Management by Objectives an Effective Tool for Organizational Performance a Case Study of Pakistani

Proceedings of ASBBS Volume 15 Number 1

MANAGEMENT BY OBJECTIVES,

AN EFFECTIVE TOOL FOR ORGANIZATIONAL PERFORMANCE: A CASE STUDY OF PAKISTANI

INDUSTRIES By

Qureshi, M. Tahir Assistant Professor, Faculty of Management Sciences,

International Islamic University, Islamabad Pakistan [email protected]

Khan, A. Shafkat

International Islamic University, Islamabad Pakistan [email protected]

Khan, B. Mohammad

Senior Consultant/Professor, International Islamic University, Islamabad Pakistan

[email protected]

ABSTRACT: This paper is analyzing the new revolutionary aspect of ‘Management by Objectives’ (MBO) in different Pakistani companies. In principle, the implementation of MBO Practices improves employee skills, motivation, and behavior and in turn, creates comparative advantage for the organizations. This research study effectively contributes to the growing literature on the influence of MBO practices on organizational productivity and employee performance. The aim is to identify the relationship between effective management by objective practices, organizational productivity and employee performance of the organizations. As a sample, 36 organizations listed with Islamabad Stock Exchange were approached. The MBO practices, Coaching and mentoring, Performance Based Reward, Employee participation and Job Description were selected for analysis. Study concluded that all these practices are positively contributing towards organizational and employee performance but employee participation (β = 0.43) and Coaching & Mentoring (β = 0.40) are major contributors.

Hence, this research paper provides practical confirmations to support theoretical models that link MBO practices with organizational and employee Productivity.

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KEY WORDS: - ‘Management by objective’ practices, Motivation, Comparative advantage for the organization, Organizational productivity, Employee performance, Performance based reward, Employee participation, Job description and coaching and mentoring, Group goal commitment, Task interdependence, Group processes, Group effectiveness, Self-regulatory teamwork, Job rotation, Job satisfaction, Team competencies.

1. INTRODUCTION In the early stages of industrialization management, MBO was used primarily at higher management levels. Today, it has to be adopted on the shop floor as well. This implies that one should be able to define objectives at the group level and minimum base should be settled down to measure the performance of employees. Growth of international competition has lead to an increase in customer’s expectations regarding quality. To be competitive today, an organization is required to implement a continuous and effective MBO system. This can be viewed as a goal-setting technique for management. MBO is also a mechanism for appraising performance. In fact, it is often used for assessing managers and professional employee. With applying different MBO practices such as coaching and mentoring, performance based reward; employee participation, and job description, employees are evaluated based on how they accomplish specific goals set up by the manager. This research calculates the influence of these MBO practices in Pakistan’s corporate sector. Majority of the MBO type organizations evaluated here, were affected dramatically in the form of better employee performance as well as organization productivity. So MBO, performance planning program will clarify job responsibilities, provide clear performance goals and reduce ambiguity through feed back. MBO offers a practical support at team level and leads employee performance as well as organizational productivity. Group productivity and job satisfaction also improved by commitment of group member towards their goals. The encouragement by participation of Group in organization planning affects on job satisfaction of each group member. According to Antoni, C. (2005) MBO is an effective tool for leading self-regulating teams. Proper coaching and mentoring promotes better organizational productivity. It enables teams to solve prospective group inconsistency. MBO serves well as a means to attain control, especially if a systematic and proper coaching program for teams is adopted. In practice, however, the use of this type of control in organizations also requires support by a separate operation within the organization. Managers should select best performing and most energetic employees who utilized all their capacity, with the hope of attaining the performance based reward. Overlooking the use of MBO in practice in developed societies for better performance; it has been selected for the study here in developing economies. Recent research indicated an extensive use of MBO type of management. Employee performance and organization productivity flourished in superb manner due to utilization of MBO rather than tradition Management practices. Still various reasons tend to view the operationalization part of MBO as more complicated, and less attractive to follow. From an efficiency stand-point, an organization that gives power to employees and assigns goal to them deems them capable of business-oriented significant thinking. It is ideal while from an effectiveness point of view, control and unquestioned execution is more sufficient. A more positive view of MBO practices supported by the mutual research method would be more reasonable when looking for scrutinize practical problems in organization. Studying practices in industry is a better approach instead of theory or literature driven research. Conducting mutually exclusive research is thus a means for communicating on a more equal balance with practicing managers. Hopefully, this research approach will be further developed in the future. There is more to MBO than the scanty objectives. (Dahlsten F., Styhre A. and Williander M. June 2005).

