Planning and Goal Setting For Small Business
Planning and Goal Setting For Small Business
Planning and Goal Setting For Small Business
MP-6
INTRODUCTION
Many authorities on business management identify the five major functions of management as
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Planning.
Organizing.
Directing.
Controlling.
Coordinating.
The planning and controlling functions of management often receive less attention from the
small business owner-manager than they should. One way to more effectively fulfill these two
functions is through effective goal setting.
The success of a business will depend on its long-range goals for sales, profits, competitive
position, development of personnel and industrial relations. To accomplish these goals, the
company will need to identify intermediate goals that it can work toward each year.
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MANAGEMENT BY OBJECTIVES
Traditionally, people have worked according to descriptions that list the activities or functions of
the job. The management by objectives (MBO) approach, on the other hand, stresses results.
Let's look at two examples.
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Suppose a credit manager's job description states that he or she will supervise the
credit operations of the company. This description simply lists the functions of
the credit manager. Under the MBO approach, the owner-manager and the credit
manager would identify five or six goals covering important aspects of the
manager's work. For example, one goal might be to increase credit sales enough
to support the 15 percent increase in sales expected by the sales department.
The traditional job description for a personnel specialist may include conducting a
recruiting program for the company. Under the MBO approach, the personnel
specialist would identify five or six appropriate goals, one of which could be,
Recruit ten new employees in specified categories by July 1.
With MBO, jobs are viewed in terms of achievements rather than simply functions. Activity
alone is not enough; each activity must bring the worker closer to achieving his or her goals.
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Each employee proposed 5 to 10 goals to cover those aspects of his or her job
crucial to successful performance.
A final written statement of each goal was prepared, including a statement of the
goal, method of evaluating the goal, work steps needed to complete the goal and
an estimated time needed to complete the steps.
Progress was evaluated at regular intervals (at least quarterly) and compared with
the original goals.
Goals were related to each level of management, both those above and those
below.
A clear vision of your business is crucial for planning your marketing, product development,
buildings and equipment, and financial and staff needs. For example, a drop in sales caused a
small business manufacturer of metal trash cans to reexamine its product. To regain lost sales,
the owner decided to redefine the product as metal containers and to develop a new marketing
plan.
Setting Goals
Long-range business goals will be the cornerstone of your company's MBO program. To achieve
these goals, you must have a method to communicate them to your managers and employees.
One way is to bring managers and employees into the process by asking them to help formulate
the company's short- and long-range goals. If they have a role in establishing the goals, they will
be more committed to achieving them.
All goals should relate to and support the long-range objectives for the company. In this way,
you can ensure that the goals of all levels of management are consistent. If goals are
incompatible, you may find that employees feel like the middle manager of a research and
development company who exclaimed in a seminar, How can I set my goals when I don't know
where top management wants to go?
Types of Goals
What areas of your managers' work are suitable for goal setting? Ask managers to identify the
most important aspects of their work. In each area, they should set both short- and long-term
goals. Carefully developed goals, if attained, should give the manager better control of the job.
Each manager should define one or two goals in each of the following categories:
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Problem-solving goals.
Innovative goals.
Development goals.
By asking your managers to set at least one goal in each of these four areas, you may open their
eyes to new possibilities they had not seen before. The goal-setting process can be a very useful
educational step.
Regular Work Goals
These include the major part of the manager's responsibilities. For example, the head of
production should focus on the quantity, quality and efficiency of production and the head of
marketing should concentrate on developing and conducting the market research and sales
programs. In defining their regular work goals, employees should include ways of
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Problem-Solving Goals
These provide managers an opportunity to define their major problems and to set a goal to solve
each one. There is no danger of ever running out of problems; new problems or new versions of
old problems are always present.
Innovative Goals
Because of the push for new products and new methods in today's marketplace, innovation now
gets much attention in seminars and publications for top managers. Managers and workers
should seek new and better production methods, explore better ways to serve customers and
propose new products for the company. Managers will need to use innovative approaches to
make the company competitive in a fast-changing national and international economic
environment.
Development Goals
In setting development goals, you and your managers recognize the importance of acquiring new
skills. Managers should plan for the continued growth of each employee, both in technical areas
and in work relations with fellow employees.
