Management by Objective — Without Carrots and Sticks

The turn of the year is traditionally the time to look back, pause and look forward to the new year. On a personal level, this typically leads to new year’s resolutions and in the vast majority of companies this means target agreements. Both can work, but in practice they won’t or will work only inadequately. There is hardly any management concept that is as widespread as Management by Objectives described by Peter F. Drucker in 1954. At the same time, this concept is probably the most misunderstood and abused in the history of management. There was a reason why Peter F. Drucker called it “Management by Objectives and Self-Control” and now is the time to remember it.

Management by Objectives and Self-Control

Peter F. Drucker explained that organizations need orientation and that it does not appear magically but quite the opposite, that this orientation is lost more and more the larger and more distributed the organization becomes. One reason for this is, for example, the one-sided orientation of the specialists towards their discipline, supported by the high degree of specialization and functional division. Controllers then strive for the perfect controlling process and controlling tools (no offense against controllers, the same applies to all specialists in specialist silos). However, this pursuit of the local optimum does not necessarily benefit the organization as a whole, but often even impedes value creation.

It is therefore reasonable to align the objectives of the various parts of the organization right down to the individual employee at the beginning of the year. This is then called target agreement. So much for the theory. In practice, however, this often rather means imposing targets from the top reinforced by appropriate financial incentives to achieve these imposed targets. However, Peter F. Drucker did not imply this as he deliberately named the concept “Management by Objectives and Self-Control”.

Management by objectives and self control assumes that people want to be responsible, want to contribute, want to achieve. That is a bold assumption. Yet we know that people tend to act as they are expected to act.

Peter F. Drucker

Here it becomes evident that Peter F. Drucker was an advocate of Douglas McGregor’s Theory Y, i.e. that he regarded people as willing to perform and intrinsically motivated (and not as lazy and in need of extrinsic motivation). This is exactly what the often forgotten second part of the title of his concept refers to. He was concerned with management by objectives in the context of the self-control of motivated employees. He was not interested in imposing targets, offering incentives and external control.

The Sad Truth About Monetary Rewards

The truth about extrinsic motivation, especially in the form of monetary rewards, is that they only work for a surprisingly narrow range of applications, where essentially the application of mechanical skills is required. As soon as even rudimentary cognitive skills are required, these incentives not only fail, but are evidently leading to poorer performance. The sad thing about it is that this insight is almost 50 years old and although it has been repeatedly confirmed, the vast majority of organizations ignore it and continue to rely on carrots and sticks.

The Candle Problem …

The German psychologist Karl Duncker described the following famous experiment known as the candle problem in 1945. Probands were given a candle, a pack of tacks and matches and the task of attaching the candle to the wall so that no wax would drip onto the table. The solution requires cognitive abilities because one has to overcome the so-called functional fixedness in order to recognize that the box could be more than just a container for the tacks.

… and it’s solution.

Sam Glucksberg linked this experiment with monetary rewards in 1962 and found that this extrinsic motivation increased the time the subjects needed to solve the problem by an average of 3.5 minutes. In his TED-Talk, Dan Pink looks at this and other research results in detail and explains why self-control is the decisive factor for the intrinsic motivation of humans. This is exactly why Peter F. Drucker called his concept “Management by Objectives and Self-Control”. And we all should remember this at the beginning of the year.

Traditional notions of management are great if you want compliance. But if you want engagement, self-direction works better.

Dan Pink

Originally published at on January 10, 2019.

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