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2. LITERATURE REVIEW Antoni, C. (2005), study supports MBO at individual and organizational level. He gives stress on group member’s commitment to their goals; so that job productivity and satisfaction of employee and organizational teams can be improved. Group effort and group planning seem partially to mediate this effect on job satisfaction. These results show that MBO can be an effective tool for leading self-regulating teams. In order of competency of teams, the basic factor is that teams must be able to influence the degree of goal achievement. This influence is just achieved by team characteristics, such as team competencies and decision opportunity, but requires resources of the technical system and external influences .e.g. market development. In light of the above critical reasons, team competencies have to be developed in such a way so that they meet the assigned tasks and goal requirements. ‘Coaching and mentoring for team’ plays a crucial role in this respect and team coaches should be trained in this aspect. In goal-setting differences between teams (which is external factors having influence on goal attainment), have to be considered carefully. Otherwise team members might attribute goal attainment to external factors and no longer strive for these goals. This highlights the boundary management tasks of team leaders and supervisors and the necessity to discuss these factors with the teams in the goal-setting process. If these aspects are handled carefully, the reported positive impacts of MBO can occur and be preserved in the long run. MBO, as proposed by Drucker (1954) in the management literature in a very simple manner. MBO has come up to induce managers so that they incorporate their efforts in order setting goals for the group of employees within organization. These objectives should be split at each management level; to ensure that attaining goals at each level will help to reach the objectives gradually at the next-higher level and finally appear as company goals (Carroll and Tosi, 1973). Recent research proposed that the settlement of higher specific group goals eventually caused better group outcomes (O’Leary-Kelly et al., 1994). Practical demonstration for this phenomenon, group’s commitment towards their goals at individual and group level is necessary. Setting the goal that a person or group supposes for themselves cannot have subsequent action if they are not really trying for attaining these goals (Locke and Latham, 1990: 124). DeShon and Landis refers Goal commitment as the degree by which an individual or a group ‘deems the goal to be significant, is determined to reach it by growing effort over time, and is reluctant to discard or lower the goal when face up with delay or negative feedback’ (DeShon and Landis, 1997). Goal commitment can be distinct by determination of each group member to reach a desired goal (Klein et al., 1999). Determination and effects of goal commitment is such a crucial variable for individual and group goal setting that these are still confusing (Tubbs, 1993). Extensive research concludes only direct and no reasonable effects of goal commitment (Donovan and Radosevich, 1998; Erez and Zidon, 1984; Hollenbeck and Klein, 1987). Group goals and group commitment effect on group process is made up by task interdependence which can be proved right now. Task is defined as the degree to which group members must actually work together to perform the task and influence each other’s performance (Campion et al., 1993). Moreover task interdependence, Weldon and Weingart (1993) supposes that task complexity is another variable moderating the effects of group goals on group processes by influencing the effectiveness of special action strategies. Group planning is not important for simple tasks which are easy to evaluate, but many choices exist for complex tasks, which are difficult to compare in their effectiveness. Arbitrate processes are assumed to explain how goal setting leads to higher performance. At the individual level, it has been shown that goals influence the direction and determination of individual behavior (Locke and Latham, 1990). At other hand at group level, higher group goals lead to superior group effort, commitment towards group goals, influence the kind of planning, co-operation and communication in the group (Weldon and Weingart, 1993). Antoni (2005) used goal-setting theory to develop a model of MBO at team level. The model views group goals and goal commitment as influencing group effectiveness in terms of organization productivity,

