Tài liệu Management by objectives and the Balanced Scorecard: will Rome fall again? doc

[ 363 ]
Management Decision
36/6 [1998] 363–369
© MCB University Press
[ISSN 0025-1747]
Management by objectives and the Balanced
Scorecard: will Rome fall again?
David Dinesh
Arthur Andersen, Auckland, New Zealand
Elaine Palmer
MSIS Department, School of Business and Economics, University of Auckland,
New Zealand
Drucker introduced manage-
ment by objectives (MBO) in
the late 1950s. Kaplan and
Norton introduced the Bal-
anced Scorecard in the early
1990s. MBO and the Bal-
anced Scorecard are manage-
ment systems that align
tangible objectives with an
organisation’s vision. This
article compares and con-
trasts the two management
systems. The examination
concludes that the philosoph-
ical intents and practical
application of MBO and the
Balanced Scorecard stem
from similar precepts. The
examination of patterns of

MBO implementation also
illuminates possible problems
in the application of the
Balanced Scorecard. Imple-
mentation of MBO suffers
from two main problems.
Partial implementation:
taking a portion of a prescrip-
tion does not provide the
cure. Second, a patent disre-
gard for MBO’s core philoso-
phy that calls for goal congru-
ence through collaboration.
Our forecast is that partial
implementation will remain as
a problem for the Balanced
Scorecard. An increasing rate
of change in business encour-
ages this (because develop-
ment of organisation-wide
scorecards takes too long).
However, we think that cur-
rent management will use
more collaboration than was
the case with MBO, because
of the influence of total qual-
ity management (TQM, which
encourages collaboration).
Introduction
The adage that “there is no such thing as a

new idea” seems to be true with respect to
management concepts. Management by objec-
tives (MBO), which Drucker (1955) introduced
more than four decades ago, is a system of
management based on goal congruence as a
means of improving performance. The Bal-
anced Scorecard, which Kaplan and Norton
(1992) introduced almost 40 years later, is also
a management system based on goal congru-
ence as a means of improving performance.
This article takes the view that the Balanced
Scorecard is essentially similar to MBO, and
that differences can be explained by business
changes during the years separating their
inception. The main purpose of this article is
to extend knowledge about the Balanced
Scorecard, by examining problems that have
occurred as part of the earlier goal congru-
ence system (MBO).
The paper starts by describing MBO’s
philosophical intent as well as its implemen-
tation guidelines. This is repeated for the
Balanced Scorecard. A section describing the
practical application of MBO (which has been
largely unsuccessful) follows, and concludes
with an examination of reasons for its failure.
This is followed by a discussion about the
application of the Balanced Scorecard, focus-
ing on the likely recurrence of MBO-
evidenced problems. The paper finishes with

a summary of the key points and conclusions,
and extends the findings to a larger ongoing
debate about the value of performance mea-
surement systems in business.
Management by objectives
MBO was first introduced to businesses in the
1950s as a system called “management by
objectives and self-control” (Drucker, 1955).
Drucker (1955) states that the basis for this
system is that an organisation will be more
successful if:
…their efforts … all pull in the same direc-
tion, and their contributions … fit together
to produce a whole, without gaps, without
friction, without unnecessary duplication of
effort…
This focus on goal alignment as a way to
improve organisational performance was, at
the time, thought to provide the best path to
increased profitability (D’Aveni, 1995).
Drucker’s initial ideas about organisational
goal congruence were extended and put into
practice as a managerial performance system
used at General Mills, known as “manage-
ment by objectives” (McGregor, 1960). McGre-
gor’s practical use of this goal congruence
system was tied to his own development of a
managerial assumption about human behav-
iour which he called Theory Y.
McGregor (1960) argued that the traditional

