Lukas Rieder, Author at Management Control: Blog and Downloads

From Planned Sales to Net Revenue

From gross sales price to net proceeds. Considering all the different types of deductions when planning net revenue per item.

The planned sales should lead to invoiced turnover/sales and to the amount that will be available to the company to cover all costs and to make a profit, the net proceeds.

From Planned Sales to Net Revenue

Increasing division of labor between producers and distributors and the pressure on resellers’ margins mean that new types of sales deductions are being invented which reduce net revenue. The following table provides an overview of the more common types of deductions.

The Management Accounting system should be able to fully represent these types of sales deductions in both planning and actual data. To support decision-making, a distinction must be made between deductions (or surcharges) that directly influence the invoiced revenue and deductions that are granted from the net invoiced sales. Item discounts and invoice discounts can usually be assigned directly to the unit sold. Cash discounts, bonuses, and refunds are only determined after invoicing or even after receipt of payment. As a result, the relevant information is only available after monthly reporting, often long after the end of the year.

To ensure that the company does not “present itself too rich” during the year, we recommend recording the sales deductions at the planned rates (standards) and deducting them from the invoiced sales on a monthly basis. In addition, surcharges and deductions that are not directly item-related should be managed as separate “sales-items”, since, for example, a minimum quantity surcharge is usually calculated per order and therefore cannot be clearly assigned to the individual article. This applies analogously to express surcharges or advertising cost contributions.

In the simulation model for the example company Ringbook Ltd., item-related discounts are granted from the recommended retail price. These discount rates are determined in planning for each combination of assortment affiliation (own products and trading goods) and customer group. In addition, invoice discounts are granted to encourage customers to place larger orders. These are granted in addition to the item discounts per customer group. Since the list prices and discount conditions are determined centrally, the individual salesperson cannot negotiate his own conditions with the customer.

If the billing documents are available, the invoice and item discounts granted are also known. However, this information is not yet known during planning. For this reason, the average discount rates granted in the prior year per product group are applied in the simulation model while planning.

In the example of Ringbook Ltd. no sales deductions based on invoiced sales are planned. Therefore, net sales also correspond to net revenue. The presented planned sales quantities and net sales are used in later posts concerning production planning and profitability analysis.

Plan from Market into Company

Planning sales quantities in several market dimensions is the consequence of multi-dimensional market cultivation. How to get down to the units to be sold next year?

Planning from Market into Company

An organization’s strategy defines with which products or product groups it will produce, and what positions in which markets are to be achieved (see the post “Strategy and functional concepts“). This applies not only to physical products, but also to services.

Operationally, the sales quantity and revenue objectives to be achieved for each planned year are derived from the strategy and defined for each year. Based on these targets, the quantities to be produced or purchased are to be determined for each item to be sold. This planning can take place at various levels of granularity, for example, by assortment, by product group or by individual item number. It is worthwhile to plan at the level of the single item number as this allows production to better adapt its capacities to the expected demand. However, this detailed planning per item often involves a huge amount of work that the sales staff cannot accomplish. In such cases, statistical distributions based on the experience from previous years come into play.

To improve the planning quality “the markets” should be subdivided into finer sections since demand depends on the market structures, the market potential available in them, and on the stage of development of the submarket itself. It is customary to break down the sales markets geographically by country and, within this, by sales region. Sales channels are also becoming increasingly relevant, for example, direct sales, sales through dealers or agents, and online sales. Sales intermediaries like architects, medical doctors, engineers, nutritionists and increasingly influencers on social media more and more also have an influence on the purchasing decision of an end customer. This development is becoming an important impact with consequences for market cultivation as well.

To plan sales quantities and planned gross revenue by item today means to link three dimensions: Strategy, sub-markets, product structures. Shown as an example:

Even in small companies, this multi-dimensionality leads to extensive tables. In the example of Ringbook Ltd., four sales region managers, each responsible for their area, are to determine the planned sales for 42 individual items. This already results in 4 x 42 = 168 entries, which can then be totalized according to product groups and assortments. This does not yet take the market dimension into account. Each of the 50 customers can buy the 42 items, what would result in 2,600 possible planning entries. As the sales staff cannot look after his customers while planning, less sales are the consequence during the planning period. Sales management of Ringbook Ltd. requires that each area manager plan the sales quantity per product group for the year to be planned. This requires seven entries (yellow = input fields). As an initial basis for setting his sales targets, the planner reviews the previous year’s sales (12 last complete months).