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better employee performance and employee satisfaction through the group processes of joint planning and group effort. The key findings and conclusions of this research are that:

1. MBO systems can improve group effectiveness with respect to organizational productivity, employee performance and job satisfaction and can be an effective tool for coaching and mentoring employees in self-regulating teams. However, its usage depends on contextual factors, with an addition of teams influence in the way of goal achievement. This is completely dependent on team characteristics such as team competencies and decision freedom, as well as on external influences such as market development.

2. Prediction of group productivity is the key of group goals whereas determining the commitment towards goal is another valuable key towards explaining better employee performance as well as job satisfaction. The secret of organizational productivity and employee performance and satisfaction is hidden in commitment of group members towards their goals.

3. Effort and planning which are key group processes can influence levels of job satisfaction but not productivity.

The points above denote the usage of MBO type of management results in organizational productivity as well as employee performance. The companies that have implemented MBO style of management achieve high level of group productivity and job satisfaction of team members.

3. RESEARCH METHODOLOGY: Identification of high productivity generating factors with better performance is a difficult task but many organizations from the corporate world are claiming that ‘our employees are our most valuable resource’. This expression has been repeated so often that it is now a golden favorite. Despite this, various organizations still ignore importance of MBO within the organizations. This assumption needs to be carefully tested. This Research Study addresses this assumption directly and therefore the focus of the research remained spinning around whether MBO practices make a difference in the company productivity and employee Performance or not. If so, which practices appear to be crucial.

Following are the major objectives of this research study: • To examine and realize the scope of the association between Management by objectives

practices and organizational productivity of Pakistani Corporate Sector. • To scrutinize and recognize the degree of association between Management by objectives

practices and Employees Performance within organizations.

3.1 SAMPLING TECHNIQUE In this research study, “Convenience Sampling” (a form of non-probability sampling) technique has been used. This technique is used to formulate research process faster by obtaining a large number of completed questionnaires speedily and economically. Only listed companies having minimum three years of corporate life were selected for the study. The platform which helped us to select the sectors and the organizations is the website of Islamabad Stock Exchange containing all necessary information of the listed companies. The postal addresses of the registered offices of these listed organizations were collected and later on questionnaires were distributed to them. Management science research studies have used surveys as methods of data collection many times in history. We followed the same approach because secondary data in this field is not available in Pakistan. Due to the scarcity of time and limited budget, we used one-to-one interviewing survey for data collection. Through this method we collected 36 responses from the listed organizations, Organizations operating in the twin cities (Rawalpindi and Islamabad) were personally visited and the questionnaires were distributed to the HR Managers/Executives of the organizations. For making responses quicker and eliminating excessive traveling, telephonic interviewing and e-mail method

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was used. This method was somewhat more productive and through this method, we collected 24 responses. Descriptive surveys are sketched for providing a picture of the contemporary matters and relational surveys are developed for experimental analysis. This research attempt is relational for exploring association between organizational Productivity and MBO practices. For the survey, likert scale questionnaire was developed consisted on 5 for strongly agree 4 for agree, 3 for indifferent, 2 for disagree and 1 for strongly disagree.

3.2 RESPONSE RATE: For concrete research work, information regarding MBO practices and Organizational Productivity was collected from the Human Resource Management professionals of the targeted organizations. The HRM professionals were requested to reply all the questions to the best of their knowledge with orientation to the MBO practices implemented in their organizations and also about the employee’s performance of their organizations. There was an open option that any person from the HRM department at the managerial level and employees which are being given objectives by their managers can fill out the questionnaire. Table (3.1) is showing industries’ response rate of 36 organizations. After data collection, we coded it in Excel 2003 and SASS 10.0. For calculating results, Regression analysis and Correlation are used. Table No 3.1 (Industry Response Rate)

No.

