Invention

Management by objectives

Drucker argued that workers should help set the goals they were measured against.

United States · 1954

In 1954, Peter Drucker published The Practice of Management, drawing on his consulting experience with General Motors, IBM, and Sears. The book introduced management by objectives, a system in which supervisors and subordinates jointly defined measurable goals and used them as the basis for evaluating performance.1

Drucker's central claim was that workers performed better when they participated in setting their own objectives. The concept drew partly on Mary Parker Follett's 1926 essay "The Giving of Orders," which had argued decades earlier that effective management required collaboration rather than command.2

Hewlett-Packard became one of the most prominent early adopters, crediting management by objectives as a driver of the company's growth.3 George Odiorne, Drucker's student, extended the framework in his 1965 book Management Decisions by Objectives, helping spread the practice across American corporations.

56%

Average productivity gain in companies whose CEOs showed high commitment to MBO, per a thirty-year review.

W. Edwards Deming became one of the most vocal critics. He argued that setting production targets encouraged workers to meet them through whatever means necessary, often at the expense of quality.4

In 1991, Robert Rodgers and John Hunter published a review of thirty years of MBO research. Companies whose CEOs demonstrated high commitment showed an average productivity gain of 56 percent. Companies where commitment was low showed gains of only 6 percent.5 The practice survives today under many names, including OKRs, key performance indicators, and balanced scorecards.

Timeline

1954

Peter Drucker published The Practice of Management, introducing management by objectives.

1965

George Odiorne extended the framework in Management Decisions by Objectives.

1986

W. Edwards Deming published Out of the Crisis, arguing objective-setting often damaged quality.

1991

Rodgers and Hunter's review found a 56 percent productivity gain in high-commitment companies.

Endnotes

1 Peter F. Drucker, The Practice of Management (New York: Harper & Brothers, 1954).

2 Mary Parker Follett, "The Giving of Orders," in Scientific Foundations of Business Administration, ed. Henry C. Metcalf (Baltimore: Williams & Wilkins, 1926).

3 David Packard, The HP Way (New York: HarperBusiness, 1995).

4 W. Edwards Deming, Out of the Crisis (Cambridge: MIT Press, 1986).

5 Robert Rodgers and John E. Hunter, "Impact of Management by Objectives on Organizational Productivity," Journal of Applied Psychology 76, no. 2 (1991): 322-336.