SETTING OBJECTIVES AT LZ COMPANY
A critical evaluation in Management by Objective approach
Xuanqun Chen
Project submitted in part fulfillment of the
Master of Business Administration
XXXXBusinessSchool
XXXXUniversity—January 2007
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Acknowledgements
The author would like to express her particular gratitude to her supervisor, Dr. PM, for his help and guidance throughout the project, especially his enlightens for her reflections and observations.
She would also like to take this opportunity to thank all the tutors who taught her various knowledge with different mental models. Their persistence and preciseness at work leaves a deep impression to the author and encourages her to carry out this work.
Many thanks to her big family: her husband and daughter, her parents and parents-in-law, her sister, who give their great support and understanding throughout the Academic year while the author is studying in UK.
Last but not least, her gratitude also goes to all her colleagues, the staff in XXXXUniversity, the staff of XXXX) Company Ltd. and all the people who give her kind help in achieving this project.
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Setting Objectives at LZ Company
Content
Abstract
List of Tables
List of Figures
Chapter 1: Introduction
1.1. Profile of XXXX(Guanghou) Ltd
1.2. Management by Objectives:
1.3. Research objectives:
Chapter 2: Literature review:
2.1. MBO and Its Main Elements
2.2. Objectives in MBO approach
2.3. Objective setting
2.3.1. Characteristics of objectives and objectives setting:
2.3.2. Procedures of objectives setting
2.3.3. Objectives and strategic vision and mission.
2.3.4. Objectives and decision-making:
2.3.5. Integrating objectives into organization targets
2.3.6. Objective and department
2.3.7. Objective and individuals
2.3.8. Objectives and plan
2.4. Primary barriers of good objective setting
2.5. Conceptual framework
Chapter 3: Research Methodology
3.1. Research philosophy
3.2. Research strategy
3.3. Critical evaluation of the research methods selected
3.3.1. Quantitative and qualitative research methods
3.3.2. Questionnaire
3.3.3. Semi-structured interview
3.3.4. Secondary data
3.4. Triangulation
3.5. Reliability and validity
3.6. Cross Mapping Matrix
Chapter 4: Findings
4.1.1 Education level of the participants
4.1.2. Knowledge of Management
4.1.3. Knowledge of MBO target setting before LZ Ltd.’s introduction
4.1.4. Conclusion and comments for the general situation:
4.2.1. Strategic vision and mission
4.2.2. Integration of the strategic decision-making with the vision and mission
4.2.3. Integration of targets
4.2.3.1. The accordance of the company’s targets with vision and mission
4.2.3.2. The integration of departmental targets with the company ones
4.2.3.3. The accordance of individual targets with the departmental ones
4.2.4. Goal review and action plan match
4.2.4.1. Action plan to carry out company targets
4.2.4.2. Action plan to carry out department targets
4.2.4.3. Personal action plan to carry out individual targets.
4.2.5 Conclusion and comments for objective one
Chapter 5: Conclusions and recommendations
Appendices
Appendix One: The ground rules and checking list for setting effective targets
Reference:
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Abstract
XXXX) Ltd. is one of the major manufacturers of cosmetics of skin care, hair styling and care in China. After its privatization in 1996, it attempted to make greater achievements by regenerating its managerial system. Management by Objective (MBO) is one of the main approaches they took. But, to the disappointment of the management, the result was not as good as expected; especially the target setting processes appear to burden the staff.
This study takes a critical look at the existing target setting of the MBO approach in this company. It assesses the procedures of its target setting, the characteristics of the process, and the inlooks of the staff’s attitude and performance. To obtain an in-depth and detailed understanding of the attitudes and evaluate the barriers, questionnaires with 50% coverage of the total staff in the company were carried out and 12people from the company were chosen for semi-structured interviews. In addition, secondary data from the company was sought and content analyzed. Both qualitativeand quantitative data was collected and considered.
This investigation identified the barriers to setting appropriate and achievable targets as: lack of management skill, lack of proficiency, insufficient awareness, and fear of Failure. In addition, some other barriers are: too strong an incentive orientated, top-down communication, and insufficient knowledge of staff views. Neglect of the company in review and adjustment of the programmeimplementation are also identified as factors preventing setting targets successfully.
List of Tables
NamesofTables Page No.
Table 1.The Management By Objectives Process 5
Table 2.4.Six Mistakes in Objectives Setting That Kill MBO Program 16
Table 3.3.2a. Staff Selection Allocation of LZ Company for Questionnaires 26
Table 3.3.2b. List of advantages and disadvantages of questionnaires 28
Table 3.3.3. Staff Selection Allocation of LZ Company for Interview 29
Table 3.3.4. List of advantages and disadvantages of Secondary data 32
Table 3.6.Cross Mapping Matrix of the research 35
Table 5.3. Implementation Plan for Improving the Target Setting in LZ 62
List of Figures
Name of Figures Page No.
