment by self-control a reality requires more than acceptance Of the concept as right and desirable. lt requires new tOOls and far-reach ・ ing changes in traditional thinking and practices. TO be able tO control hiS own performance a manager needs tO know more than what his goals are. He must be able tO measure his performance and results against the goal. lt should indeed be an invariable practice tO supply managers with clear and common measurements in all key areas Of a business. These measurements need not be rigidly quantitative; nor need they be exact. But they have t0 be clear, simple and rational. They have t0 be relevant and direct attention and efforts where they should go. They have t0 be reliable-—at least tO the point where their margin Of error is acknowledged and understood. And they have t0 be, so t0 speak, self ・ announcing, understandable without complicated interpretation or philosophical discussion Each manager should have the information he needs tO measure hiS own performance and should receive it 500n enough tO make any changes necessary for the desired results. And this information should go t0 the manager himself, and not t0 his superior. lt should be the means Of self-control, not a t001 Of control from above. ThiS needs particular stress tOday, when our ability tO Obtain such information is growing rapidly as a result 0f technological progress
326 THE PRACTI CE OF MANAGEM ENT ing to the U. S. Army study quoted above). The rest 0f his time is fully occupied in onal contacts with his men on their problems' in work with the men on new techniques or processes, in keeping the men informed, in training new men and SO on. He in Other words, one or more trainers-—IBM's ・ ] Ob instructors. But the supervisor also needs technical services. He may need help with industrial engineering, methods, cost accounting. He may need someone t0 keep track 0f the details 0f scheduling or t001 supply and machine repair. These are service functions tO the supervisor. Like all service functions they should be discharged by someone on hiS own staff; for it iS the supervisor WhO iS responsible for performance. Another 13S0n from IBM is that we have t0 reverse the trend toward narrowing the supervisor's authority. At IBM the supervisor hires, recommends, discharges, trains, promotes and schedules. And he alone handles all the relations of his department with the ( om ・ pany, for instance, with the personnel department. Of ( 0 収 e , a11 his decisions on ople should first be reviewed by his superior—a rule that applies t0 all personnel decisions made by any manager. And the subordinate should always have a right 0f appeal. But the decisions themselves should be the supervisor's; otherwise he lacks the authority he needs t0 discharge is responsibility. We have a great deal of additional evidence of the need for a larger scope for the supervisor and 0f the impact 山 is has 0 取 his effectiveness. A large automobile mb け plant recendy switched from central r ・ ing t0 hiring by the individual supervisor. The employment 0 缶 ( e still interviews, screens and tests applicants. But the supervisor makes the decision; and he always sent 5 鉀 al candidates for any J0b opening ・ The 釶 has been a noticeable improvement in output. Superviwrs ex ・ plain it by the improvement in placement. "I can pick the man wh0 is just right for the job," is their typical comment. Secondly, 山 feel— and dO the men-—that a worker knows much better what is expected of him when he is hired by the foreman. "The EmpIoyment Ofice," one union Offcer commented, ・・ will always talk tO a man about the marvelous opportunities, and about the go pension plan and the medical ⅲ ance. won't tell him much about the job—-it knows nothing about it. Thc supervisor, on the other hand, Ⅱ tell a man realistically what he iS expected tO dO and what's in れ for him. AS a result we have れ ei 山
324 THE PRACTICE OF MANAGEMENT on the management ladder explains in no small extent the absence 0 ー CI asses and class war. For this reason, t00 , supervisors should be recruited 仕 om the rank ・ and ・ 61e. Denying the rank-and-file worker opportunities for promouon tO supervisory jObs undermines his motivation. lt is as incompatible with our social beliefs as is the denial 0f promotional opportunities tO supervisors. Such a recruitment poli is a150 the only way t0 get good su 円 iso . There exists no acceptable sub- stitute in the preparation Of a supervisor for the actual experience Of working as one Of the team. The present trend toward staffng su ハ , iso positions with boys out 0f college is basically irrespon• sible and anti-social. The same is true Of the growing tendency tO reserve higher management and specialist positions for college graduates recruited as "management trainees. " I am old-fashioned enough t0 object to this on the oun 山 that education should confer duties rather than privileges. And I resent the theme 0f the propaganda campaign put on by some sch001s that education 0ffers a bypath that leads around the need for performance and directly tO position and income. Such a policy is contrary tO the enterprise's SOCial responsibility. lt is contrary tO itS own needs for maximum utilization Of its human resources. lt is contrary tO its needs for supervision capable 飜 peak performance. lt is the lazy man's way out of doing a job. And as always the lazy man's way causes mo 祀 trouble and work in the end. Manager development must therefore begin with the supervisors. And in the filling of middle ・ management and technical jobs the supervisors must be fully considered. The best preparation for most Of the technical jobs in industrial engineering, in quality control, in production scheduling is successful performance as a 6爲t ・ line super- visor. Whatever specialized technical knowledge is needed can be acquired by the able supervisor in a training course. But the most important knowledge for these jobs—of the organization; of the needs Of workers, supervisors and operating managers; 0 [ the place Of technical activity in the work of the whole one learns best in performing the job of a first-line supervisor. Finally, the supervisor needs manager status. His 0 、、 m job must be meaningful enough in itself. lt must be big enough to enable him