Industry

Sample %

No.

Industry

Sample

% 1 BANKING SECTOR 1 2 OIL & GASS 3 3 SOFTWARE ENGINEERING 10 4 PHARMACEUTICAL SECTOR 1 5 MANUFACTURING 3 6 TELECOMMUNICATION 17 7 OTHERS 1

N =36

3.3 DESCRIPTION OF THE INSTRUMENTS:

Questionnaires included the age of the organization, the number of employees as a control variable and MBO practices as the independent variable. Perceived organizational Productivity and employee’s performance of the organization are selected as dependent variables. Statistical tools used were multiple regression, correlation and descriptive statistics for finding the impact of MBO practices on organizational performance were used. 8 variables are considered for analysis. Out of these, 4 are independent variables, 2 are control variables and 2 are dependent variables.

3.4 RESEARCH MODEL The research model is developed on the basis of previous research studies; following variables (Coaching and mentoring, Performance Based Reward, employee participation and Job Description) are included. For the analysis following four equations were tested.

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Equation no. 01 Y1 = α +β1 (x1) +β2 (x2) + β3 (x3) +β4 (x4) + ε

OP = α + β1 (C&M) + β2(PBR) + β3 (EP) + β4(JD) + ε

Equation no. 02 ‘With addition of control variables’

Y1 = α +β1 (x1) +β2 (x2) + β3 (x3) +β4 (x4) +β5 (x5) +β6 (x6) + ε

OP = α +β1 (C&M) + β2(PBR) + β3 (EP) + β4(JD) + β5 (NE) +β6 (LO) + ε

Equation no. 03 Y2 = α +β1 (x1) +β2 (x2) + β3 (x3) +β4 (x4) + ε

EP = α + β1 (C&M) + β2(PBR) + β3 (EP) + β4(JD) + ε

Equation no. 04 ‘With addition of control variables’

Y2 = α +β1 (x1) +β2 (x2) + β3 (x3) +β4 (x4) +β5 (x5) +β6 (x6) + ε

EP = α +β1 (C&M) + β2(PBR) + β3 (EP) + β4(JD) + β5 (NE) +β6 (LO) + ε Where as:

1. X1 = C&M =Coaching and Mentoring 2. X2 = PBR= Performance Based reward 3. X3 = EP = Employees Participation 4. X4 = JD = Job Description 5. X5 = NE = Number of Employees (Log is taken) 6. X6 = LO = Life of Organization in years 7. Y1 = OP = Organizational Productivity (equation 1,2) 8. Y2 = EP = Employees Performance (equation 3,4)

Figure- 3 (Research Model)

3.5 HYPOTHESIS

+

+

+

Perf. Based reward

Emp. Participation

MBO Practices

1

2

3 Effe

cts

Employee Performance

+Job Description 4

Org. Performance

Org. Performance

On the basis of an extensive literature review, one main and four supplementary hypotheses are developed for this research study. H1: There is a positive/significant relationship between the effective MBO practices and

Organizational Productivity and Employees Performance.

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H1-a: Coaching and mentoring positively affects organizational Productivity and Employees performance.

H1-b: Performance based reward positively affects organizational Productivity and

Employees performance. H1-c: Employees Participation positively affects organizational Productivity and

Employees performance. H1-d: Job Description positively affects organizational Productivity and Employees

performance.

