INSTITUTE OF FINANCE AND RELATED STUDIES

FINANCE & RELATED

DCM 200 PRACTICE OF MANAGEMENT
MANAGEMENT STYLES
Management by Objectives (MBO)

DEFINITION

MBO is a management model that aims to improve performance of an organization by clearly

defining objectives that are agreed to by both management and employees. According to the
theory, having a say in goal setting and action plans should ensure better participation and
commitment among employees, as well as alignment of objectives across the organization

MBO is a systematic and organized approach that emphasizes the achievement of goals. In the
long run, this allows the management to change the organization's mindset to become more result
oriented.
The Management by Objective (MBO) approach, in the sense that it requires all managers to
set specific objectives to be achieved in the future and encourages them to
Continually ask what more can be done

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Essentially, MBO is a process or system designed for supervisory managers in which a manager
and his or her subordinate sit down and jointly set specific objectives to be accomplished within
a set time frame and for which the subordinate is then held directly responsible.

The MBO approach injects an element of dialogue into the process of passing plans and
objectives from one organizational level to another.

When to use MBO?

Although MBO is extremely result oriented, not all enterprises can benefit from MBO
implementations. The MBO is most suitable for knowledge-based enterprises where the staff is
quite competent of what they do.

Specially, if the management is planning to implement a self-leadership culture among the

employees, MBO is the best way to initiate that process.

Advantages

Some of the important features and advantages of MBO are:

1. Management by Objectives develops a result-oriented philosophy: The Management

by Objectives (MBO) process is all about the delivery of results (outcome) as opposed to
management by crisis (MBC)).
2. Formulation of clearer goals: The goals that are set in the MBO process are done in a
way that makes them measurable and verifiable, whilst making sure that each and every
one can be attained.
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3. Management by Objectives Facilitates objective appraisal: The evaluation process is

designed to be fair from the start, with all of the goals are put together in by the entire
team.
4. Raises employee morale: Since they play a part in setting goals, the bigger picture
becomes far clearer to everyone. This in turn leads to a companywide boost in morale.
5. Facilitates effective planning: The Management by Objectives program makes
organizational planning much more effective.
6. Acts as motivational force: With everyone working together for a common goal, there
is a much higher level of motivation to reach them.
7. Management by Objectives facilitates effective control: One of the main features of
MBO is the continual monitoring of progress. This allows everyone to measure their
performance against the standards that have been put in place.
8. Management by Objectives facilitates personal leadership: MBO gives mangers in
particular the opportunity to display their leadership skills. Keeping the entire group
focused will paint a manager in a very positive light and make them more likely to
advance within the company.
9. aligns the company goals and objectives with the employees

Limitations

1. Time-consuming: Regular meetings are required in order to assess just how well the
system is working, all of which chew up even more time.
2. Reward-punishment approach: Since the process means constantly reaching goals,
employees that fall behind the timeline are subject to penalty, while those who do well

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are rewarded. This reward-punishment method can create a high level of stress on certain
members of the team.
3. Increases paper-work: Management by Objectives method involves lots of paper work
e.g. Training manuals, newsletter, and instruction booklets progress paperwork and
reports etc.
4. Creates organizational problems: Too many organizations fall into the trap of believing
that Management by Objectives is the cure for all that ails. They fail to see that there are
a definite set of problems that can come with it. One of the most common is that
employees will try to keep targets as simple as possible, whereas upper management will
shoot for the stars. This wide gap in expectations can make it difficult to find a common
ground in the middle. The program can also instill fear in employees as it is so closely
tied to performance.
5. Management by Objectives develops conflicting objectives: Each department will
have their own ideas of success, which they may feel is different from the rest, all of
which creates conflict.
6. Problem of co-ordination: Since each department has their own goal ideas, they may set
unrealistic goals in order to undermine others.
7. Management by Objectives lacks durability: When MBO is first introduced, it tends to
generate a lot of excitement. That can fizzle out over time as the method starts to become
tired. Its such a simple process, but also one that doesnt really leave space for new
opportunities.

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8. Problems related to goal setting: MBO works best when everyone is on the same page
and find the goals set to be mutually agreeable. That can all fall apart when the goals are
considered to be too rigid or when they are particularly difficult to set

Total Quality Management (TQM)

Definition

A holistic approach to long-term success that views continuous improvement in all aspects of an
organization as a process and not as a short-term goal. It aims to radically transform the
organization through progressive changes in the attitudes, practices, structures, and systems.

Total quality management transcends the product quality approach, involves everyone in the
organization, and encompasses its every function: administration, communications, distribution,
manufacturing, marketing, planning, training, etc.

The Primary Elements of TQM

Total quality management can be summarized as a management system for a customer-focused

organization that involves all employees in continual improvement. It uses strategy, data, and
effective communications to integrate the quality discipline into the culture and activities of the
organization.