By using billing data , the previous year’s shares of the individual items per product group can be calculated. The resulting percentages are multiplied by the planned sales quantity of the product group. The result is the calculated planned sales quantity by item and sales area:

For the sales representatives, this planning is part of fixing their next year’s objectives with their sales manager. The representatives must therefore also have the opportunity to adjust the calculated planned quantities to be sold for each item autonomously. This is because it is possible that a product that was not sold in the area in the previous year will be in demand in the future. New customers may be added, existing customers may give up their business or be taken over by other companies. Therefore, the sales representatives can still change the planned quantities of the single items in their final presentation. The procedure is shown in full detail in the simulation model of the book Management Control with Integrated Planning.

If all sales region plans are combined, the result is the sales quantity plan for the entire company. The top sales manager is responsible for achieving this. The detailed sales plan forms the basis for net revenue planning and for determining the planned production quantities.

Master Plan for Integrated Planning and Control

The Master Plan for Integrated Planning and Control is the IMS

The Integrated Management System (IMS) represents the various elements and subsystems of comprehensive planning and control with their interdependencies. Fredmund Malik developed it based on the St. Gallen Management Model (SGMM). The IMS shows which subsystems and elements are necessary and sufficient for correct and good management. The IMS presentation presented here is slightly adapted to facilitate access to the design of the integrated information system. However, the original content was not changed.

The management topics and the necessary tools are presented in four quadrants.

The Master Plan for Integrated Planning and Control

In quadrant 1, top left, the planning or management levels can be seen, which range from the purpose of the company to annual planning (see “The Main Questions of Each Planning Stage“).
Projects are listed on the demarcation line between company-related and employee-related. This is because real projects usually develop from strategic and medium-term planning. For their realization, the partial results to be achieved in a planned year must be reflected in the personal annual objectives of the assigned project managers and (employees). For space reasons, the box “Projects” is placed in the area above the year. Long- as well as short-range projects should also be included in the personal annual objectives with their milestones (partial results to be achieved).
Organizational structures and processes are derived from the strategic intentions and plans as well as from the functional concepts, which has an impact on operational planning and on the assignment of tasks (functions) and responsibilities. These tasks and responsibilities can be documented with the functional diagram (see glossary).
The realization of strategies and functional concepts requires management capacity. Therefore, both the need for managers and the development of junior managers must be qualified and quantified in the information system (quadrant 3).
Quadrant 4, bottom right, shows how the annual objectives of individuals are translated into results. With management by objectives, personal goals and orders are derived from higher-level objectives or projects. The principles of delegation and self-organization are also included in the implementation path. This results in responsibility for achieving objectives and enabling self-control (see page “Management by Objectives”). Management Control depends on the documentation of objectives in the information system and on the ability to track results achieved according to quantities, qualities, deadlines and results QQDR.
Performance appraisal provides feedback of the results achieved to the person or management function in quadrant 3. Questions regarding the need for technical and managerial competencies must also be addressed there and considered in the multi-year planning. The additional managemers to be recruited and trained are in turn a prerequisite for achieving the strategic and operational objectives defined in quadrant 1.
In quadrant 2, bottom left, the tactical control of the achievement of objectives takes place during the year. For this purpose it is necessary to map all processes and structures of the company in databases. On the one hand, the data must be contained in the information system as planned values so that the plan-calculation can be created. On the other hand, the real events must be mapped in terms of quantity, time and value down to all details that determine results and are relevant to decision-making. At this lowest level (customers, products, individual processes, purchased materials, operating materials and services, and existing plants), the database for integrated planning and control is created. Planning and recording at the lowest level is also indispensable because the data must be able to be evaluated multidimensionally and condensed into higher generic terms.
This information system is usually implemented with the help of an ERP (Enterprise Resource Planning) system. Fully developed ERP systems range from customer acquisition to research and development, from merchandise management and production to wage administration, asset management, internal accounting and bookkeeping. This enables them to cover the requirements of annual planning and tactical control for plan, target and actual.
Finally, controlling is the entire process of defining objectives, planning and control in the financial and performance area (see “Management, Controlling, Controller“). With the help of feedforward (corporate policy and strategy) and feedback (comparison of what was achieved with what was planned), managers try to prepare corrective actions that determine the future, decide on their realization, and subsequently assess the extent to which they have already been successfully implemented. Findings from the controlling process can have an impact at all planning levels. The controlling process is thus placed overlapping both left quadrants.