managerial assumption, which he called
Theory X, assumes that:
…the average human being has an inherent
dislike of work and will avoid it if he can…
Therefore employees must be controlled,
intimidated, or coerced to produce.
Theory Y, on the other hand, assumes the
opposite about the nature of people:
…the average person finds work as natural
as play or rest…
Based on this theory, McGregor argued that
an employee, if directly involved in the goal
setting process, can be relied upon for self-
control. Therefore productivity can best be
improved by clarifying strategically aligned
goals (coupled with related rewards for
achievement). In other words, a system such
as MBO (which is based on goal congruency)
should improve employee productivity if used
collaboratively.
McGregor’s work on Theory Y, together
with the development of the MBO system,
codified a shift in managerial thinking that
took place during the 1950s (Bartol and Mar-
tin, 1991). Before this time, traditional west-
ern management practices were mostly cen-
tered on, and driven by, the rational goal
model (also known as the economic model)
(Quinn et al., 1996).
Grant et al. (1994) suggest that the rational

goal model places a strong emphasis on com-
mand and control, and utilises scientific
management concepts together with Tay-
lorism principles (Freedman, 1992) which are
based on one best way to do things. Thus the
rational goal model parallels McGregor’s
[ 364 ]
David Dinesh and
Elaine Palmer
Management by objectives
and the Balanced Scorecard:
will Rome fall again?
Management Decision
36/6 [1998] 363–369
Theory X, in terms of its implicit assump-
tions about human behaviour.
The shift in managerial thinking repre-
sented by MBO is related to a movement away
from assumptions about human behaviour
based on scientific management principles
(Freedman, 1992). MBO principles differ
markedly from the command and control
model of scientific management related to
goal setting, instead illustrating a move
towards a paradigm known as the “human
relations” model. The human relations model
reflects employee empowerment and collabo-
ration (Guillen, 1994), and supports McGre-
gor’s Theory Y assumptions that work is a
natural state.

In summary, while MBO is still based on the
rational goal model in terms of its emphasis
on goal and measurement setting, employee
involvement and collaborative efforts are also
integral to its philosophy. As such MBO could
be viewed as a first attempt to merge two
contrasting paradigms (the rational goal
model and the human relations model), and
represents what Quinn et al. (1996) describe
as a major shift in managerial thinking to the
human relations model. Further support for
this shift in thinking is evidenced by one of
the best selling books of the 1950s: How to Win
Friends and Influence People (Carnegie, 1981).
Following the successful application of
MBO to General Mills, MBO systems became
increasingly common in organisations dur-
ing the 1960s and 1970s. The commonly agreed
elements of an MBO system (Reddin, 1971;
Reddin and Kehoe, 1974) are:
• objectives established for all jobs in the
firm;
• use of joint objective setting;
• linking of objectives to strategy;
• emphasis on measurement and control;
• establishment of a review and recycle
system.
As business acceptance of MBO principles
became widespread, a set of MBO implemen-
tation steps were developed to allow the con-

sistent application of MBO across organisa-
tions. These steps are:
1 Identification of organisational strategy.
All organisations should start by identify-
ing their long-term strategic goals
(Drucker, 1955; Odiorne, 1979).
2 Collaborative goal setting.
Goals should be set in collaboration with
superiors and subordinates. These goals
should be consistent throughout all levels
of the organisation (Drucker, 1955; Reddin
and Kehoe, 1974).
3 Rewards linked to goals.
Attempts should be made to link rewards
to the individual goals developed by the
MBO system. Research on linking rewards
to measurement (Dewey, 1995; Shaw and
Schneier, 1995) shows that collaborative
goal and reward setting is successful as a
motivational tool.
4 Development of action plans.
An action plan helps identify problem
areas and assists in resource allocation.
Action plans encourage innovation and
empower subordinates, and should again
be developed by subordinates in collabora-
tion with their supervisors (Bartol and
Martin, 1991; Neale, 1991).
5 Cumulative periodic review of subordinate
results against targets.