Fig. 2.3.2.Example of an objective-setting cascade 8
Fig. 3.2. Time Line for Implementation of Research for the Project 22
Fig. 3.3.2a.The Organisational Structure of LZ (XXXX) Company 25
Fig.4.1.1.Employees education level 37
Fig.4.1.2. Knowledge of Management 37
Fig.4.1.3. Knowledge of MBO 39
Fig.4.2.2.The integration of the managerial decision with the vision and mission 43
Fig.4.2.3.1.Company targets and its vision and mission 44
Fig.4.2.3.2. The accordance of departmental targets with the company ones 45
Fig.4.2.3.3a. The percentage of individual knowing the personal targets 47
Fig.4.2.3.3b.The accordance of individual targets with the departmental ones 48
Fig. 4.2.3.3c The invigoration of individual targets to employee 49
Fig.4.2.3.3d. The invigoration of individual targets to employee by interview 49
Fig. 4.2.4.1. Action plan to carry out company targets 50
Fig. 4.2.4.2. Any action plan to carry out department targets 51
Fig.4.2.4.3. Any action plan to carry out individual targets 52
Fig.4.3. Barriers in targets setting in MBO approach 54
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Chapter 1: Introduction
1.1. Profile ofXXXX(Guanghou) Ltd
The XXXX) Ltd. (“LZ Ltd”) is one of the largest firms in the field of skin care, hair styling and care in China; and its brand is constantly expanding. Founded in 1978, the company was state-owned. In 1996, it was privatized and became a Limited Company registered under the name of a Mr. Li. The company now covers 13,800 square meters of facilities buildings, and manufactures hundreds of different products for skin care and hair treatment. There are 3 sister companies based in Shanghai, Beijing and Shenzhen cities respectively; with it’sheadquarters based in XXXX
It has possessed the biggest share in the Chinese market for skin care and hair cosmetics since the beginning of the 1990’s. However, as the competition was getting severe and with significant changes in the management due to the initiation of privatization in 1996 resulted in the company losing market share. In 1994, 73% of customers rated XXXX products highly for their quality and for the after sales service. In addition, 68% felt that the products were value for money. In late 1998, the figures had fallen to 67% and 56% correspondingly (LZ Investigation, 1998). In 1999, the CEO replaced the General Manager and some key managers of the group at headquarter in XXXX Simultaneously, some new management approaches were employed including Management by Objectives (Hereunder abbreviated as MBO), which was considered one of the most crucial.
According to the Provisional Regulation for Chinese Criteria of Small and Medium Size Enterprises (SMEs) associated issued by National Economic and Trade Commission, National Planning Commission, Ministry of Finance, National Statistics Department of China in 2002, the criteria for SMEs field of manufacturing in China are: with less than 2000 staff, or with less than 300 million RMB sales, or with less than 400 million RMB in total capital, among which, the criteria for middle business should meet the following requirement: with or with above 300 staff, with or with above 30 million sales, with or with above 40 million total capital; and the rest are small business.
Thus, the research is carried out within the scope of small business in China and specifically the SMEs based in southernChina—XXXX city, one of the five richest cities and a pioneer in the economic reform of China. In XXXX, there were80184 SMEs, among which 8142 are of medium sized and 72052 were of small sizeby the end of 2004 (GZSB, 2006). SMEs represent 99.81% of the total number of enterprises in XXXX, with 69.82% of total invested capital (ibid). Among these SMEs, above 38% have the experiences of trade with or cooperated with foreign enterprises (GZFTECB, 2005). The managers in that area are encouraged to learn new techniques and management knowledge for the cooperation or competition among such vast foreign-oriented business environment.
Western managerial theories have been introduced to China since the early twentieth century. The translation script of Scientific Management by Mr. Mu Ou-chu in 1919 and its systematic practice in some Chinese companies, symbolized the start of introducing a western style of management in China (Zhou, 2006). The adoption of western management techniques has been expanding and growing since economic reform in the early 1980s. Therefore, the introduction of MBO in LZ was not a new practice in the city at the time.
1.2. Management by Objectives:
Drucker (1954) popularized the conception of MBO, which became a popular management tool for the past 60 years. The importance of setting clear long-term objectives, translating the long-term into more immediate goals and allowing employees to work out ways to achieve those goals were recognized by Drucker (1954) and Raymond (2006). MBO shifts the focus of management thought to productivity - output - away from work efforts – inputs (Romani, 1997).
However, to the disappointment of some managers, the outcomes of MBO were not as good as they expected. The company’s goals were not always heeded, as its managers were not working towards such goals devoutly and entirely. Besides, managers varied significantly in their understanding of this approach and content of the goals. This resulted in company performance missing the targets set. Thus, some managers disliked the implementation of MBO, and even interpreted target setting as a burden. They complained about the procedures for target setting and some even tried to evade the meeting on target setting.
Why did the MBO approach not work well in LZ? Was it too complicated to be implemented in LZ or was it too simple? Why could the management of LZ not improve their management performance? What were the barriers? These questions puzzled the top managers and they started to review their operation of MBO, trying to discover the problems that impactedupon their implementation of MBO.