The personal annual objectives are exactly in the middle of the integrated management system because they describe the results to be achieved by the individual (manager) in the planned year in a measurable or verifiable form. To enable these persons to assess the progress they have made towards achieving their objectives (self-control), the ERP system should provide the database to generate regular plan-to-actual comparisons.

In this blog, the IMS forms the blueprint for the design of the integral management control system.

Strategy and Functional Concepts

Strategy is outward looking. It determines the unique selling propositions of the offering and the market position to be achieved. Functional concepts are concretized in operational medium-term plans. Their implementation is intended to create and provide the internally necessary success potentials for strategy realization.

Michael Porter (On Competition, 2008) notes that a strategy should describe the unique selling propositions and the market positions to be achieved in the respective market areas with the company’s own offers. This means that an independent strategy must be defined for each product/market combination. Following this definition, objectives, projects and measures must be determined which appear suitable for achieving the desired position operationally.

Unfortunately, the term strategy is nowadays used for almost everything that is associated with planning. This fuzziness in the use of the term leads to uncertainties in management and to poor investments. For this reason, we distinguish between strategies and functional concepts in strategic planning:

Strategy:

Definition of the position to be achieved by independent product/market area and description of the success potentials to be built up or expanded in the areas. This requires the creation of Strategic Business Units (SBUs).
For each product/market strategy, the business idea to be pursued, the general conditions to be considered and the responsible persons assessment of the chances of implementation must be specified. As a basis for subsequent implementation planning, the results to be achieved (sales, turnover, deadlines, contribution margins) must be quantified and the most important actions/projects must be fixed.

In addition, the assumptions made in the preparation of the strategic plan, in particular regarding the development of demand and the actions of competitors, must be documented. These can change during the course of strategy implementation, which could lead to a strategy revision.

To be able to check later on whether the original assumptions still apply when comparing the planned to the actual strategy, the assumptions critical to success must be recorded during strategy formulation. We recommend dividing each strategic plan into six parts (see Controller’s Guide, p. 600):

1 Basic idea: Verbal description of the product/market combination to be created and the objectives to be achieved (sales, turnover, contribution margins) as well as the main competitive advantages and customer benefits from the customer’s point of view.
2 General conditions: Description of the factors and conditions in the environments that are important for strategic success but which cannot be changed by the company itself.
3 Assessment: Assessment of the chances of success of the strategic business area, taking into account possible actions of the competitor strategy and possible SBU’s own defense measures. Documentation of the compliance of the strategic plan with the corporate policy guidelines.
4 Objectives: Definition of the qualitative and quantitative benchmarks to be achieved for each year in the strategic horizon (market shares, product range, quality (from the customer’s point of view), incremental contribution margins). Review by means of a dynamic investment calculation (see the menu position “Free Downloads”, Excel template).
5 Action program: List of projects, market cultivation measures, developments in the sales organization and other actions with milestones, responsibilities, decision-making powers and budgets).
6 Critical assumptions: List of assumptions made for market development. If these assumptions are not met, the strategy must be revised or terminated. Other relevant criteria for the continuation decision may be legal changes, political shifts and new competing products or applications.

To enable strategy implementation, success potentials must usually be newly established or expanded within the company. These success potentials are increasingly planned and realized in the functional areas and also across departments. They form the starting point for the definition of functional concepts.

Functional concepts:

Functional concepts are medium-term objectives and plans of the functional areas for the creation of the success potentials necessary for strategic success. They are defined, for example, for procurement, personnel, production, research and development, information technology (IT) or financing. They create the internal prerequisites for the strategies to be implemented.