Customer-focused. The customer ultimately determines the level of quality

Total employee involvement. All employees participate in working toward common

goals

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Process-centered. A fundamental part of TQM is a focus on process thinking. A process

is a series of steps that take inputs from suppliers (internal or external) and transforms
them into outputs that are delivered to customers (again, either internal or external).

Integrated system. Although an organization may consist of many different functional

specialties often organized into vertically structured departments, it is the horizontal
processes interconnecting these functions that are the focus of TQM.

Strategic and systematic approach. A critical part of the management of quality is the
strategic and systematic approach to achieving an organizations vision, mission, and
goals. This process, called strategic planning or strategic management, includes the
formulation of a strategic plan that integrates quality as a core component.

Continual improvement. A major thrust of TQM is continual process improvement.

Continual improvement drives an organization to be both analytical and creative in
finding ways to become more competitive and more effective at meeting stakeholder
expectations.

Fact-based decision making. In order to know how well an organization is performing,

data on performance measures are necessary. TQM requires that an organization
continually collect and analyze data in order to improve decision making accuracy,
achieve consensus, and allow prediction based on past history.

Communications. effective communications plays a large part in maintaining morale

and in motivating employees at all levels. Communications involve strategies, method,
and timeliness.

Benefits of total quality management

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The following are direct and indirect benefits that total quality management (TQM) can offer
organizations:

Strengthened competitive position

Adaptability to changing or emerging market conditions and to environmental and other

government regulations

Higher productivity

Enhanced market image

Elimination of defects and waste

Reduced costs and better cost management

Higher profitability

Improved customer focus and satisfaction

Increased customer loyalty and retention

Increased job security

Improved employee morale

Enhanced shareholder and stakeholder value

Improved and innovative processes

Limitations of the Total Quality Management

Pulling Away Manpower getting everyone in an organization up to speed on a new process like
TQM takes time away from actual production

Cost in Time and Money. Implementing TQM systems can take many years. Employees come
and go, with each of them requiring this training to stay up to speed with the rest of the

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organization's goals and members. Training takes time and involves significant investment by the
company in dollars and resources.

People Fear Change. Although some executives might have a clear understanding of TQM
theory and implementation, not every employee will. Global changes in training and processes
create fear, uncertainty and doubt within organizations
Reduction in Innovation. TQM's inherently systematic and process-oriented nature can serve as
a barrier. Development can occur slowly -- or not at all -- creating a deadly status-quo
environment that sometimes causes companies fixated on TQM systems to watch more flexible
companies surpass them.

Management by walking around (MBWA)

Definition
Unstructured approach to hands-on, direct participation by the managers in the work-related
affairs of their subordinates, in contrast to rigid and distant management. In MBWA practice,
managers spend a significant amount of their time making informal visits to work area and
listening to the employees. The purpose of this exercise is to collect qualitative information,
listen to suggestions and complaints, and keep a finger on the pulse of the organization. Also
called management by wandering around.

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Pros

Gives a unique insight into the business

MBWA allows managers to see things as they really are and nearly always yields surprises. It is
a far more proactive management style, allowing the manager to spot things before they are
raised more formally and, as such, enables the manager to have a far better understanding of the
business.

Raises the manager's profile

Managers that are invisible are often felt to be distant and unapproachable and it can damage
team working if the manager doesn't get involved in day-to-day operations.

It brings new opportunities for communication

By walking around, managers may meet staff members that they otherwise very rarely see..
MBWA encourages managers to interact with all their staff and can be an ideal opportunity to
exchange ideas and feedback about developments in the business.

Cons

Can encourage oppressive management styles

Some managers see MBWA as a means of 'cracking the whip'. If the manager appears and is
simply critical or domineering then this will alienate the employees even further.

Can encourage a negative, critical outlook of the business.

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MBWA can encourage a negative, critical outlook of the business. While managers might enjoy
the opportunity to spot things that need fixing, this is not the only objective.

Is seen as a 'fad' if not followed through

MBWA is not something that is done once or twice. It is a regular, ingrained part of the
management culture and must be something that is maintained over time. If a manager wanders
round very occasionally, it will engender the view that the manager is bored or has simply been
told to do it

The Balanced Scorecard

Introduction

The balance scorecard is used as a strategic planning and a management technique. This is
widely used in many organizations, regardless of their scale, to align the organization's
performance to its vision and objectives.

The scorecard is also used as a tool, which improves the communication and feedback process
between the employees and management and to monitor performance of the organizational
objectives.

As the name depicts, the balanced scorecard concept was developed not only to evaluate the
financial performance of a business organization, but also to address customer concerns, business
process optimization, and enhancement of learning tools and mechanisms.

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The Basics of Balanced Scorecard

Following is the simplest illustration of the concept of balanced scorecard. The four boxes
represent the main areas of consideration under balanced scorecard. All four main areas of
consideration are bound by the business organization's vision and strategy.

The balanced scorecard is divided into four main areas and a successful organization is one that
finds the right balance between these areas.

Each area (perspective) represents a different aspect of the business organization in order to
operate at optimal capacity.