Management need to be kept informed
about progress and unexpected problems,
so that they can provide a coaching and
supporting role if subordinates are having
difficulties. For this reason, an MBO sys-
tem includes periodic performance
reviews. The focus of the review should be
on gaps between the set goals and actual
performance. The review should include
praise and recognition for areas where the
subordinate has performed well, as well as
discussion of areas in which the subordi-
nate could improve (Reddin and Kehoe,
1974).
6 Review of organisational performance.
The final step of MBO implementation is a
regular review of the entire system, which
feeds back into the first step. The overall
review provides an opportunity to ensure
that organisational plans are being imple-
mented as expected and that strategic
goals remain as the focus (Bartol and Mar-
tin, 1991; Odiorne, 1987; Reddin and Kehoe,
1974).
The Balanced Scorecard
This section details the development of the
Balanced Scorecard, and defines the charac-
teristics of its use as a management system.
The Balanced Scorecard measurement
system (Kaplan and Norton, 1992, 1993a) was

first introduced to address what its authors
perceive as the shortcomings of traditional
performance systems, which they link to a
reliance on financial measures. In order to
overcome this “singular” focus, Kaplan and
Norton (1992) introduce three additional
measurement categories that highlight non-
financial aspects. These are: customer satis-
faction, internal processes, and learning/
innovation.
Kaplan and Norton think of these three
additional categories as the drivers of future
performance, whereas the category of finan-
cial measures emphasises past performance.
[ 365 ]
David Dinesh and
Elaine Palmer
Management by objectives
and the Balanced Scorecard:
will Rome fall again?
Management Decision
36/6 [1998] 363–369
By using all four categories, the Balanced
Scorecard draws together a wide variety of
disparate yet important competitive strategic
priorities (Newing, 1994).
A central tenet of the Balanced Scorecard
system is its focus on goal congruence (Hof-
fecker and Goldenberg, 1994; Newing, 1995).
The objectives and measures for each of the

four Balanced Scorecard categories (finan-
cials, customers, internal processes, learn-
ing/innovation) are directly derived from the
organisation’s vision and strategy. Hence the
resultant measures are aligned with the
strategic direction of the firm. This consis-
tency with strategic goals is expected to apply
across all functional areas within the organi-
sation (Hoffecker and Goldenberg, 1994), as
well as through existing hierarchical levels
(Beischel and Smith, 1991).
Kaplan and Norton (1996a) describe their
system as “…more than a tactical or an opera-
tional measurement system…” Rather, the
authors show that the Balanced Scorecard
has evolved into a strategic management
system, with organisations using it to man-
age their strategy over the long term. This is
done by using the measurement focus of the
Scorecard for the following critical manage-
ment processes (Kaplan and Norton, 1996b):
• clarify and translate vision and strategy;
• communicate and link strategic objectives
and measures;
• plan, set targets, and align strategic initia-
tives;
• enhance strategic feedback and learning;
• link measures with rewards.
Similarities and differences
between MBO and the Balanced

Scorecard
The management processes described for the
Balanced Scorecard are very similar to the
MBO system elements and six implementa-
tion steps. In essence, both systems are based
on goal congruence throughout an organisa-
tion, and each details an iterative process
based on collaboration between and within
all levels of an organisation.
In terms of managerial paradigms, the
Balanced Scorecard, like MBO, seems to have
at its core the rational goal model (clear mea-
sures and goals) extended to include the
human relations model (requiring collabora-
tion). A further similarity between the two
systems is that the Balanced Scorecard mea-
sures have been tied to rewards and incen-
tives as a useful motivational tool (Kaplan
and Norton, 1996b). This parallels Dewey’s
(1995) and Shaw and Schneier’s (1995)
research on MBO.
One notable difference between the two
systems is their degree of explicitness. MBO
is an open-ended management system based
on the collaborative determination of goals
and measures (without detailing what those
goals and measures should be). The Balanced
Scorecard is also based on the collaborative
determination of goals and measures, but is
more focused than MBO as it prescribes the

