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No Win Goals

I once took over the management responsibility for a $20M manufacturing facility near Tubington, Germany that had failed to meet its business objectives for seven consecutive years. The US corporate office had been able to carry the business loses forward but the time had come for a business turnaround to take advantage of the tax situation. Upon advice from a seasoned pro, I avoided making any significant changes to the business until I had the trust of the management team and a good understanding of the ins and outs of the operation.

This operation utilized a highly stylized Management by Objectives (MBO) methodology where goals were set by each functional department. Upon reviewing the previous years' accomplishments, it appeared that it was rare for more than one or two groups to meet objectives. In one year, no department met their goals. Since substantial year-end bonuses were awarded for meeting performance requirements, this was puzzling and merited review and analysis.

The problem was their silo approach to goal setting. Instead of cascading goals down from the Geschaftsfuhrer (CEO) to the senior managers and down to the functional managers, managers were creating functional goals and sending them up to the senior staff. Often one department's goals were an obstacle to another function's goals. In several cases, goals were in direct conflict. For example, manufacturing had the objective to minimize inventory and maximize inventory turns (for cash flow improvement) while sales and marketing chose to maximize customer service (no back orders). The two groups were constantly battling and pointing fingers at each other. Multiply this by eight independent functions and the problem becomes obvious.

Once the goal setting methodology was changed to cascading and aligning everyone's goals, people got on the same page with complementary objectives. The culture of the place improved and profitability was restored in the first year. For the first time in many years, everyone in the MBO program received a substantial year-end bonus. The US CFO highlighted the improvement in the annual report to the Board of Directors.


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