THE PROFESSIONAL EMPLOYEE 337 kinds Of men tO dO what they are go at is one Of its major at ・ tractions tO the professional. And we need recognition, position and reward in the business enterprise for that rarest but most valuable Of professionals, the inspiring teacher. 5. Finally, the professional needs recognition as a professional b0 山 inside and outside the enterprise. The distinguished older men need prestige positions inside the enterprise which clearly symbolize the value the company places on the contribution Of the professional. The younger men need opportunities tO participate in the work Of the professional and learned societies, tO teach part-time at a um• versity or professional SChOOl, 【 0 continue tO work bOth on their own education and on the advancement Of their art. Such activities are usually permitted today to professional employees. They are 0f such value tO the enterprise, however, that they ought tO be en- couraged if not rewarded by business, The professional employee WhO enJOYS professional recognition has a real incentive tO become more proficient in his field, [ 0 perfect himself or, at the least, t0 stay abreast 0f developments. And he is likely t0 attract the most promis- ing Of the next generauon Of professionals tO his company—no small matter these days when professional employees are increasingly needed and When increasing demands on their competence are being made. We hear a great deal today about the need for social responsibility on the part of the professional expert, a great deal about the need for his becoming a "broad humanist" rather than a " れ arro 、 specialist. " Since more and more Of the professionals in our SOCiety are working within a business enterprise and becoming effective in and through it, the professional will increasingly have t0 discharge his social responsibility through his contribution tO the business enterprise, will have tO acquire his broad humanism by understand ・ ing his place in the SOCial structure Of the business enterprise and his relationships tO itS objectives, itS performance and itS organization. The proper management of professional employees is among the most diffcult problems facing the business enterprise. Ⅱ cannot be side ・ stepped by asserting that the professional employee is part 0f management. Nor would be it be solved, as traditional Socialist doctrine asserted, by considering the professional just a species Of skilled worker and a "fellow ・ proletarian. " Managing the professional
234 THE PRACTICE OF MANAGEMENT growth Of new or Of small businesses. Entrance intO an industry (unless monopolistic practices are permitted by law) depends 0 Ⅱ technological and market factors and on capital required rather than on the strategic situation within the industry. And the very large business tends tO sponsor a host Of independent busi ・ nesses acting as suppliers or distributors. mere size need not affect labor relations or social stability. But mere size may make a business unmanageable. A business tends tO become unmanageable when the chief executive Of a product business can Ⅱ 0 longer work directly with the chief-execu ・ tive team 0f the company but has t0 go through channels t0 get t0 the top. When, in addition t0 a number 0f deputy president$ a layer of group vice-presidents is needed then the business approaches unmanageability. Similarly, when objective-setting Ofrers no longer can work directly as part Of the chief-executive team but need an executive vice-president or group VICe ・ president Of their 0 、 n tO CO- ordinate them and tO communicate their thinking tO the top the business has grown t00 big t0 be manageable. A very large business alSO becomes oversized When it needs SO many levels Of management that even a man Of real ability cannot normally rise from the bottom t0 the top and yet spend enough time on each level t0 be thoroughly tested in performance. Such a business not only has t0 fall back on hothouse methods 0f executive growth. lt inevitably suffers from executive anemia it deprives itself Of the full use Of its own most precious resource. And it denies a basic premise Of our SOCiety. ln practice this means that any business that needs more than SIX or seven levels between rank•and-file employee and top management iS tOO big. Seven, incidentally, is 50 the number 0f levels in the military forces (for first and second lieutenant as well as lieutenant ( 010nd and ( 010nd are different pay grades rather 山 a れ functionally differentiated levels); and the example 0f the military shows that seven le is almost tOO many-—for only under wartime conditions Of expansion does the ablest oficer reach the top ranks. Finally, a business becomes unmanageable when it is spread out intO SO many different businesses that it Ⅱ 0 longer can establish a common citizenship for itS managers, can 0 longer be managed as an entity, can no longer have common over-all objectives.
