Management by Objective – Without Carrots and Sticks

The turn of the year is tra­di­tion­al­ly the time to look back, pause and look for­ward to the new year. On a per­son­al lev­el, this typ­i­cal­ly leads to new year’s res­o­lu­tions and in the vast major­i­ty of com­pa­nies this means tar­get agree­ments. Both can work, but in prac­tice they won’t or will work only inad­e­quate­ly. There is hard­ly any man­age­ment con­cept that is as wide­spread as Man­age­ment by Objec­tives described by Peter F. Druck­er in 1954. At the same time, this con­cept is prob­a­bly the most mis­un­der­stood and abused in the his­to­ry of man­age­ment. There was a rea­son why Peter F. Druck­er called it “Man­age­ment by Objec­tives and Self-Con­trol” and now is the time to remem­ber it.

Management by Objectives and Self-Control

Peter F. Druck­er explained that orga­ni­za­tions need ori­en­ta­tion and that it does not appear mag­i­cal­ly but quite the oppo­site, that this ori­en­ta­tion is lost more and more the larg­er and more dis­trib­uted the orga­ni­za­tion becomes. One rea­son for this is, for exam­ple, the one-sided ori­en­ta­tion of the spe­cial­ists towards their dis­ci­pline, sup­port­ed by the high degree of spe­cial­iza­tion and func­tion­al divi­sion. Con­trollers then strive for the per­fect con­trol­ling process and con­trol­ling tools (no offense against con­trollers, the same applies to all spe­cial­ists in spe­cial­ist silos). How­ev­er, this pur­suit of the local opti­mum does not nec­es­sar­i­ly ben­e­fit the orga­ni­za­tion as a whole, but often even impedes val­ue creation.

It is there­fore rea­son­able to align the objec­tives of the var­i­ous parts of the orga­ni­za­tion right down to the indi­vid­ual employ­ee at the begin­ning of the year. This is then called tar­get agree­ment. So much for the the­o­ry. In prac­tice, how­ev­er, this often rather means impos­ing tar­gets from the top rein­forced by appro­pri­ate finan­cial incen­tives to achieve these imposed tar­gets. How­ev­er, Peter F. Druck­er did not imply this as he delib­er­ate­ly named the con­cept “Man­age­ment by Objec­tives and Self-Control”.

Man­age­ment by objec­tives and self con­trol assumes that peo­ple want to be respon­si­ble, want to con­tribute, want to achieve. That is a bold assump­tion. Yet we know that peo­ple tend to act as they are expect­ed to act.

Peter F. Drucker 

Here it becomes evi­dent that Peter F. Druck­er was an advo­cate of Dou­glas McGre­gor’s The­o­ry Y, i.e. that he regard­ed peo­ple as will­ing to per­form and intrin­si­cal­ly moti­vat­ed (and not as lazy and in need of extrin­sic moti­va­tion). This is exact­ly what the often for­got­ten sec­ond part of the title of his con­cept refers to. He was con­cerned with man­age­ment by objec­tives in the con­text of the self-con­trol of moti­vat­ed employ­ees. He was not inter­est­ed in impos­ing tar­gets, offer­ing incen­tives and exter­nal control.

The Sad Truth About Monetary Rewards

The truth about extrin­sic moti­va­tion, espe­cial­ly in the form of mon­e­tary rewards, is that they only work for a sur­pris­ing­ly nar­row range of appli­ca­tions, where essen­tial­ly the appli­ca­tion of mechan­i­cal skills is required. As soon as even rudi­men­ta­ry cog­ni­tive skills are required, these incen­tives not only fail, but are evi­dent­ly lead­ing to poor­er per­for­mance. The sad thing about it is that this insight is almost 50 years old and although it has been repeat­ed­ly con­firmed, the vast major­i­ty of orga­ni­za­tions ignore it and con­tin­ue to rely on car­rots and sticks.

The Ger­man psy­chol­o­gist Karl Dunck­er described the fol­low­ing famous exper­i­ment known as the can­dle prob­lem in 1945. Probands were giv­en a can­dle, a pack of tacks and match­es and the task of attach­ing the can­dle to the wall so that no wax would drip onto the table. The solu­tion requires cog­ni­tive abil­i­ties because one has to over­come the so-called func­tion­al fixed­ness in order to rec­og­nize that the box could be more than just a con­tain­er for the tacks.

Sam Glucks­berg linked this exper­i­ment with mon­e­tary rewards in 1962 and found that this extrin­sic moti­va­tion increased the time the sub­jects need­ed to solve the prob­lem by an aver­age of 3.5 min­utes. In his TED-Talk, Dan Pink looks at this and oth­er research results in detail and explains why self-con­trol is the deci­sive fac­tor for the intrin­sic moti­va­tion of humans. This is exact­ly why Peter F. Druck­er called his con­cept “Man­age­ment by Objec­tives and Self-Con­trol”. And we all should remem­ber this at the begin­ning of the year.

Tra­di­tion­al notions of man­age­ment are great if you want com­pli­ance. But if you want engage­ment, self-direc­tion works better. 

Dan Pink