Devising a Work Plan
You and your managers should use a miniature work plan to develop goals that are complete and
useful (see Exhibit 1). In developing the plan, the following five areas should be addressed:
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Measurement -- What benchmarks will you use to measure whether you have
achieved your goals? These usually can be expressed in quantitative terms.
Work steps -- List three or four of the most essential steps. Give completion dates
for each.
On the work plan, managers can show each of the major work steps (subgoals) necessary to
reach a goal. If the work steps are completed by the indicated date, the goal is reached.
Use the form in Exhibit 1 to discuss goals with your managers. By looking at the form, you can
see not only the goal but also the plan for reaching that goal. This will allow you to (1) ask
questions about the work steps and any potential problems; (2) decide the best way to evaluate
progress on the goals and (3) help each of your managers understand how his or her goals relate
to those of the company.
All problems listed on the work plan should include a solution. For example, suppose the head of
a supply department sets a goal to deliver all packages within one day after they are received.
Because employees may have difficulty meeting the new deadlines, the work plan should include
necessary steps to teach them the new procedures before the program goes into effect.
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Exhibit 1
SUPERVISOR: ____________________________________
OBJECTIVE #1: Increase gross sales margin of my area by
12 percent by 9-1-92 and maintain at that
level for remainder of 1992.
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Major Action Steps
January - December
J F M A M J J A S O N D
An MBO program must include a provision for regular progress reports. For this reason, the
MBO concept is sometimes called MBO/R, where the R refers to results. You and your
managers will only accomplish your goals or objectives if the MBO program calls for a regular
review of progress. For example, one large organization issued nearly 100 pages of
well-developed goals prepared by many of its managers. The document was very impressive, but
it lacked a reporting system of any kind. You can imagine the skeptical reaction of those who set
goals for the first year when they were asked the following year to draw up new goals.
A monthly or quarterly review of progress toward goals will help you determine where progress
is below expectations. For example, suppose that one of your goals is to reduce overtime work
by 50 percent in one year, but you only reduce it by 15 percent in the first quarter. Based on this
information, you can exert a special effort in the succeeding quarters to regain the lost ground.
When progress is below expectations, you should identify the problems holding back progress
and assign someone to resolve them. Failure to reach goals can result from
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In order to solve problems and meet a goal, managers may have to adjust their time line or
change the goal itself. All changes should be written as new goals and included in the MBO
files.
Evaluating Performance
In contrast to traditional methods, which evaluate performance based on personal qualities such
as leadership ability, the MBO method evaluates performance based on objective results. Such
evaluation is a complex task that must be undertaken with care by someone who fully
understands MBO. (See Exhibit 2 for a comparison of traditional and MBO evaluation methods.)
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Exhibit 2
Comparison of Traditional and MBO Evaluation Methods
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Characteristic
Traditional method
MBO method
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Frequency
Usually annually
(if at all).
Usually quarterly.
Emphasis
Traits.
Results versus
objectives.
Subordinate's
frame of mind
Mental block.
(doesn't know how
traits will be
evaluated).
Positive (feedback
has told employee
how well he or
she is doing).
Suggestions for
improvement
Poor receptivity
(much has been
based on employee's
traits).
Positive (much
has been based
on employee's job
performance).
Tie in to
rewards
Rewards usually
tied directly to
results.
Summary
Little connection
Results oriented.
to results.
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Under the MBO program, you evaluate your managers' performance based on whether they have
achieved their five to eight goals. You also must determine how well they have performed the
secondary duties that do not fall under goals. (See Exhibits 3 and 4 for examples of traditional
and MBO performance evaluation forms, respectively.)
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Exhibit 3
Example of Traditional Performance Evaluation Form
Factor
Excellent Above
Average Below Poor
average
average
Degree of costconsciousness
X
Grasp of function
X
Initiative
X
Decision-making
ability
X
Application
X
Judgment
X
Health
X
Appearance
X
Loyalty
X
Relationship with
people
X
Ability to develop
subordinates
X
Work habits
X
Contribution to
company's progress
X
Potential for
advancement
X
___________________________
Employee:_________________ Rated by: __________________
Objectives
Measure
1. Improve by
10% number of
qualified
applicants
referred for
job openings.
1. At least
T
three qualified
candidates
referred for
each job
opening.
