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Business Advice: Management By Objectives

A few years after I graduated from college, I realized that, although I had a degree in Mechanical Engineering:

1) Engineering jobs pay well at first but often lead to career stagnation, technical obsolescence and dead-end, unsatisfying jobs over the longer term.

and

2) The business of business was more interesting to me than its mere technical aspects. (At college, I had minored in Business.)

As I met business people in various industries, I quickly learned that:

1) A lot of business owners make stupid mistakes but that most mistakes are not lethal to the business.

2) The most successful people seem to have 'controlling their own destiny' as part of an overall strategy.

and

3) Working for a large regimented corporation was - ultimately - a dead end for me. At age 32 or so, I realized that I had - at best - one more promotion between age 32 and 65. Part of it was because I was a take-charge, opinionated guy who wasn't always a good team player.

In the early years of my career, I had read a lot of business books and found that I soon knew more about business strategies and tactics than many of my bosses. And their bosses.

The concept of Management By Objectives was developed fully by management consultant and author Peter Drucker in his 1954 book, 'The Practice of Management'. MBO involves setting quantifiable goals (and actions to achieve them) for a specific time period, measuring results and rewarding those who achieve said results. MBO was popularized by large, forward-thinking companies such as Hewlett-Packard (who claimed it led to their success), Xerox, DuPont, Intel and others.

Most corporations use one-year time periods which coincide with their fiscal year. Many people, including myself, believe that objectives (aka: goals) should be part of an annual business plan. A business plan is the road map for any business. Creating one forces you to answer tough, necessary questions about marketing, prospective customers, competition, cash flow, expenditures, profit, etc.

Management by Objectives is a good business concept … but not as it was practiced at my former employer, Rohm & Haas Co. The R&H version of MBO was typical of the silliness which drove me out of Corporate America and into my own business.

In 1970 or so, Rohm & Haas Co. implemented a Management By Objectives program. It had been recommended by a high-priced consulting organization. The problem was that this old-line company was full of dead wood managers who suddenly realized that, if they failed to meet their Objectives, they wouldn't get pay raises anymore. So they made sure that they forecasted modest performance targets which they could easily meet. And when they went out to develop Interlocking Objectives with managers in other departments and divisions, they ratcheted down their forecasts even more to make sure that everyone would be protected: "You cover my backside; I'll cover yours."

Management By Objectives at R&H had devolved into Negotiated Mediocrity. I used that term in front of one of my bosses and he got quite angered. He was one of nine direct supervisors that I had during my almost-twelve years at Rohm & Haas.

One of our competitors (General Electric's Plastics Division) had more of a shoot-for-the-moon philosophy. They encouraged employees to set high goals and aggressively build their business units. GE ran circles around us in the marketplace by intense selling, focused marketing and by developing a seemingly endless river of new products which better met customer needs.

GE also offered better rewards, including things like trips to Europe for their top salesperson and family. In 1970, R&H presented its top Plastics Dept. salesman with a set of steak knives. No wonder GE outperformed R&H and poached some of its good people, too.

Starting in the early 1970s, annual bonuses at Rohm & Haas became based on performance, which - in turn - was based on MBO-based business plan forecasts.

Except for me … and therein lies a tale:

In 1977, as Marketing Manager for the New Markets Group, I produced the highest rate of sales growth in the Plastics Department - a record 237% above business plan - for a product called Plexiglas DR (a high-impact acrylic molding and extrusion compound which was commercialized in early 1974).

I took over as marketing manager for DR in late 1976 from a fellow employee who had said that the product had "pretty-much reached its limit" and forecasted low sales growth and stagnant profits in his 1977 MBO forecast. In an earlier position in a New Products Development, I had helped "birth" Plexiglas DR a few years before (when it had only the lab-generated development designations 30-D-42 and the improved version, 30-D-61, which was eventually christened DR) and thought it had great potential.

But the brand-new product was handed over to various dimwit Marketing Managers who were clueless and let it wither. Every Marketing Manager in R&H's Plastics Department was a former salesman - most with no marketing training - who had been promoted as a reward for being 'good' at sales. When I became a Marketing Manager, I was the only one who was an engineer. I also may have been only one who had actually read numerous books on marketing. And understood the very big difference between marketing and selling.

My boss asked me to review the dismal forecast for Plexiglas DR. I did and told him that there was great potential for this product. He concurred and turned the product over to me in late 1976.

By making minor changes in product, I went out and built a whole new market for this "stagnant" product. Sales soared. Within a year, I raised the price, increased profit margin, ran the plant totally out of capacity and beat my predecessor's lame business plan sales estimate by 237%. (Other 1977 product growth numbers in the department ranged from -11 to +12%.) When bonuses were handed out, I got none. "You are out of line with the previously agreed-upon objectives," I was told. This was corporate-speak for: "By beating our previously approved and agreed-upon forecasts by so much, you've made us all look bad."

In Corporate Buzzspeak of the period, this became a 'Defining Moment' for me so I 'Empowered' myself and left the company to join another ex-R&H employee in building our own business. My former employer later decided that Management By Objectives wasn't working and hired the prestigious Boston Consulting Group to come up with a new program. Grid Management was what they called it, I think. It didn't work either.

In our plastics manufacturing business, we wrote a business plan every year. And used it to guide the company. This was real Management By Objectives; we set our goals high and challenged ourselves and our employees to meet or beat them. Over an 11-year period, our firm's sales grew at a rate of over 44% per year - sales doubled every 20 months.

Our profit before taxes (NPBT) and return on total assets (ROTA) were solidly in the upper quartile of the our industry. I had learned business plan basics from working at R&H but employed realistic but aggressive objectives and annual goals as well as enumerated actions required to meet those goals. Every month, we reviewed our business plan to make sure that we were tackling the required actions in a timely fashion.

At Discovery Plastics, we made a lot of mistakes in the early years but none of them were lethal - so, we could learn from them and keep trying to improve ourselves and our company. Interestingly, we also incorporated Plexiglas DR into some of our product components. Our competitors were mystified as to why our products didn't break as easily as theirs. DR was the reason and we made sure they were never the wiser about that.

Incidentally, the product I helped develop and later revive - Plexiglas DR - is still being sold today. (posted 8/24/20)


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