334 THE PRACrICE OF MANAGEMENT sional. ( 5 ) He needs professional recognition b0th inside the enter 、 prise and in the larger community. The objectives of the professional's j0b have t0 remain profes- sional objectives. Yet, they should at the same time always be set 50 as tO include the maxlmum Of business objectives. They should always provide bOth the maximum Of managerial vision tO the professional employee and a direct link between the work 0f the professional and its impact on the business. One way t0 achieve this is t0 give the professional employee outside Of, and separate from, his norl professional work a special assignment which will bring him intO management. ln 0 れ e company, for instance, the senior chemist—a man COncerned sively with long-range basic research in his own work—has been put on the budget committee 0f the company. That he knows nothing about finance-—and cares less was not considered an against his taking part in financial management. On the ( on a '. れ was considered the strongest argument for it. The same problem was solved in a different way by a major pharmaceutical company faced by the need tO integrate its patent lawyers intO the business without undermining their professional competence and integrity in the patent field. Large patent departments present a particularly difrult problem reconciling business 0bj ectives and professional stand ards. The high-grade patent lawyer is apparently apt t0 think in terms 飜 "faultless patent work" rather than in terms 0f the company ・ s needs. Yet, patents, particularly if taken out on a world-wide basis, are not only a capital ouday. patent strategy has decisive impact on the success Of a pharmaceutical business. ln 山 is particular company the problem has been solved by the forma- tion Of a Patent Committee, composed Of the three senior men 仕 om the patent department, and the top marketing, research, financial and manu- facturing people. Meeting once every two mo れ山 5 for three whole days, the patent needs Of the company and its patent strategy are worked 0 t by the whole 部 oup. lt is up to the patent 黝 , ers after that t0 d0 山 e work according to their professional competence without any interference 仕 om management. ・・ I t t00k us ten years to think up this Ob ⅵ 0 Ⅱ 3 solu tion," said the company ・ 3 executive vice-president; "ten yean during WhiCh there was constant friction between management and the patent people
C H A ? T R MOTIVATING TO PEAK PERFORMANCE 2 3 302 question: "DO you think the company is a good place to work in?" is satisfactory. Ⅱ 70 per cent of the employees answer yes" to the We also have れ 0 standards to measure what degree of satisfaction discontent from dissatisfaction that is the desire to do a better ] ob. filment from satisfaction that is just apathy, dissatisfaction that is responsibility. Yet we have no way of telling satisfaction that is ful ・ and the most real expression pride in job and work, and 飜 most valuable attitude any company can possess in its employees, wants tO dO bigger and better things. And this dissatisfaction is the a better jOb, wants tO improve his own work and that of his group, ( on 記 n 肥 d. But he may also be dissatisfied because he wants to do t0 "get by. " A man may be dissatisfied because he is genuinely dis ・ filment in れ . He may also be satisfied because the job permits him A man may be satisfied with his job because he really n ful ・ 5ti11 not be suffcient motivation to fu1611 the needs 0 { the enterprise. concept. Even if れ meant something, "employee satisfaction" would dustry is "employee satisfaction. " But this is an almost meaningless worker? The answer that is usually given today in American in- WHAT motivation is needed t0 obtain peak performance from the ities. participation—The C. & 0. example—The plant-community activ ・ the worker informed—The managerial vision—The need for aged by 0bjectives?—The performance of management-—Keeping worker—High standards of performance—Can workers be man ・ —The enterprise's need is for responsibility—The responsible What motivation is needed——"Employee satisfaction" will れ 0 【 dO
T 日見 OBJECTIVES OF A BUSINESS 81 assumptions, besides being no 【【 00 reliable, are diffcult to make; and even minor changes in the assumed basis will lead t0 wide divergences in the end results. There is, in other words, no really adequate method as yet. Perhaps the most sensible thing is not to search for one but tO accept the simplest way, tO realize its shortcomings and tO build safeguards against itS 訂】 OSt serious dangers. I have therefore come tO advocate a method which has little in theory to commend it: to measure profitability by projecting net profit—after depreciation charges but before taxes—against original investment at original COSt, that is, before depreciation. ln infla- tionary periods the original investment figures are adjusted roughly for the rise in costs. ln deflationary periods (this method has still 【 0 be tested in one) original investment 6 部 es would similarly be adjusted downward. ln this way a uniform investment figure can be arrived at in roughly comparable dollars every three or five years, regardless Of the date Of the original investment or the purchasing power 0f the original money. This is admittedly crude; and I can ・ not defend it against the argument advanced by a friend that it is no better than painting over a badly rusted spot. But at least the method is simple; and it is SO crude that it will not f001 any manager IntO mistaking for preciSIon what, like