For this purpose, plans and projects are created for each area with their results to be achieved, milestones, investment budgets and cost plans and documented in the medium-term planning. Cross-departmental coordination is decisive for success because many results can only be achieved through cooperation. Examples include developing junior managers, developing new applications, centralizing master data maintenance and integrated planning and control systems.

Functional concepts are part of operational multi-year planning because the development of success potentials and integrated processes is often very complex and often takes several years to complete.

Mission+Vision+Values

Examples of good documents on corporate policy, demarcation between policy and strategy. Content-related elements of a corporate policy.

Why the Differentiation between Mission, Vision and Values?

“Sheer Driving Pleasure” is the widely known vision of BMW. It has been valid since 1973 and is also applied to models with electric drive (see https://www.bmw.com/en/automotive-life/the-history-of-the-bmw-slogan.html). This vision is part of the corporate policy.
Purpose, visions, values and generally valid rules of conduct are part of the “corporate policy” planning level. Corporate policy should describe who the company is and/or wants to become.
Because corporate policy is used as a collective term for the self-identification of an organization and for the description of its intended future position, terms such as vision, mission, strategy, rules of conduct and governance are often not clearly distinguished from each other and are not separated from strategy and operation. This in turn leads to the fact that the importance of such statements is not sufficiently recognized within the company.
To clearly assign the various sub-contents of a corporate policy, we use the structure from the St. Gallen Management Model (p. 31 ff.):

Vision: Basic statement for which the company wants to be known and what position it wants to achieve in its area of expansion.

Mission statement: Brief description of the overarching values, rules and lines of development. They apply above all to all employees.

Management concepts: These define the key values to be adhered to and the positions to be achieved in future developments. According to the division into natural, social, economic and technological sub-environments, see the article “Management Control Requires Environmental Reference”), a technology/market-related, an economic and a social concept are to be described. These three management concepts should also specify through which social, technological and economic developments the organization will contribute to the protection of the natural environment.

In his book “Levers of Control, p. 33ff., see bibliograpy” Robert Simons states that every organization is purpose-oriented and that a corporate policy is needed to fulfill its purpose. This policy should contain the core values and beliefs as well as the general boundaries (risks to avoid). Vision, mission statement and the three management concepts thus form the top-level documentation for guiding the behavior of managers, for deriving strategies and for operational implementation (fulfilment of purpose).

“Wacker Chemie AG is a technology leader in the chemical industry, produces for all global key industries and is active in the fields of silicones, polymers, life sciences and polysilicon.”
With this definition, the company describes the product areas it stands for and the industries in which it wants to win its customers.
It is worth studying the corporate policy principles of this group, which has sales of around EUR 5 billion. Their Codes of Conduct can be downloaded as a PDF file from there: https://www.wacker.com/cms/de-de/about-wacker/wacker-at-a-glance/corporate-strategy-and-policy-guidelines/ethical-principles.html .

In our opinion, strategies are not part of corporate policy. They define with which products or services in which markets which positions can be achieved. A company can operate in different markets with different products or services, which means that different strategies can be pursued in different markets. To structure this requires the definition of strategic business units (SBU). Each SBU can pursue an independent strategy but must adhere to the corporate policy guidelines.

Environmental Changes are Crucial

Presumed developments in the sub-environments are to be well structured for holistic planning and control.

Presumed Environmental Changes are Crucial for Management Control

Every organization is constantly exchanging with its environment. “Out there” are the customers, potential employees, suppliers, financers, the state and other public institutions with their specifications and laws, as well as the social groups with their changing perceptions. All this is embedded in the natural environment.

How can environmental factors be structured in such a way that management can relate them directly to its strategic and operational decisions? We use structuring in partial environments (taken from Hans Ulrich, p. 31). Four sub-environments are distinguished:

Natural environment:

This includes everything that happens on earth, including that which is caused by extraterrestrial influences. Although humans can disturb the development of the natural environment, they cannot directly influence it for the good.

Social environment:

Everything that is shaped by behavior, rules and interaction between people. This also includes developments and specifications of governmental and international organizations, changes in interpersonal rules of conduct, changes in mentality and changes in social interaction.

