Management by Objectives, or MBO as the gurus call it, can be applied to any endeavour from your small business to tomorrow's e-commerce breakout. MBO consists of three moving parts controlled by a consistent process.

Set a clear goal
Your goal is not your mission statement. It is not a corporate boilerplate designed to satisfy bankers, shareholders, and stakeholders. It is a clear, simple expression of what you want your company to become by a reasonable time in the future. Complete this sentence: "In five years, this company will…"

Establish objectives
Objectives involve the concept called Key Result Areas (KRAs). In what parts of the business can you spend time, energy and resources with the greatest effect? Don't bother paving the parking lot, for example, if the assembly line is outdated. Identify four or five KRAs, and for each write an objective to achieve within one year. Your statements must be concrete, realistic and measurable, and begin with a strong action verb. "Make customers happy" may be a worthy and possibly realistic wish, but is neither concrete nor measurable. "Reduce goods returned from 10 per cent to 5 per cent of sales within 12 months while maintaining production volume" is concrete, realistic and measurable, as well as contributing directly to the bottom line.

Action plans
For each objective, write out the steps to accomplish it.
For example:

Appoint a supervisor responsible for quality control within 1 month. Within 2 months, implement a system to ensure that someone contacts all customers returning goods within 2 weeks of the return and ascertains the reason for dissatisfaction. Build a database using information obtained in step 2. Within 6 months, using the database, identify the 5 major problems causing returns. Within 7 months, implement solutions to those problems. Continue to track and modify as required on a monthly basis.

The process – mutual agreement
Senior management must establish overarching objectives. Assume that the company under discussion has a President, three Vice-Presidents – Manufacturing, Sales and Finance – each with two or three Supervisors and their staffs. The President should propose his objectives to the three VPs, and modify them if necessary to harmonize with their abilities, resources and views of the company. As the MBO process filters through the organization chart, the objectives of upper management become the goals of the next level down. Thus, the President's quality control objective becomes the goal of the Manufacturing VP and, essentially, the action plan for his objectives, and so on down the line.

Employees must agree to their personal objectives; they must "buy into" the process, for when evaluation time arrives, managers will reward them, or not, according to their success. Objectives and KRAs should help form the agenda for every regular meeting throughout the company. As well, they should be modified continually, but carefully, as events unfold. Some recent experiments in basing evaluations on objectives for which others are accountable have been fruitful. In our example, the Finance VP could contribute to the success of Manufacturing by finding means to fund new equipment; as well, the VP Sales could contribute to that success by better explaining company products to customers.

Throughout the long business voyage, if you implement the three MBO steps, and stick to the process, you will have a ready answer when people ask if you're there yet.