Odiorne (1965) indicated that the first step of MBO programme is to identify, the goals of the organization. The literature on MBO raises some important questions concerning the method of setting targets; hence, it is very important to find a good way of setting objectives (Lewis, 1980). Some researchers argue that the only truly unique trait of MBO might be that the subordinate manager becomes involved in the process of periodic goal settingas it shares much in common with conventional theory of planning, which may be viewed as a motivation device (Kendall, 2002). Thus, to a great extent, target setting is one of the key steps to ensure the success of an MBO programme.
1.3.Research objectives:
After careful study and review, the top manager summarized the following questions in implementing MBO: It had been difficult for LZ to conduct target setting. The most complaintscentred on the complex procedures for target setting. There were mis-understandings around how LZ managers integrated the objectives of their management / strategies with management of his/her targets. Once the targets were set, they were put aside and not referred to at work.
Synthesizing the above questions, the objectives of this project are:
1. To critically evaluate how LZ set targets in MBO approach;
2. Identify the barriers for implementing an MBO approach in LZ management;
3. To provide informed recommendations.
Chapter 2: Literature review:
2.1. MBO and Its Main Elements
The essence of MBO is individual goals jointly grafted by the employee and supervisor that serve as the basis for planning, performance, and evaluation (Gibson et al., 2003). MBO enjoyed a long period of recognition after being introduced to Japan and being rediscovered by Americans, in 1992, MBO was reported to be common within 80% of the Fortune 500 firms (Odiorne, 1992).
Adapted from Raia’s concept of MBO in 1974, Price (2004) points out that MBO encompasses four main stages: goal setting, action planning, self-control and period reviews, detailed in the following Table 1:
Although Price (2004) highlights the four stages as the main elements of the MBO process, he did not mention the inter-relationships among elements, nor did he mention which part(s) is(are) more important. It could also be that process of the MBO mentioned above is premised on a unitary framework which might not be true in reality. The action plan, self-control or period reviews might bring adjustment to the objectives setting, which needs the anticlockwise direction of the process.
2.2. Objectives in MBO approach
The importance of objectives in the general business environment has been studied by the Hay Group of Philadelphia, whose survey of managers in 1997 showed that the two greatest causes of team failure were changing objectives and unclear goals (Neuborne, 1997, cited in Jaques, 2005). Objectives are frequently termed targets or goals, which indicate what should be achieved at the end of an activity –a point to be hit or a desired result (Hale and Whitlam, 1998: 78), and all these terms mean the same in this research. One of the main reasons that MBO systems can be motivating is that they provide a target for people (Gillespie and Harrison, 2000). Such a target is a type of guideline against which employees are judged, for comparison, whether they are doing well or not, as well as the direction, which they are driving for.
2.3. Objective setting
The main purpose of MBO is that the leader discusses the objectives with the subordinates, gives proper help during administration and evaluates the degree of achievement according to schedule (Jeng et al. 2001). Such discussion provides a medium for objectives integration. The integration of objectives is the essence of MBOfor it provides opportunities for members of the organizationto make appropriate contributions to the attainment of team, departmental and corporate goals to upholding core values by achieving a shared understanding of performance requirements throughout the organization (Armstrong, 2003:488).
2.3.1. Characteristics of objectives and objectives setting:
Drucker (1999:59) “believes objectives are needed in every area where performance and results directly and vitally affect the survival and prosperity of the business”. Hale and Whitlam (1998:125) “divided objectives into: organizational, departmental, managerial, technical and individual ones”.
Thomas (1990) claims good objectives have 3 features in common: 1. They make a significant difference to the company when fulfilled. 2. Staff members are committed to meeting them. 3.The objectives are specific and measurable. While Beardwell and Holden (1997) argue that objectives are generally jointly agreed upon by the employee and manager and used to measure and assess employee performance, otherwise, unreachable objectives might de-motivate because people will not see any point in trying. The objectives integration process is not just about cascading downwards. There should also be an upward flow which provides for participation in goal setting and the opportunity for individuals to contribute to the formulation of their own objectives and to the objectives of their teams, functions and, ultimately, the organization (Armstrong, 2003).
2.3.2. Procedures of objectives setting
The real value of MBO is participation in the objectivesetting process, not the objectives themselves (McConkey, 1972; Olsson, 1968; Jeng et al., 2001). Emery (1989:42) declared that Organisational Goal Setting Process should be processed as below:
It is essential that top executives draw up a list of the company's overall goals or mission as they are sometimes called. These overall goals should then be shared with middle and lower level managers. In turn, these managers must devise their own set of goals so that their departmental goals mesh with the overall goals. Finally, managers should periodically negotiate individual work goals with their staff.
So the organisation’s strategic objective would determine the objectives at the functional level, which in turn would determine the objectives at the department level, which in turn determine objectives at group level, which in turn determine objectives at the individual level. In theory, if all parts of the organization achieve their strategic objectives, then the strategic objectives at organizational level will have been achieved (Torrington and Hall, 1998). It is illustratedin figure 2.3.2.:
Figure 2.3.2.: Example of an objective-setting cascade
Chief Executive and Board
Functional managers
Departmental managers
Team/group leaders