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Procurement Perspectives: Construction and procurement management by objective

Stephen Bauld
Procurement Perspectives: Construction and procurement management by objective

An obvious practical problem in any large organization is finding some method of effectively co-ordinating activities at all levels of the organization.

In small organizations, the owner or CEO very often has a rather thorough command of the various details involved in the running of the business and is quite capable of making most of the important decisions.

The owner of the smaller organization is close to the customers, or other people serviced by the organization, and can deal with them and with the employees of the organization on a personal basis. Management of people is obviously complicated once the organization exceeds this small size.

It is common wisdom that it is difficult to supervise directly more than a small number of people.

Most authorities suggest it is between 10 and 15 as the extreme upper limit.

As a result, in most companies in western countries, one now encounters many layers of management that produce an elaborate management pyramid, with a complicated reporting structure and quite often long delays in securing a final decision.

Decision-making in any such hierarchical organization involves passing information, requests and instructions up and down the management pyramid. For obvious reasons, the more important or significant the decision, the higher up in the organization the decision must be made.

It is essential however, that the decision-making process does not get bogged down. Only those decisions that clearly have wide-ranging effect should be made at senior levels.

The flow of information should generally be made on a “need to know” basis.

Often this expression is equated with denial of information to lower echelon workers. More realistically, it has important implications at senior levels.

Senior management will likely be overwhelmed if provided with too many details. The higher up in the organization a manager resides, the less detail from each potential source that a manager can reasonably be expected to process.

This realization reinforces the need to delegate to the lowest appropriate level.

Senior level decisions-makers obviously should not be denied information that they need or request, but routine information should be limited to that which facilities (i.e. is critical to or assists) the decisions that they are called upon to make.

One technique of delegating authority while maintaining overall central control within the organization is termed management by objective.

Under this approach, senior managers set the major objectives that are to be secured by managers at each subordinate level.

The setting of such targets passes from the ultimate decision-making level, through a process of further refined smaller objectives at lower levels of the organization.

At each level, the objectives that are set are capable of being attained with the resources at the command of the subordinate leader who assumes responsibility for them, and the extent of information required to monitor the attainment of those objectives can be properly processed by the superior in charge of that person.

The information that is collected tends to focus on results. Performance is measured by how close the results obtained match with the objectives originally set.

Nevertheless, there can be problems in excessive reliance on such an approach. It is essential, for instance, that all objectives set at each level be consistent with the overall objective of the organization.

As the number of management levels increase, the risk increases and that inconsistency will creep into the target setting process.

Moreover, setting objectives does not in any way indicate how the objectives will be achieved. To at least some extent there is a risk that the manner of attaining the desired target will undermine efforts elsewhere in the organization. Thus, the entire process of delegation may end up counterproductive.

Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

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