four categories of customer satisfaction,
internal processes, innovation and learning,
and financial measures.
The creators of the Balanced Scorecard
claim that such explicitness is needed
because using open-ended systems has
resulted in too much focus on easily quantifi-
able financials (Kaplan and Norton, 1992).
The creators argue that the specific targeting
of non-financials reminds management of
other equally important concerns.
In summary, it appears that MBO and the
Balanced Scorecard are essentially similar.
They are both based on the development of
strategic measurements (although the Bal-
anced Scorecard is more explicit about what
those strategic measurements are). They both
focus on goal congruence (the rational goal
model), as well as collaboration throughout
all levels of the firm (the human relations
model). Likewise, they both imply Theory Y
as they assume that employees will be moti-
vated by rewards and incentives associated
with goals that they have helped determine.
MBO failure in practice
This section examines problems with the
implementation of MBO. Given the similari-
ties between MBO and the Balanced Score-
card, identifying these problems may provide
useful information about the current system.

Despite MBO’s objectives of improving
organisational performance through goal
congruency, and its initial success in such
organisations as General Mills, successful
implementation overall has been disappoint-
ing. Growth in the introduction of MBO pro-
grammes was especially rapid during the
1960s and 1970s (Odiorne, 1979). Ironically, the
same organisations that adopted MBO as a
performance management system later
claimed that MBO proved to be more of a
hindrance rather than a help (Van Tassel,
1995).
Analysing the results of an empirical study
carried out on 48 organisations that intro-
duced MBO in the 1960s and 1970s (Reddin
and Kehoe, 1974) gives some initial insights
about possible reasons for its failure. Table I
illustrates the reasons that top management
[ 366 ]
David Dinesh and
Elaine Palmer
Management by objectives
and the Balanced Scorecard:
will Rome fall again?
Management Decision
36/6 [1998] 363–369
in this study gave for introducing an MBO
system.
Table I shows that the most frequent reason

for introducing MBO (more than 35 per cent
of the organisations surveyed) was its use as
an appraisal scheme. And yet individual
appraisal is only one of the six MBO imple-
mentation steps described earlier.
Next, the Table I figures show that only 16.6
per cent of the organisations surveyed stated
goal alignment (6. Link company objectives
to department objectives) as a reason for
introducing MBO. Further, this stated aspect
of goal alignment does not include the need
for alignment throughout all levels of the
organisational hierarchy. This is in contrast
to the overall stated purpose of MBO, which
(as stated by its initiators) is to avoid goal
misalignment (Drucker, 1955; McGregor,
1960).
In summary, these findings suggest that
MBO’s failure may be due to a lack of under-
standing by management of one of MBO’s
core philosophies (organisational goal con-
gruence), while at the same time implement-
ing MBO for performance appraisal purposes
alone (hence focusing on only one step in the
MBO system).
A recent survey carried out among public
organisations in the USA supports the wide-
spread use of MBO as an individual appraisal
system (Poister and Streib, 1995). Only 28 per
cent of the respondents in this study used

MBO on a company-wide basis, while the
remaining 72 per cent used MBO as an
appraisal system in selected areas within the
organisation. In most cases the use was
restricted to individual appraisal of senior
level managers. Congruent goal setting
throughout the organisation was rare, with
only 10 per cent implementing systems that
extend down to the operating (shopfloor)
level.
Other authors support the MBO implemen-
tation patterns observed in the Reddin and
Kehoe (1974) and Poister and Streib (1995)
studies. For instance, Bechtell (1996) argues
that MBO has not worked because of a lack of
collaborative communication, coupled with a
failure to link objectives when required.
Bechtell’s work supports the Reddin and
Kehoe view (1974) that the failure of MBO
may well be because two core premises of
MBO, goal congruence and a focus on the
human elements, have simply been ignored in
practice.
Further literature supports this view. For
instance, Landau and Stout (1979) suggest
that MBO centralises the organisation
through rigid controls at the expense of the
need for flexible response and coalition build-
ing. Odiorne (1979) argues that a main reason
for MBO’s lack of success is that it requires a