Financial Perspective - This consists of costs or measurement involved, in terms of rate

of return on capital (ROI) employed and operating income of the organization.

Customer Perspective - Measures the level of customer satisfaction, customer retention

and market share held by the organization.

Business Process Perspective - This consists of measures such as cost and quality
related to the business processes.

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Learning and Growth Perspective - Consists of measures such as employee

satisfaction, employee retention and knowledge management.

The four perspectives are interrelated. Therefore, they do not function independently. In realworld situations, organizations need one or more perspectives combined together to achieve its
business objectives.

For example, Customer Perspective is needed to determine the Financial Perspective, which in
turn can be used to improve the Learning and Growth Perspective.

Features of Balanced Scorecard

From the above diagram, you will see that there are four perspectives on a balanced scorecard.
Each of these four perspectives should be considered with respect to the following factors.

When it comes to defining and assessing the four perspectives, following factors are used:

Objectives - This reflects the organization's objectives such as profitability or market

share.

Measures - Based on the objectives, measures will be put in place to gauge the progress
of achieving objectives.

Targets - This could be department based or overall as a company. There will be specific
targets that have been set to achieve the measures.

Initiatives - These could be classified as actions that are taken to meet the objectives.

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A Tool of Strategic Management

The objective of the balanced scorecard was to create a system, which could measure the
performance of an organization and to improve any back lags that occur.

The popularity of the balanced scorecard increased over time due to its logical process and
methods. Hence, it became a management strategy, which could be used across various functions
within an organization.

The balanced scorecard helped the management to understand its objectives and roles in the
bigger picture. It also helps management team to measure the performance in terms of quantity.

The balanced scorecard also plays a vital role when it comes to communication of strategic
objectives.

One of the main reasons for many organizations to be unsuccessful is that they fail to understand
and adhere to the objectives that have been set for the organization.

The balanced scorecard provides a solution for this by breaking down objectives and making it
easier for management and employees to understand.

Planning, setting targets and aligning strategy are two of the key areas where the balanced
scorecard can contribute. Targets are set out for each of the four perspectives in terms of longterm objectives.

However, these targets are mostly achievable even in the short run. Measures are taken in align
with achieving the targets.

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Strategic feedback and learning is the next area, where the balanced scorecard plays a role. In
strategic feedback and learning, the management gets up-to-date reviews regarding the success
of the plan and the performance of the strategy.

The Need for a Balanced Scorecard

Following are some of the points that describe the need for implementing a balanced scorecard:

Increases the focus on the business strategy and its outcomes.

Leads to improvised organizational performance through measurements.

Align the workforce to meet the organization's strategy on a day-to-day basis.

Targeting the key determinants or drivers of future performance.

Improves the level of communication in relation to the organization's strategy and vision.

Helps to prioritize projects according to the timeframe and other priority factors.

Advantages of Balanced Scorecard

Balanced Scorecard presents organizational goals in a single page chart broken down into
relatable areas.

Balanced Scorecard allows companies to bridge the gap between mission statement or
over-arching goals and how day to day activities support the company's mission or
objectives. A BSC goal of pleasing the customer can be tied to improving technical
support performance according to the Service Level Agreement or exceeding the SLA.

BSC raises innovation and process improvement methods such as six sigma and lean
manufacturing to a corporate goal. It also ensures that voice of the customer is equally
important.

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Balanced Scorecard does not exclude other methods of business reporting or process
improvement

Balanced Scorecards can provide a visual means of demonstrating how different goals are
related. Increased sales improve the profit or sales goals under the financial section.
Improved customer service meets the voice of the customer goal.

Balanced Scorecards are straightforward enough to be used by many managers after

gaining familiarity with the concept. Advanced training isnt required to implement a
simple version of BSC.

Disadvantages of Balanced Scorecard

Balanced Scorecard performance is subjective. Unlike quality levels, it cannot be

quantified except by surveys or management opinion

Balanced Scorecard does not include direct financial analysis of economic value or risk
management. Goal selection under Balanced Scorecard does not automatically include
opportunity cost calculations.

Because Balanced Scorecard can add a new type of reporting without necessarily
improving quality or financial numbers, it can seem to be an additional set of non-valueadded reporting or, worse, a distraction from achieving actual goals.

Overly abstract Balanced Scorecard goals are easy to reach but hard to quantify.

When a company is failing to meet its Balanced Scorecard goals, the goals may be reinterpreted to the current state of affairs to meet success or avoid failure. Altering the
acceptance criteria for a good balanced scorecard is easier than altering the acceptance
criteria for mechanical parts and hence the reject rate.

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Conclusion

As the name denotes, balanced scorecard creates a right balance between the components of
organization's objectives and vision.

It's a mechanism that helps the management to track down the performance of the organization
and can be used as a management strategy.

It provides an extensive overview of a company's objectives rather than limiting itself only to
financial values.

This creates a strong brand name amongst its existing and potential customers and a reputation
amongst the organization's workforce.

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