12/12/2021
Management by Objectives:
Many small business owner try to do everything themselves, they manage the business, look after advertising, sales, invoicing, they perform the debt collection function, hiring, firing and everything in between.
When they hire staff , they try to find people like them who can do everything, but they get frustrated when their staff cannot do everything they want them to do. Then they try to replace them with others who again fails to meet the manger's expectations and they can get stuck in this vicious cycle.
So imagine your new sales person, is trying to do sales but also helping with the invoices, he or she goes to the PO Box to collect the mail, check & process the mail, also buy grocery and many other things. This new person becomes super busy doing all sort of things like the other three employees and soon he or she will ask the manager to hire a helper to help them performing some of the stuff in their long to do list.
The solution is a simple concept called "Management by Objectives". This concept was initially presented by the management guru Peter Ducker. This concept encourage simplicity. So a sales person's objective is just that, basically producing "Sales". A sales person should only perform tasks related to increasing the company's sales. So they should not lick stamps, do the shopping and clean the toilets.
The key is for the employee and management is to quantify the output of the employee, and that is reasonably achievable if the employee has one or two objectives as they can provide a monthly report showing their progress against their monthly targets and the management can verify it, so everyone knows how things are progressing with clarity.
I would like to clarify a confusion with many employees as they confuse efforts with effectiveness. Here is an example to illustrate this point. Let's say that we have an honest employee who is reliable, loyal and hardworking who always goes the extra mile. They should be highly appreciated, would that be right? Maybe not.
I will give you an example, years ago we had a very nice and caring young man, fresh from the AUT university who joined us back in 2010, his role was a salesman, receiving inbound phone calls from customers who have issue with their TV reception. Most of these callers needed a TV antenna service man to visit their home to check their TV reception issue and get it fixed.
Our young man was working so hard and he worked much longer hours than anyone else in the office but he had the lowest rate of bookings, because he was giving the prospects so many options that was confusing them and made them unconformable, hence they were eventually calling our competitors to take their business .
We have tried so many things with this young man but he couldn’t change his style, he got frustrated and left.
So please do not mix hard work with effectiveness. Your people needs to perform well against their objectives and the only way to do that is for your staff to be laser focused on their objectives as explained earlier. So if we were giving so many other duties to our salesman then we wouldn’t be able to pin down his performance issues.
Remember, you do not hire people for the sake of making them busy. What is important is how well they perform their role and achieve results for you. Think deep about this. You and your employees must be focused on scoring highly on the role objectives and targets. So don't evaluate and reward people based on their busyness, instead base it on their achievements.
So it is key not just to have clear objectives but also have clear KPIs associated with objective. I advise not give your employees more than two objectives and not more than 4 KPIs otherwise it will be too messy and difficult to focus on too many things. Of course the KPIs must be designed to fulfil the objective.
Remember this rule, if you assign too many KPIs and too many responsibilities to one person then they have no real responsibilities. A person's responsibilities must be so clear and so baked in their head so they recite it while they are a sleep. So go back and cut the list down hard and make super simple. There is a rule called: Less is more
Steve Jobs once said: Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it's worth it in the end because once you get there, you can move mountains.
A smart employee should also understand the people around him or her and their objectives, also understand the company's objectives and direction so they can ensure that they are always working on sharpening the saw, so the improvements on their by objectives is contributing positively to the company's objectives.
It is a must to dive in into your objectives most of the time and the occasionally have a helicopter view of the big picture to make sure you and your efforts are well aligned with the company's big picture.
I would like to note that the General Manager duties and focus is bit different from the rest, as the GM needs to be an experienced person who have worked in multiple areas and understand wholistically the company's and individual objectives and aims, so he or she can lead the team and the company to achieve their objectives. A great GM would also understands the people's personal objectives and try to align those objectives with the company's direction. So the GM should understand all the business multi facets and knows how to manage them well.
The worst thing that a GM can do is get itchy and jump into the doing themselves when there is an urgent need for something to be done so they jump in quickly to fill the gap. But by them doing that, the whole company's performance can sag or drift and this can be devastating. The GM needs to stay detached and having a full control from a reasonable distance above all the functions. He or she needs to ensure that all stakeholders are doing their job well but they should never perform their staff technical work themselves.
The GM needs to be conductor of the orchestra. To make sure all are doing a great job but never jump and do it himself. She needs to be the master of the chess board and not one of its pieces
Discipline is so important in business and having a clear hierarchy is so useful so all understand what to do, otherwise the organisation will be weak and in disarray.
Discipline in many ways is far more important than courage, and even more important than excelling in doing our tasks. As lack of discipline will cause a serious decay in the organization and if it is left untreated then it could cause a serious collapse.
The GM needs to be the master of the chess board as discussed, but if the chess players i.e. your employees especially those who hold the key position are incompetent or inexperienced then your chess game and your business will suffer badly regardless of how good you are. Hence it is key to hire the right calibre people and keep the right people in the bus and the wrong people off the bus, this has been well covered by Jim Collins in his book good to great . Otherwise you will be constantly putting off fires all over the place and you will be on the backfoot at all times
We have fell into the grip of this issue many times by hiring junior staff and giving them authority for providing purchase orders for example. Due to their inexperienced in life and business they lack the judgment to know when they should say yes and when they would refuse to provide a PO for example. Under pressure a junior will just give it without thinking the consequences. And soon an employee that is supposed not costing you much in terms of salary but the reality they can be creating the biggest leak in your finances. So almost at all times, a more experience and more expensive employee will be overall far cheaper than hiring a junior. You need to think of the overall cost of any employee rather just looking at their salary alone. Hence the hiring due diligence process is crucial in any business as it can lead to winning or ruining it.
I would like to share with you one of the success tenets of Warren Buffet, the wizard of Omaha who is considered the best investor in the world. He calls it "Management tenant", this is key part of his "Twelve tenets" that he thoroughly test before investing in any business.
His management tenant is simply based on who is running the company, who is the CEO and the key people and what's their tendency in terms of behaviour and style. He studies the company manager's history and if he finds their performance is inconsistent and they try to cut costs by hire the wrong people then he would not consider going there. Alternatively, by buying enough shares, he can force the company to hire the right managers for the right roles and he locks them in long term as they will look after his money very well.
Once he installs the right management, he pulls out almost completely as he let the highly trusted people that he knows are capable of running and expanding the business.
So simply don’t go cheap in hiring otherwise you are just gambling and you will just pray that they will do a good job for you.
The GM needs to hire the right people, also assign to them the appropriate roles and objectives. Agree with them on a certain outcome and a simple criteria to help them report their monthly KPI scores. The GM needs to collect this data and study it and provide constructive feedback. He or she must have their formal quarterly review meeting with their staff. also the GM needs to ensure that game plan at operation and financial level are meticulously executed every month. So more or less their role is collecting data, analyse it, coach their staff to improve their performance and report the outcome against the company's plans to the company's board