major change in the way things are done, and
also in the way of thinking. In particular,
Odiorne suggests that MBO requires a shift
from viewing employees as “labour” to “peo-
ple” and also requires a shift from an auto-
cratic power base to one more widely shared.
This fits with McGregor’s (1960) emphasis on
the need to move from Theory X to Theory Y
assumptions.
The absence of the human relations model
in MBO implementation is supported by
some authors who consider MBO to be
against total quality management (TQM)
principles (Poister and Streib, 1995; Van Tas-
sel, 1995). TQM is a philosophy based on the
human relations model (Bowen and Lawler,
1992; Guillen, 1994) in its focus on collabora-
tion, empowerment, and teamwork. The mis-
match of MBO with TQM is explained as too
much focus on individual performance
(therefore de-emphasising teamwork) and too
much focus on quantitative goals rather than
the goal of continuous improvement.
In summary, it appears that MBO’s wide-
spread failure to work in practice may be
partly explained by two key factors, which
are:
1 Partial implementation of the system (as
an individual performance appraisal sys-
tem rather than an overall goal congru-

ence system).
2 A lack of paradigm shift from scientific
management principles to the human
relations model (which is endorsed by the
creators of MBO as key to the system).
Thus it appears that MBO in practice has
failed because neither the prescribed process
steps nor the original philosophical intent
have been followed.
Table I
Philosophy and rationale for MBO
Rationale
n
(48) Per cent
1 To link evaluation to performance 17 35.4
2 Aid manager in planning 12 25.0
3 Motivate managers 11 22.9
4 To increase boss/subordinate interaction and feedback 11 22.9
5 Development of management potential 8 16.6
6 Link company objectives to department objectives 8 16.6
7 Managers know what their job is 8 12.5
8 Give management information about what is going on at lower levels 4 8.3
9 Management club to pressure performance 3 6.25
10 No mention 7 14.5
Source: Reddin and Kehoe, 1974
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David Dinesh and
Elaine Palmer
Management by objectives
and the Balanced Scorecard:

will Rome fall again?
Management Decision
36/6 [1998] 363–369
Balanced Scorecard
implementation
The Balanced Scorecard is currently being
adopted as the management system of choice
by many organisations, which include FHC
Corporation, Rockwater Engineering, Apple
Computer Company, Advanced Micro
Devices, DHC Chemical Division, NatWest
Bank, and Mobil’s US Marketing and Refining
Division (Corrigan, 1996; Kaplan and Norton,
1993b; Newing, 1994; Vitale et al., 1994).
Despite the Balanced Scorecard’s well-
publicised success to date in improving goal
congruence (Kaplan and Norton, 1993a), there
have also been a number of weaknesses noted
in its implementation. Newing (1994) suggests
that one of the main weaknesses is the com-
plexity and time involved in its development.
The development of many Scorecards for
different levels (and in some cases, for all
individuals) is needed if the Balanced Score-
card is to be carried out as intended. This
process is very complex and time-consuming,
and Newing (1994) argues that the costs of
such a procedure may well outweigh improve-
ments in organisational performance.
This complexity might encourage organisa-

tions to attempt partial application of the
system, for instance to develop senior level
measures only. If this is the case, the Balanced
Scorecard may become subject to some of the
same problems as MBO. That is, it may not be
used as the overall goal congruency system
for which it was intended.
Partial implementation is likely to be an
attractive option for businesses operating in
current conditions. The competitive environ-
ment in the 1990s is far more turbulent than
the stable business environment that existed
during the 1950s (Hamel and Prahalad, 1994).
The competition faced by organisations today
moves faster and is more aggressive. D’Aveni
(1995) has termed this new competitive envi-
ronment “hyper competition”. If the environ-
ment that a company operates in is changing
faster than its ability to develop organisation-
wide measures, partial implementation may
well be encouraged.
A second main cause of MBO’s failure has
been detailed as the failure of management to
shift their thinking to the human relations
model. It is worthwhile considering the impli-
cations of this with respect to the Balanced
Scorecard. It is likely that the business envi-
ronment of the 1990s is more conducive to the
use of the human relations model than was
the case with MBO implementation. This is

