Essentials of Planning and Managing by Objectives

Examples of objectives for key result areas are the following: toobtain a 10 percent return on investment by the end of calendar year2005 (profitability); to increase the number of units of product Xproduced by 7 percent by June 30, 2005 without raising costs orreducing the current quality level (productivity).The objectives have to be further translated into those ofdivisions, departments, and units down to the lowest level of theorganization.Setting objectives and the organizational hierarchyAs Figure 4-3 shows, managers at different levels in theorganizational hierarchy are concerned with different kinds ofobjectives. The board of directors and top-level managers are verymuch involved in determining the purpose, the mission, and theoverall objectives of the firm, as well as the more specific overallobjectives in the key result areas. Middle-level managers, such asthe vice president or manager of marketing or the productionmanager, are involved in the setting of key-result area objectives,division objectives, and departmental objectives. The primaryconcern of lower-level managers is setting the objectives ofdepartments and units as well as of their subordinates. Althoughindividual objectives, consisting of performance and developmentgoals, are shown at the bottom of the hierarchy, managers at higherlevels also should set objectives for their own performance anddevelopment.' There are different views about whether an organization shoulduse the top-down or the bottom-up approach in setting objectives, asindicated by the arrows in Figure 4-3. In the top-down approachupper-level managers determine the objectives for subordinates,while in the bottom-up approach subordinates initiate the setting ofobjectives for their positions and present them to their superior.Proponents of the top-down approach suggest that the totalorganization needs direction through corporate objectives providedby the chief executive officer (in conjunction with the board of