all "return on invested capital" figures, no matter hOW obtained, iS at best a rough guess. The ど m れ g Key / Little needs tO be said here about the three remaining key areas: manager performance and development, worker performance and attitude, and public responsibility. For each is dealt with in later parts 0f this b00k. However, it should be clear that performance and results in these areas cannot be fully measured quantitatively. AII three deal with human beinos. And as each human being iS unique, we cannot simply add them together, or subtract them from one another. What we need are qualitati 、 'e standards, judgment rather than data, appraisal rather than measurements. lt is fairly easy [ 0 determine what objecti 、 res are needed for manager 2 どな orma れ C ど and d ど V ど lopm どアれ . A business—tO Stay in business and remain profitable—needs goals in respect tO the
THE PRACNCE OF MANAGEMENT less we know for how many years the profit can be expected. We should therefore always state anticipated total Pr063 over the ⅱ Of the investment discounted for present cash value, rather than as an annual rate 0 [ return. This is the method the capital market uses when calculating the rate Of return Of a bond or similar curity; and, after all, this entire approach t0 profit is based on capital-market considerations. This method alSO surmounts the greatest weakness Of conventional accounting: itS superstitious belief that the calendar year has any economic meaning or reality. We can never have rational business management until we have freed our ・ selves from what one company president (himself an ex-accountant) calls "the unnecessary tyranny Of the accounting year. ' Second, we should always consider the rate Of return as an aver- age resulting from good and bad years together. The business may indeed need a profit of 25 per cent before taxes. But if the 25 per cent are being earned in a good year they are unlikely t0 be earned over the life time Of the investment. We may need a 40 per cent return in good years tO average 25 per cent over a dozen years. And we have tO know OW much we actually need tO get the desired average. The t001 for this is also available today. lt is the "break-even point analysis" (best described by Rautenstrauch and Villiers in their b00k T んど Eco れ om 耘 $ 可ーれ d Ma れ ag ど m どれら (New York: Funk and Wagnall's, 1949 ). This enables Ⅱ & [ 0 predict with fair accuracy the range Of returns under various business conditions—especially if the analysis iS adjusted t0 express bo 山 changes in volume and in pnce. For small and simple businesses this capital-market concept of the minimum profitability required is probably adequate. For the large business it iS not sufrient, however, for the rate Of return ex ・ pected is only one factor. The other is the amount Of risk involved. An investment may return 40 per cent before taxes but there may be a 50 per cent risk Of failure. IS it a better investment than one returning 20 per cent with practically no risk? Shooting for a 25 per cent return before taxes may be good enough for existing investments, investments that have already been made irrevocably. But for new decisions management needs tO be able tO say: "We aim at a ratio 0f 1.5 to 1 , 1.33 to 1 , or 1.25 t0 ー between anticipated return after a11 costs (including those 0 ー
HUMAN ORGANIZATION FOR PEAK PERFORMANCE 299 needs——changing places, for instance, making a two-man operation out Of one originally designed for one man, etc. Even on the automobile assembly line—the antithesis of effcient group organization—ability tO move from operation tO operation has been found tO lncrease both performance and contentment. Chrysler found this in experiments conducted during the thirties in WhiCh operators moved with the car from operation tO operation. Ten years later Charles 長 . WaIker1 found in a new assembly plant in New England that "utility men" who take over temporarily what- ever position on the line needs t0 be filled showed greater job satisfaction and less fatigue; and there was strong evidence that they also did a better job. P m ー But organizing men for work alSO means putting the man on the job he will do best. We have put a great deal of time and money into the selection Of workers. Selection iS, however, a negative process. lt eliminates those WhO are unlikely tO fit. But the enterprise needs more than passable performance. lt needs the best performance a man is capable 0f. And a man needs more than a job he can perform. He needs the J0b that will provide the greatest scope for his abilities and talents, the greatest opportunity for growth and for superior performance. That the IBM approach to output norms results in intensive e 圧 0r3 by foremen and workers tO place each man where he best 6 is considered by IBM executives one ofits most valuable achievements. Where and how a man is placed at any given time decides largely whether he will be a productive employee or not, whether he will add tO the economic and social strength of the enterprise or detract from it, whether he will find fulfilment in his work or not. lt decides [ 0 a large extent how well he is being managed by the enterprise. General Motors, a few years back, conducted a survey among its foremen under the title: "When do ninety days equal thirty years?" The employee, れ was pointed out, who survives his ninety-day probationary period is likely t0 stay around for thirty years. ln 1 As reported in T Ma れ 0 れ the / m とりれ 0 (Cambridge, Mass., Harvard University P , 扇 2 ) ・