4. RESEARCH FINDINGS: While Table 4.1 is showing correlations for all the variables, Table 4.2 is indicating the descriptive statistics indicating mean, standard deviation, variance mode, range, minimum, maximum values and count. There is a high correlation amongst the dependent variables. Organizational productivity and employee performance, correlation is (0.46). Mean of the Organizational productivity is highest (3.83), whereas standard deviation is lowest (0.65). Where as Mean of the employee performance is (3.67), and standard deviation is (0.89). It indicates a highly strong relationship of dependent variables. There is also high correlation amongst dependent variables and independent variables. Coaching and mentoring has correlation of (0.48) with Organizational Productivity and (0.24) with employee performance. Performance based rewards have (0.40) and (0.33) correlation with Organizational productivity and employee performance respectively. These correlations indicate that whenever proper coaching and mentoring is provided to the employee and the performance based reward is on merit, both organizational productivity and employee performance will be automatically increased. Correlation between independent variables is showing high relationship with each other, in particular with employee participation and Coaching & mentoring e.g. (0.55), this correlation is indicating that a mentoring system caused better employee participation. (0.60), the correlation between Job description and Coaching & mentoring system is showing mentoring effect. Between performance based reward and job description, correlation is highest (0.59), which indicate that whenever a highly scientific and rigorous performance based reward is delivered to employees, they act on job description in a proper manner therefore their performance increased significantly. (0.59), the correlation between Employee Participation and Job description indicates that employee’s increased participation in MBO Practices automatically describes his/her Job area and goal. In a nutshell, coefficient of correlation between ‘Organizational Productivity’ and ‘Employees performance’ is (0.46), the results show that the usage of transparent coaching and mentoring, performance based reward, employee participation and job description lead to higher organizational productivity and employee performance. Table (4.1) Correlations of Variables

O.P Emp

Perf C&M P.B.R E.P J.D Org. Life

# of Emp.

ORGANIZATIONAL PRODUCTIVITY 1

EMPLOYEE'S PERFORMANCE 0.46 1

Coaching and Mentoring 0.48 0.24 1

Performance Based Reward 0.40 0.33 0.47 1

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Employees Participation 0.04 0.06 0.55 0.47 1

Job Description 0.37 0.26 0.60 0.57 0.59 1

Organization's Life in Years -0.10 -0.06 -0.31 -0.24 -0.19 0.08 1

No of employees -0.01 0.04 -0.15 0.24 -0.11 0.12 0.54 1

The significant association between Job description, Organizational Productivity and the employee’s performance of organization (0.46) reflects the psyche of the Pakistani organizations i.e. the performance of the employees is measured on the basis of quantifiable results. The Coaching and mentoring system in these organizations can be growth and development-oriented if the employees of the organizations are provided performance based feedback. Counseling employees will increase their faith on the Job description and the employee participation will have a strong influence on the individual as well as team behavior. The mean of the Employees participation/empowerment within the organization is (3.59) and the Standard Deviation is (0.76) which is comparatively higher than the Job description. The impact of Coaching and mentoring on the employee’s performance of the organizations is showing a positive relationship up to (0.24). It is indicating that Pakistani industrialists are moving steadily towards coaching & mentoring approach, further it indicates that among individual MBO practices, coaching & mentoring in routine decision-making as well as in strategic decision-making, is also a very important factor which is likely to increase the organizations’ market share. It also indicates that the employees in the organizations are allowed to make decisions related to cost and quality matters. They are asked by their supervisors to participate in operations related decisions and suggest improvements in the way things are being done. Table 4.2 Descriptive statistics mean standard deviation

Vari/DS Mean SD Variance Mode Range Minimum Maximum Count

OP 3.83 0.65 0.43 4.00 2.33 2.33 4.67 36

EP 3.67 0.89 0.80 3.75 4.00 1.00 5.00 36

C&M 3.73 0.81 0.65 4.40 3.00 1.80 4.80 36

PBR 3.75 0.85 0.72 3.50 3.33 1.67 5.00 36

EP 3.59 0.76 0.57 4.60 2.40 2.20 4.60 36

JD 3.57 0.83 0.69 3.60 3.00 2.00 5.00 36

LIFE 11 14 193 3 54 3 57 36

Highest mean of Performance Based Reward (3.75) is indicating that majority of the managers in the corporate sector are thinking that Performance Based Reward is the most important factor in organizational productivity but job description is showing the lowest mean (3.57). Table 4.3 gives the regression outcomes for Pakistani listed organization from model A to D. These regression models are noteworthy and significant. Not even a single control variable is statistically significant. Four different varieties of models are used for analysis. Models A and C includes all the MBO practices into the equation along with the control variables, while models B and D contain MBO practices exclusive of the control variables. The output in the case of model A is 29% variability and is explained through the organizational performance. ‘Employee Participation’ and ‘Coaching and mentoring’ are high impact creators in Organizational Performance. In model B, variability in dependent variable is increase to 33% since ‘Employee Participation’ and ‘Coaching

