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David Dinesh: Arthur Andersen, Auckland, New Zealand
Elaine Palmer: MSIS Department, School of Business and Economics, University of Auckland, New Zealand
Introduction
The adage that "there is no such thing as a new idea" seems to be true with respect to management concepts. Management by objectives (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 Balanced Scorecard, which Kaplan and Norton (1992) introduced almost 40 years later, is also a management system based on goal congruence 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 congruence system (MBO).
The paper starts by describing MBO's philosophical intent as well as its implementation 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, focusing 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 measurement 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 direction, 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 "management by...