How can you evaluate the performance of your sales teams if you don’t have a good way to track their sales progress? It’s not possible. This is where Management by Objectives (MBO) can help your organization by allowing you to track your employees’ contributions to the company through measurable activities that may have a direct impact on sales performance.
What is Management by Objective?
Management by Objectives (MBO) is a business strategy that allows organizations to define individual-level goals based on desired activities and behaviors in order to improve an organization’s performance. Objectives are fully aligned with organizational goals, and employees are compensated based on how effectively they complete the goals outlined in their personalized MBO plans.
Employee involvement in decision-making is essential because participation in goal-setting drives motivation and commitment. Each employee’s MBO plan should define and emphasize their tasks and desired actions from day one.
When to use Management by Objective –
MBOs are not always the best solution; however, in certain situations, they may be critical to driving the right behavior and retaining top performers. MBOs can be used by organizations in the following scenarios:
- Impacted sales data cannot be easily aligned to a salesperson
- High variance in sales data
- Company has indirect or insufficient data that limit the ability to measure individual sales performance
- The regulatory environment is stringent
- Delay in the availability of final performance data
- Non-sales activities such as coaching, training, etc
- When a product’s sales cycle does not fit neatly into a quarter or even a year, the company must still motivate its salespeople through incentive pay
The use of measurable non-sales-based / activity-based performance metrics is crucial for the success of the MBO incentive plan. The tracking framework is defined to evaluate objectives in a time-bound environment with measurable results. Individual performance on each defined objective is rated by reporting managers, which aids in tracking manager performance.
What are the Pros & Cons of Management by Objectives (MBO)?
MBO plans facilitate communication and provide greater control over sales incentive outflow. However, in general, there are significant risks associated with this MBO:
Easy to communicate and understand
Less differentiation based on performance. People often paid similar amounts
Better control over incentives outflow
Significant administrative overhead and burden, especially when applied to a large sales team
Increased communication between employees & management
Subjective nature may spread the perception of favoritism
More effective in complex selling situations where actions needs to be defined clearly
This may result in “Managing the Manager” instead of “Managing the Performance”
What are the Benefits of MBO –
- Engaged employees always reduce attrition –
The primary reason that engaged employees should be a priority for every company in every industry. All leaders understand that attrition is one of the most significant costs a company faces and that retaining top-performing employees is critical to success.
An effective MBO plans improves alignment, increases job satisfaction and enhances engagement while decreasing the likelihood of employees quitting.
- Increase the spirit of teamwork among the employees –
MBO also helps foster a sense of teamwork among employees as focus is more on actions and makes it easier for salespeople to ask for help and guidance. This also helps create a nurturing environment and promote healthy workplace relationships. Leaders gladly assists their coworkers in achieving better results.
- Encourage employees to appreciate their job –
Employees require recognition and perception of loyalty to the company. MBO divides the work in such a way that each employee’s strength is used to achieve the goal. By doing so, an organization makes its employees feel crucial to the organization, assuring them that their presence is critical and that the organization requires their skills and talent.
- Increase motivation –
One goal of MBO is to make individual KPIs as specific as possible. Consistency of roles and responsibilities is crucial for personal and business success so that direct rewards are served as positive feedback for achieving desired results.
An MBO serves as both an external and internal motivational tool that caters to diverse employee preferences. Some will be more motivated by monetary gain, while others will see the purpose and meaning of meeting company objectives as the primary driver of success.
- Rewarding Non-measurable Objectives –
When your goals are quantitative, they can be easily measured. However, when they are qualitative, such as maintaining a clean CRM or developing an industry-specific demo instance, MBOs can also help to drive those behavioral changes.
Final Thoughts –
MBOs can be an excellent way to help your company achieve its objectives and improve employee morale as you all work towards a common goal. This is a critical component of fostering a positive workplace culture.
The underlying principle of providing an MBO is to increase employee autonomy and self-motivation. Above all, when it comes to tracking your team’s performance, a comprehensive incentive compensation management solution like Aurochs can help.
Want to learn more about managing MBOs?