Technological environment:

Changes in sales and procurement markets, new technologies and application areas, and changes in potential competitors.

Economic environment:

Whoever provides financial resources to build or operate organizations wants to be compensated for sacrifycing other investments or consumption. He considers whether his use of funds will be remunerated in line with market conditions. To do this, he weighs the security of the cash or value return against the interest that can be realized with other investments. This in turn depends on the possible compensation of alternative investments and the risk to be taken.

Example topics in the sub-environments

When establishing or expanding a business, opportunities and risks must be identified and weighed up. For this purpose, they must be documented and assessed.

The management control system is the appropriate place to record this documentation and the resulting findings for the management bodies. The four environmental dimensions help to structure, sort and weight the planning statements. They also help to consider all environmental variables when defining the development lines. Examples include:

- What influencing factors from the natural environment could make it necessary to adapt our business model? Which elements could make success impossible or, on the contrary spur it on?
- To what extent do other structures of living together (e.g., patchwork families, work-life balance, less full-time employment) affect our applied management processes as well as the availability of our employees? Will the increasing density of legal regulations generate higher personnel requirements or even make the profitable continuation of our current business impossible?
- Are new application technologies, raw materials and manufacturing processes emerging that will open up new sales opportunities for our products and services? Are there any recognizable saturation or substitution tendencies in the market that could render our existing offerings obsolete? Do new technological standards, e.g., operating systems of computers, require an adaptation of our own products and services?
- Are there any developments to be suspected in the customer acquisition process that could jeopardize our sales success to date or are sales intermediaries conceivable who could help to make our products and services better known? Can the concentration of suppliers in saturated markets endanger our existence? Are our competitors theoretically able to produce their products more cost-effectively than we are?
- What profitability is to be achieved so that existing equity and debt capital providers continue to invest in our business and – if necessary – new investors can be attracted? What is the degree of self-financing needed to be able to make independent decisions even in periods of low profit and to prevent loan terminations?

In the establishment of corporate policy and strategies a link to environmental developments must be created. In our experience, it is helpful to structure the decisions to be made according to the four sub-environments mentioned.
For a more in-depth consideration of the corporate environments, see section 1.1 in the book “Management Control System” (https://management-control.eu/store).

Management Control System Definition

A Management Control System is developed for all managers, irrespective of their hierarchical position. Its purpose is to support decision making and comparison of actuals to plan.

Management Control System Definition

A management control system helps all managers to plan and control in an integrated way. This improves company-wide coordination and the achievement of objectives.
It comprises the following subsystems:

Management Accounting + Piloting + Early Warning

Early Warning:
Early warning is intended to recognize and structure opportunities and threats in the various corporate environments and, as far as possible, make them measurable. In particular, it is necessary to find out which company-related early warning indicators from the environments can describe significant developments that provide relevant input for strategic and operational planning (opportunities and risks for the future of the company).

Pilot control:
To seize opportunities requires the planning company to build up and maintain the necessary success potentials. Strengths can arise from special skills and abilities of the personnel, large management capacity, suitable knowledge for market cultivation, new products and services, advantages through comprehensive process integration or particularly suitable manufacturing facilities. Weaknesses can possibly prevent the translation of opportunities into operational success.

Internal strengths can usually only be built up (or possibly purchased) over a period of several years. For the preparation of operational plans and budgets, parameters are to be found that can measure desired developments in a forward-looking way. Here are some examples: Development of management capacity (number of potential managers in relation to existing ones), development of adherence to deadlines in projects and in delivery readiness, progress in new customer acquisition per time unit.

Insofar as weaknesses in an organization are the result of factual or technical knowledge and application gaps, they can often be mitigated by training and further education or by hiring suitable people. Weaknesses that are rooted in the individual person can hardly be eliminated, especially when employees produce very good results as long as they can work on their own but do not feel comfortable in teams.

In contrast to early warning data, parameters for assessing the development of success potentials (development and expansion of future strengths and reduction of existing weaknesses) are mainly obtained from internal company data. Because the data used for this purpose serves as the basis for medium-term planning, it must be available before the actual operational planning. They are the internal input for planning decisions. This is why we call them piloting factors.

