From Dr. W. Edwards Deming’s 14 Points: Eliminate work standards (quotas) on the factory floor. Substitute leadership. Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.

Why do some companies struggle when it comes to implementing lean and Six Sigma? A critically important step toward a successful improvement implementation is to get buy-in and support from top management. However, do the company’s leaders embrace the improvement initiatives enough to make radical changes in how they operate? What if this meant throwing out their entire way of measuring the success or failure of their employees?

One of Dr. Deming’s more controversial points in running a company is listed above (in italics). When company executives are surveyed about Dr. Deming’s 14 points, they tend to rank this point at the bottom of the list in both importance and ability to implement. U.S. companies have relied on using some sort of Management by Objective (MBO) type system for so long, it is difficult to think about alternatives.

Let’s explore the damage MBOs may have on a company’s ability to improve and what might have been behind Dr. Deming’s thinking when he included this in his 14 points. (The example that follows is based on real-world experiences.)

Jim Smith, one of the company’s plant managers, was feeling pretty good about his upcoming performance review with his boss. Jim had managed to meet every one of the objectives that was set a year earlier at his last review. He also knew that the next 12 months were going to be difficult since they were expecting several new product launches, so he was hoping to negotiate easier goals for the next year.

“Jim, come on in and have a seat,” his boss said as he was motioning to an empty chair. “I have been looking over your performance objectives for this past year, and frankly, something does not add up. It appears that you managed to meet all of your goals, and while your plant did perform slightly better, it seems that several other plants in the company far exceeded your improvement. Why do you think they were able to do so much better?”

“I’m not really sure,” said Jim as his ego was somewhat deflated. “I mean, we improved in every category that we measured. Our quality yield, for example, went from 92% to 92.6%. Our goal was to get to 92.5%, so we feel pretty good that we not only met the goal but exceeded it slightly.”

Jim’s boss did not look happy. “Our plant across town that is managed by Mary Jones started the year with a quality yield that was also 92%, but they managed to increase it to 99.3%. They had similar improvements in several other categories while also managing to keep their costs down. Before we set next year’s objectives, I want you to go meet with Mary and find out what they are doing to achieve those kinds of results.”