MBO: Appraisal with Transactional Analysis

Heinz Weihrich*, Professor of Management, University of San Francisco

All Rights Reserved, H. Weihrich, 2000

Management by Objectives (MBO) is considered one of the most effective approaches to management. Indeed, many practicing managers embrace it and integrate it with their job. But, there are also those who point at the shortcomings -- especially if MBO is used only as an appraisal tool -- citing undesirable side effects of MBO. The question, then, becomes who is right, those who hail the successes or those who point at the pitfalls? The intent here is to build on the sound aspects of MBO, add an important ingredient -- transactional analysis (TA) -- and thus overcome its potential pitfalls. The approach is to build on the strengths of MBO and to overcome its weaknesses. By looking at some of the problems more closely, it is apparent that what is wrong is not the MBO concept, but how MBO is practiced. Before focusing on TA, let's briefly review important MBO concepts. Management by Objectives. MBO is a philosophy as well as a process. Its early application was in appraisal. Later, the motivational aspects were recognized. Some companies also include long-range planning in the MBO process. My preference is to see it as a system of managing, in which key management activities in planning, organizing, staffing, directing, and controlling become an integral part of MBO.1 Reduced to its essentials, MBO involves the following steps: (1) setting objectives, (2) directing activities toward the achievement of objectives, and (3) measuring performance against these objectives. This discussion will emphasize the third step: the measurement of performance. More specifically, we will be concerned with the relationship of the superiorsubordinate in the appraisal process. Some Problems Still Persist. In the historical development of management, MBO was certainly a step in the right direction. In its early application, MBO overcame some of the problems of traditional appraisals that emphasized personality traits. In MBO appraisal, on the other hand, the focus is on results. Performance is evaluated against verifiable objectives, rather than purely subjective judgments by the superior. Moreover, in MBO the attention is on contributions individuals make to the broader organizational aims. But, in the delicate interaction between a supervisor and an employee many problems still persist. There are still those supervisors who think that unless they set the objectives for employees, no performance will be forthcoming. There are still those who ignore the needs of employees and who are not tapping the individual's motives to contribute to organizational objectives. There are still those who set unrealistic objectives for employees only to punish them when the goals are not achieved, regardless of whether or not the non-achievement was due to external, uncontrollable circumstances. There are still those who would rather see employees fail just to prove their own superiority. And finally, there are still those who think that MBO is a tool to pressure for performance at the expense of human costs. How far is this removed from the MBO philosophy! MBO, when properly practiced, integrates personal and organization objectives. It elicits commitment of individuals through genuine participation in the decision making process. It provides the basis for self-control whereby individuals determine largely for themselves how

to achieve the objectives, which were set in a collaborative manner with their supervisors. And finally, MBO provides for genuine freedom, utilizing the potentials and creativity of individuals while contributing to the organization's aims. Where, then, does MBO fail? One of the important areas is the ineffective interaction between an employee and his supervisor. It is suggested here that transactional analysis can become an effective tool to deal with this problem. Transactional Analysis and Appraisal Transactional analysis (TA) was introduced by Eric Berne, and further popularized by Thomas A. Harris' book, I'm OK-You're OK. But the real value of TA for managers has not yet been generally recognized. It is clear that many transactions occur between a supervisor and an employee, but there are few that are as crucial as those found in appraisal. This is so because appraisal involves our ego states. Judgments are made, and most of us feel uncomfortable in such situations, be it as a supervisor or as an employee. What is TA? TA is concerned with transactions between people. In a transaction, the presence of another person is acknowledged in some way. The other person then, responds, for example, by saying something, or through gestures, or other means of communication. This explanation of TA perhaps sounds too broad. Therefore, I think one can better understand TA by looking at four kinds of analyses: (1) structural analysis, (2) transactional analysis, (3) games analysis, and (4) the analysis of life positions. 1. Structural Analysis. In structural analysis, the focus is on the individual. Everyone has within him or her self three ego states. The colloquial terms to describe them are: Parent, Adult, and Child. These terms do not refer to actual parents, adults, or children, but rather they are ego states which comprise our personality. This is why we capitalize them in this discussion, and illustrate them as follows:

The Parent ego state pertains to those brain recordings that are unquestioned events imposed by the external environment during early life. It also refers to attitudes and behavior related to these events. The things we learn early in life influence our behavior as managers. Does this sound too abstract? Well, here is an example from a managerial situation. The supervisor, in interaction with an employee, would, in the Parent ego state, comment: "Do as I say," perhaps citing company rules, regulations, and policies, rather than giving a sound explanation for his/her orders. The Adult ego state refers to rational thinking, information gathering and processing, reality testing, and the like. In the organizational setting, MBO appraisal is -- and this is important -- based on self-control. The supervisor and the employee jointly set goals. Later,

performance is measured against pre-established objectives, but the evaluation is largely done by the employee. Deviations are then noted and their causes are analyzed. Problems are solved in an objective manner with the Adult ego state guiding the interactions. The Child ego state is not related to age. Rather it pertains to internal events recorded in the brain, also during early life. It refers more to feeling aspects, such as fear, anxiety, searching for approval; but it also includes the creative aspects of a person. In an ineffective appraisal, for example, the employee may blame others for his or her non-achievement of preestablished goals. Or, the person simply may take a carefree attitude, taking the managerial job casually, not caring about performance at all. On the positive side, the Child ego state may also be helpful, facilitating the creative search for alternatives to solve a particular problem. The described ego states, the Parent, Adult, and Child, are present in all of us. In appraisal, as noted, one may find that one or the other dominates in the interactions between the superior and the subordinate. Recognizing the ego state that influences our behavior will make us more effective during appraisals either as supervisors or as employees. 2. Transactional Analysis. A transaction, as used here, involves the interaction of ego states of people. In our discussion, it will be the superior and subordinate during the appraisal process. The interaction can be illustrated as follows:

This, of course, is very pertinent to appraisal. Typically, we find interactions as shown in the diagram. The supervisor evaluates the performance of an employee, possibly with a pointing index finger. (Note that we communicate not only through the spoken language; our gestures and facial expressions are sometimes more important than what we say.) In response, the employee replies, perhaps, with a "Yes, sir." Is this MBO, based on self-control? Certainly not. Recognizing the ego state that influences our behavior will help to make us more effective during appraisals either as employees or as supervisors. A more constructive transaction would be on the Adult-Adult ego state level. Here the inequality of power relations does not stand in the way of genuine Adult interactions. Both the supervisor and the employee engage in appraisal-i.e., primarily self-appraisal of performance. Both are involved in evaluating past performance. But the appraising is mostly done by the employee. The supervisor and the employee then analyze deviation from standards, searching for the cause(s). Both engage in problem solving. Both develop

strategies to prevent problems from recurring, and both set realistic, yet challenging objectives for the future. Yes, both learn from the past. But the past cannot be changed -the future can. Consequently the thrust of the appraisal is positive -- it is on the future. It is there where the opportunities for improved performance lie. The two illustrations above were complementary, that is, the interactions indicated by lines in a diagram were parallel. As pointed out, traditionally we find a Parent-Child interaction in appraisal. Note that this kind of interaction can continue for a long time without an interruption. Of course, this is not a very effective way. However, a real breakdown in communication occurs when the transactions are non-complementary, as illustrated by the crossed lines in the following diagram:

The supervisor, evaluating the performance of the employee, could get a response something like this, "Who do you think you are, judging my performance!" In such a case, the appraisal setting has become a battleground rather than the occasion for focusing on the development of the individual. Besides these three illustrations, different transactions can transpire. These may originate in either Parent, Adult, or Child. Similarly, the responses can be Parent, Adult, or Child. Perhaps now that we have the basic tools for the analysis of transactions we can recognize our predominant modes of interaction with others. This would be the first step in modifying our behavior, an important desirable outcome of appraisal. 3. Analysis of Games. A game has been defined by Berne as follows: Descriptively it is a recurring set of transactions, often repetitious, superficially plausible, with a concealed motivation; or, more colloquially, a series of moves with a snare, or "gimmick." It is clear that games, as used here, are basically dishonest, self-defeating, and destructive. Their underlying theme is "Mine is better than yours," a game played by children, but also played in different versions by employees in organizations. Unfortunately, appraisal is often the