Achieved in 97
percent of
cases.
2. Increase by
12% number of
qualified
welders during
19xx.
2. Number of
O
persons completing basic
welding course
#5.
17 completed
course.
management priority.
During the seminar, ask each participant to prepare an actual goal. Also, in small group sessions,
have your managers review each other's work plans and offer suggestions to improve them. The
experience of setting and reviewing goals makes MBO a learning experience for all employees.
Encourage your managers to express their doubts, reservations or opposition to MBO. They
should get their feelings out in the open as soon as possible. You, the consultant or other
participants can help to ease their concerns.
In the beginning of your MBO program, your managers will have to learn to measure their own
performance accurately, anticipate real problems that will thwart their progress and take steps to
solve delays and other problems. During this learning period, your managers should set fewer
goals than would usually be expected, perhaps three or four. After they develop and achieve
these goals, they can extend the number and area covered by each goal.
MBO may look simple on the surface, but it requires experience and skill to make it work
effectively. If managers set annual goals, it may take three to four years before good results from
this new system appear.
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THREATS TO AN MBO PROGRAM
Not all MBO programs are successful. Some of the reasons why programs fail to reach their
potential are
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It is difficult to learn the system because the nature of MBO is not taught.
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SUMMARY
It is hard to get people to think in terms of results rather than the functions of their job; however,
it can be done. The sequence of steps you use may not work for someone else. It is often an
individual matter. No matter what steps you use, the final results are what count.
If you feel that you are ready to introduce MBO to your company, why not set it as a goal for
yourself? Turn back and follow through with the work plan. List your goals, method of
measurement, anticipated problems and the work steps necessary to get your company managing
by objectives.
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APPENDIX: INFORMATION RESOURCES
U.S. Small Business Administration (SBA)
The SBA offers an extensive selection of information on most business management topics, from
how to start a business to exporting your products.
SBA has offices throughout the country. Consult the U.S. Government section in your telephone
directory for the office nearest you. SBA offers a number of programs and services, including
training and educational programs, counseling services, financial programs and contract
assistance. Ask about
Womens Business Centers (WBCs), sponsored by the SBA in partnership with local
non-government organizations across the nation. Centers are geared specifically to
provide training for women in finance, management, marketing, procurement and the
Internet.
Http://www.pueblo.gsa.gov
1-800-333-4636
The CIO offers a consumer information catalog of federal publications.
Consumer Product Safety Commission (CPSC)
Publications Request
Washington, DC 20207
http://www.cpsc.gov/cpscpub/pubs/pub_idx.html
The CPSC offers guidelines for product safety requirements.
U.S. Department of Agriculture (USDA)
12th Street and Independence Avenue, SW
Washington, DC 20250
http://www.usda.gov
The USDA offers publications on selling to the USDA. Publications and programs on
entrepreneurship are also available through county extension offices nationwide.
U.S. Department of Commerce (DOC)
Office of Business Liaison
14th Street and Constitution Avenue, NW
Washington, DC 20230
http://www.osec.doc.gov/obl/
DOC's Business Liaison Center provides listings of business opportunities available in the
federal government. This service also will refer businesses to different programs and services in
the DOC and other federal agencies.
U.S. Department of Health and Human Services (HHS)
Substance Abuse and Mental Health Services Administration
1 Choke Cherry Road
Rockville, MD 20857
http://www.workplace.samhsa.gov
Helpline: 1-800-workplace. Provides information on Employee Assistance Programs Drug,
Alcohol and other Substance Abuse.
U.S. Department of Labor (DOL)
Employment Standards Administration
200 Constitution Avenue, NW
Washington, DC 20210
The DOL offers publications on compliance with labor laws.
U.S. Department of Treasury
Internal Revenue Service (IRS)
1500 Pennsylvania Avenue NW
Washington DC 20230
http://www.irs.gov/business/index.html
The IRS offers information on tax requirements for small businesses.
Books
Many guidebooks, textbooks and manuals on small business are published annually. To
find the names of books not in your local library check Books In Print, a directory of
books currently available from publishers.
In addition to books and magazines, many libraries offer free workshops, free access to
computers and the Internet, lend skill-building tapes and have catalogues and brochures
describing continuing education opportunities.