There are four leadership styles that managers use to guide their teams: visionary, democratic, transformational, and coaching.
All of these styles focus on helping employees achieve their goals, but some emphasize pushing employees out of their comfort zone, while others focus on motivation through promotions and bonuses.
Management by Objectives (MBO) is a type of democratic management style that measures employee success by their contributions to overall company success. Various industries can benefit from this strategy, and it's common in sales-driven environments.
In this post, we’ll go over how an MBO model can help businesses reach their sales goals, and the steps sales managers can take to design a successful program for their employees.
What does MBO stand for in sales?
In sales, Management by Objectives is the process of assigning employee tasks based on overarching company goals. The process gives company employees an understanding of how their job functions relate and contribute to company success.
Employees work with their managers to create a set of tasks they’re meant to complete within a specific time frame that will help the company achieve its overarching goals. Establishing employee objectives is intended to provide them with a holistic view of their responsibilities and how those responsibilities relate to company-wide objectives. This helps sales reps understand what is expected of them and why so they can be more productive.
You can think of it like this: a computer software company wants to shorten their sales cycle by the end of the year. An MBO model would mean that managers work with their employees to outline goals that they'll need to achieve within the calendar year to help the company reach their desired cycle length. This could mean having team members focus on being more efficient in their conversations with customers and assigning quarterly sales-length benchmarks that they should meet.
Benefits of an MBO Model
Peter Drucker, who introduced the concept of Management By Objectives in "The Practice of Management," stated that the overall benefit of using an MBO model is to empower employees through allowing them to see the value of their work in relation to company success. Ideally, employees involved in setting their own work-related goals feel empowered through this process and experience increased productivity and work morale.
An MBO model also improves transparency between employees and upper management, as higher-level business intentions must be made clear to all. It also enhances transparency between managers and their direct employees, as managers need to be upfront about expectations, and employees must be honest about what they think they can achieve.
Overall, MBO goal setting focuses on reward rather than punishment, as employees can designate their course of action and enact strategies they know they can achieve.
Five Steps To Creating Your Own MBO Model
Managers who lead through an MBO sales model can follow the step-by-step process that Drucker outlined in his book.
1. Define organizational goals with employees.
The first step to creating a successful MBO model is to define organizational goals with your team members.
Ensure that employees understand what the company wants to achieve and the time frame they want these achievements to happen.
For example, maybe a business's goal is to increase sales revenue by 25% by the end of the calendar year. While that goal gives a specific time frame, upper management may have other actionable steps that they'll want to take to ensure that this happens. Maybe they want to increase revenue by 7% every quarter, or maybe they want to increase revenue by 5% for the first three quarters of the year, with a final sprint towards a 10% increase in quarter four. Employees should be aware of all of these details.
2. Create employee objectives.
After you define company goals with your entire team, the next step is to work with individual employees to establish their job responsibilities.
Using the specific, measurable, attainable, relevant, and time-bound (SMART) goal structure can help with this process. When you establish goals in this way, employees have a holistic understanding of your expectations for them.
Continuing with the example from the first step, if a company's end goal is to increase revenue by 25%, employee objectives must directly contribute to this revenue increase. That could look like employees committing to closing 10% more deals per quarter.
During this stage, you may also discuss bonuses and rewards given to employees when they meet their goals. Since these are also discussed and set in collaboration, employees may be motivated to be productive to receive these bonuses.
3. Continuously monitor progress.
A pillar of the MBO model is hands-on interaction and discussion between managers and employees. This means that you continue to check in with employees throughout the timelines you've established together.
Continuously monitor their progress, and assist them along the way if factors are in the way of their success. If employees have fallen off course, reinforcements and reminders from you can help them get back on track. While you're outlining employee objectives, you can also set check-in timelines.
4. Evaluate and reward employees.
While monitoring employee performance, you'll get a sense of your employees' levels of efficiency. If you've set timelines for employees to meet their goals, you should view the end of these periods as opportunities to evaluate performance.
Employees who meet their goals should be given the rewards and bonuses agreed upon during step two. The MBO model doesn't focus on punishment. So, if you have employees who have not met their goals, you can provide them with employee development resources that will help them succeed in the future.
5. Use technology in your favor.
Even though you're already monitoring employee progress, these check-ins likely aren't occurring every day. Consider using technology to get a sense of employee performance during hands-off periods.
For example, HubSpot’s Sales Hub can generate reports to track team-specific sales activities, like sales calls and deal information, based on dates or individuals.
The Sales Hub software is also a valuable tool for managers outside of check-in periods to see how employees are progressing toward their goals. For example, if you decide with one of your employees that they'll close 10 deals in a month, you can use the Closed amount metric to view the number of deals closed during that period.
The image below is an example of the Count of deals view that displays the number of deals opened, lost, and won.
MBO emphasizes employee growth and development.
Overall, an MBO mode helps companies achieve their goals through employee empowerment. Managers and their teams take the time to understand business goals, collaborate on establishing job functions, and create actionable timelines.
Employees who meet their goals are rewarded and can see how their success impacts company success.