associated with the widespread adoption of
TQM principles in the 1980s (which in turn
are based on the human relations model
(Bowen and Lawler, 1992; Guillen, 1994)).
Because of this general business accep-
tance of the human relations model, it is
plausible that the problems associated with
the “command and control” aspect of MBO
implementation (Bechtell, 1996; Odiorne,
1979) should be reduced for the Balanced
Scorecard. In other words, Balanced Score-
card implementation should benefit from 40
years of experience with the human relations
model, in contrast to MBO (which is related
to the initial introduction of the model).
Conclusion
The discussions of MBO and the Balanced
Scorecard have described many similarities
between the two management systems. It
seems that the Balanced Scorecard is based
on the same philosophies as MBO. That is,
there is a need for goal congruence within an
organisation in order to improve
performance, and the best way of obtaining
this is through a process of collaborative goal
setting and review. This parallels a manager-
ial approach using the human relations
model as an extension of the rational goal
model.
MBO has proven to be largely unsuccessful

in practice, with two key failures identified as
partial implementation of the system, and
non-recognition of the need to adopt a human
relations view.
Because of the increased complexity of the
business environment associated with the
1990s and Scorecard development, it seems
that the Balanced Scorecard might be even
more prone to partial implementation. The
time and energy needed to develop company-
wide business goals may be viewed as uneco-
nomic when coupled with rapidly changing
external factors (hence needing new sets of
appropriate goals).
There is a more positive outlook in terms of
whether or not Balanced Scorecard imple-
mentation will also fail for philosophical
reasons. If the human relations model is
indeed more widespread than has been the
case in the past, it is reasonable that the Bal-
anced Scorecard may be applied in a collabo-
rative fashion as intended.
Wider implications and areas for
further study
In a wider context, this examination of two
measurement systems illustrates some larger
issues that are being debated about the role of
measurement systems in business. Quinn et
al. (1996) state that understanding measure-
[ 368 ]

David Dinesh and
Elaine Palmer
Management by objectives
and the Balanced Scorecard:
will Rome fall again?
Management Decision
36/6 [1998] 363–369
ment’s impact on performance is emerging as
one of the most widely debated topics of the
1990s.
One such debate relates to the tension that
exists between flexibility and measurement
(Quinn et al., 1996). Hoffecker and Goldenberg
(1994) argue that in an environment of rapid
change and fierce competition, attempting to
measure performance is anti-systemic. This
view of flexibility and measurement being at
odds with one another is shared by systems-
thinking analysts such as Senge (1990) and
Kim (1994).
The contra view (Kaplan and Norton, 1996b)
is that measurement systems add more value
than the measures themselves, because they
develop a clearer picture of the organisation,
and the process of developing measures pro-
vides focus and strategic alignment even as
the measures themselves change. Renais-
sance Solutions Inc. Website (1996) supports
the view that the use of measurement sys-
tems remains a critical driver of improved

performance in the 1990s.
A second debate relates to the tension that
exists between the rational goal model and
the human relations model. Despite the wide-
spread adoption of the human relations
model through TQM principles during the
1980s, some authors support the view that
management is still failing to adopt collabo-
rative approaches (Delavigne and Robertson
1994; Guillen, 1994). Quinn et al., (1996) assert
that tension between goal setting and empow-
erment of employees will always be present,
and that it is a matter of determining when to
direct others versus when to collaborate. The
development of guidelines for managing this
tension is an area that deserves further study.
In conclusion, the likely success of a mea-
surement system such as the Balanced Score-
card will depend on addressing the larger
issues that have been described here. Only if
organisations can find ways to meet rapid
external change while maintaining an organ-
isation-wide measurement system, and man-
age the human relations model in conjunc-
tion with goal setting, is the Balanced Score-
card likely to be applied according to its
philosophical and practical intent.
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Application questions
1 What are the ways your organization uses
to measure and manage performance?
Evaluate their effectiveness?
2 What is wrong with MBO as a manage-
ment technique (if anything)?