occasion for organizational games. Berne has a whole classification of games and, I am sure, new ones will be identified. Recognizing the games ---especially our own -- is useful, but to call the games of others is rather risky. One should not be surprised to get an angry response. So, the first step in developing honest interactions would be to identify our own games and stop playing them, because if they are not stopped they will be repeated. MBO appraisal involves not only looking at past performance, but it also includes planning for the future and setting of new goals, especially improvement and creative ones. There, then, are some examples of games played during the typical appraisal. There may be a supervisor who responds to the suggested creative objectives of an employee with "Yes, but . . . ." The reasons given after the "but" may vary from being impractical, not pertinent, or outright silly. This game, it is clear, completely destroys any initiative in the employee. There is the other boss who sets goals for employees (note that this is not congruent with MBO philosophy which emphasizes participation in setting objectives) so unrealistically high that individuals may get frustrated and never reach the objectives. Consequently, when appraisal time comes, the boss can argue that the non-achievement of objectives does not justify a raise in salary. Employees play their games, too. For example, one may set objectives purposely at an unrealistically low level just to prove to a superior what an outstanding person he or she is when performance is measured against these low standards. In all, it is evident that games organizational people play during the appraisal process are rather destructive. 4. Life Positions. Every one of us has learned to play roles which are acted out through most of our lives. Rather early in life we adopt psychological positions, positions related to ourselves and others. We will discuss four of them and see how they relate to appraisal. a. I'm not OK-You're OK. This is a position adopted early in life. Persons with such an outlook feel inferior because they compare themselves to others they consider OK. Of course, in any comparison one will fall short in some respects. As we know, in performance appraisal this is not uncommon. Often the employee, operating from the Child ego state and a not-OK-position, views the supervisor as the all-knowing Parent figure. While this is common in the organizational setting, it is clear that this does not release the potential of the subordinate, nor is it a healthy position for growth. b. I'm not OK-You're not OK. This is a rather hopeless position. The subordinate may, for example, display a regressive behavior, and the appraisal process with the superior (who is also considered not OK) is an effort resulting in futility. The individual may show extreme withdrawal and an effective interaction between the supervisor and the employee is hardly possible. c. I'm OK-You're not OK. This is a position in which the employee, for example, may feel persecuted. Thus, the person may blame others, without justification, for the failure of not achieving the pre-established objectives. Hatred or anger may be harbored -- often beneath the surface against the superior, fellow workers, or the organization in general. It is a position wherein one feels he/she is right and everyone else is wrong. This, it is clear, is an extremely difficult situation for a supervisor. d. I'm OK-You're OK. This is, of course, basically the healthy position. The employees evaluate their performance against pre-established, verifiable objectives. They know and acknowledge whether or not they achieved them. They solicit the help of their superiors (they consider OK) to develop plans for the future which are designed to build on strengths and to

overcome weaknesses, They are not blind to their shortcomings, but view them as a challenge. They are confident in their abilities and feel good about their accomplishments. Moreover, they trust their superiors, who are not out to "get them," and collaborate with them in their personal development which, in turn, contributes to organizational objectives. Conclusion Management by Objectives is one of the most successful approaches to management. When applied to appraisal, it still has weaknesses. To overcome them, transactional analysis is recommended. The understanding of the four aspects of TA will make the delicate interactions between the supervisor and the employee during the appraisal process more productive. 1. Recognizing our predominant ego state -- Parent, Adult, or Child --is the first step to better self-knowledge. Based on an understanding of ourselves, the most appropriate behavior can be selected. 2. In transactional analysis we become aware of our interactions between our ego states and those of others. The predominant Parent-Child interaction between supervisor and employee can be supplemented, if not replaced, by productive Adult-Adult behavior whereby the superior and subordinate -- in a collaborative manner -- set objectives, develop action plans, and evaluate performance against standards. If deviations occur, both engage in positive problem solving behavior with the aim to learn from the past and determine the future. 3. Organizational games are, to say the least, dysfunctional. At worst, they are outright dangerous. Games must be recognized for what they are. They prevent honest interactions between supervisor and employees with the result that the individuals themselves, as well as the organization, suffer. Knowledge of the games we play, on the other hand, leads to the desire to stop them. 4. Our life position -- pertaining to the OK or not OK of ourselves and others -- will determine whether or not appraisal against verifiable objectives will be effective. A healthy "I'm OK-You're OK" position is the basis for effective appraisal, which then becomes a collaborative process between the superior and subordinate. Both evaluate past performance in a constructive manner. Both learn from the past, but they determine the future by planning ahead and setting new goals. In summary, the complex and delicate process of appraisal against verifiable objectives is greatly facilitated by the use of transactional analysis. It provides insights about our ego states and our interactions with others. It is a positive and constructive approach that is beneficial for the individual and the organization.
1. Heinz Weihrich. "A Study of the Integration of Management by Objectives with Key Managerial Activities and the Relationship to Selected Effectiveness Measures." Unpublished doctoral dissertation, University of California, Los Angeles, 1973.