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and mentoring’ are having a significant impact on Organizational Performance here. Similarly, in case of the perceived ‘Employees performance’, under model C, variability has extended to only 9%. This is because ‘Employee participation’ is the only significant factor having impact on employee Performance. In model D, variability in dependent variable is increased to 14% and is impacted by ‘Employee participation’.

Table 4.3 Results of Regression Model for Organizational

Productivity & Employees Performance by MBO Practices

Organizational Productivity Employees Performance Coefficients

Model A Model B Model C Model D Coaching & Mentoring **0.40 **0.40 0.19 0.22 Performance Based Reward 0.27 0.21 0.40 0.33 Employees Participation **0.43 **0.41 **0.56 **0.53 Job Description 0.14 0.16 0.25 0.25 Organization's Life in Years 0.00 -- 0.00 -- No of employees 0.00 -- 0.00 -- R Square 0.41 0.40 0.25 0.24 Adjusted R Square 0.29 0.33 0.09 0.14 F 3.42 5.23 1.59 2.4 n = 36, *** P< 0.10, ** P<0.05, *P<0.01.

The MBO Practices selected for the research study are Coaching and mentoring, Performance Based Reward, employee participation and Job Description. Research study highlighted that organizations involved in coaching and mentoring system and employee participation increased organizational productivity and suitable employee performance. Confidence level; which refers to the probability about estimations correctness, for coaching and mentoring and employee participation in model A and B is less than 0.05 (P <0.05), a 95% confidence level – which implies that there is only a 5% probability about findings may not be correct. Whenever managers assign tasks to the employee, implement proper supervision on the employee while the employee is determined himself to achieve his goals with competency, organizational productivity and employee performance get increased. The data in Table 4.1 is giving the confirmation of the association sandwiched between effective MBO practices and organizational Productivity. The results have shown a positive correlation amongst several MBO practices (coaching and mentoring, performance based reward, employee participation, job description and employee performance.

5. CONCLUSION: Analysis is indicating positive relationship amongst effective MBO practices, organizational Productivity and employee performance. Independent variables namely coaching & mentoring, employee participation, performance based rewards and job descriptions are having positive effect on organizational and employee performance. Job description system has a positive and significant impact and is one of the main indicators of high organizational performance. Employee participation/empowerment is another Effective MBO practice that has a significant impact on the employee performance and proving that an employee’s participation in decision-making leads an organization to perform much better than its competitors in the industry, performance base pay is

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also important indicator of high employee and organizational performance Finally organizations investing in Coaching & mentoring tend to have a high employee productivity level that ultimately contributes towards high organizational productivity. Pakistani scenario varies to some extent from the western corporate world. This is because the corporate sector of Pakistan is in its growing stages. The good news is that the results are quite satisfactory for both, local and foreign investors. This globally oriented approach has increased the popularity of MBO practices in the country’s corporate sector as employee and mangers want to get rid of old stereotype ways of management. Today, they want to change with a new revolutionary aspect of management i.e. MBO. This study identified that MBO practices have positively affected the Pakistani corporate sector, and is acting like a catalyst towards growth in organizational productivity and better employee performance. Companies form private and public sector interested in high growth and employee satisfaction must focus on regular coaching & mentoring, employee participation in decision making, performance base rewards and proper job description. Further area of research could be longitudinal study of management by objective and management by values impact on organizational performance and on employees’ performance working at (finder-strategic, minder-tactical, grinder-operational and reminder level- non managerial levels of the organization.

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