Accounting for management:

In the operational area (medium-term and annual planning as well as tactics (disposition)), plans are more finely detailed and the associated objectives are defined and hopefully also implemented. Accounting for Management is intended to enable managers at all hierarchical levels to translate their plans into objectives for the actual activities and to prepare the target to actual comparisons.

Target to actual comparison is intended to find starting points that will lead to the definitive achievement of objectives in the coming periods (e.g., months). It is created in monetary values so that different consumptions and services can be compared with each other.

This requires a consistently management-oriented cost, performance, revenue and contribution accounting up to Earnings Before Interest and Taxes (EBIT). It must be able to map plan, target, actual and forecast. The data foundation comes from the tactical systems (Enterprise Resource Planning Systems (ERP)) and from ledger accounting.

AMPLE for Sustainable Success

5 Top-Controls are the uppermost deciding parameters of sustainably successful organizations

AMPLE for Sustainable Success

There are five elements, or “top controls”, that constitute the uppermost deciding parameters of any successful organization. Sustainably successful companies organize themselves and thus also their management tasks according to these, which we call AMPLE for short, as described below.

Attractiveness for employees

Every organization must be able to find and retain employees who have the skills, abilities and knowledge to invent, develop and manufacture products and services in a customer-focused manner and to operate the necessary internal processes in line with the needs of the customers and the own organization.

Therefore, conditions must be created in the organization that appear more attractive from the point of view of existing and potential employees than those of other potential employers. Good pay is an important factor. However, surveys repeatedly show that professional and position-related development opportunities, further education opportunities, employee promotion and, above all, the purpose of the work and the way of working together are decisive.

Market position

A company’s market position improves when its own products and services generate more benefits in the eyes of existing and potential customers than the offers of other providers. Net sales price is only one factor. Rather, market position depends on whether in customers’ purchase decisions the company’s offer-benefits are ranked higher than those of other suppliers.

Profitability

The net proceeds generated must cover the costs of the entire current operation, enable the preservation of the existing substance, and achieve a return in line with the market for all investors. In addition, money for the development of future success potentials must also be earned.

Without generating these funds, a company cannot invest enough in its market position and in evolution. It will not be viable in the medium term. In order to do this it is also necessary to improve internal input/output ratios, i.e., to increase productivity everywhere and continuously.

Liquidity

If a company does not have enough available funds (cash balances or open credit limits), it can neither pay wages nor invoices due on time. This is usually the end, as only a few can avert bankruptcy. Solvency at all times must therefore be planned and controlled in both the short and the long term.

Evolution

Every company must permanently develop further and improve. Other suppliers offer existing products and services cheaper, products or services become too expensive to produce, or are no longer in demand.

Internal, especially administrative processes, must be adapted to new requirements and handled more efficiently. This requires constant innovation and improvement. Evolution is indispensable. Many formerly world-famous companies have disappeared because they did not promote their evolution with enough vigor.

A five-pointed star is chosen for the AMPLE representation to indicate that the relationships between the five elements must be brought into a fluid equilibrium if an organization is to be sustainably successful. The difficulty in this endeavor is that the interactions between the five elements can be both supporting and contradictory.

For example, if a company tries to improve its market position by granting discounts or reductions, capacity utilization in the factory increases, but due to lower net revenues per unit, contribution margins decrease and, as a result, cash flow and profit decrease. Due to the high capacity utilization, new investments in plants become necessary, but due to the lower cash flow the money for this is only available to a limited extent. Lower cash flow also means that less can be invested in evolution and that less money is available to improve the attractiveness of jobs. AMPLE will fall out of the flow equilibrium and, if countermeasures are not taken in time, insolvency will occur in the medium term.

Further explanations of our AMPLE can be found in section 1.1. of the book Management Control with integrated Planning, chapters 1.1 and 2.

Objectives and Key Results OKR

OKR and MBO are central instruments for achieving management success.

Ideas are simple, implementation is everything! This is the mantra of John Doerr, the consultant of Google and other successful companies who introduced the OKR system and sees it as the basis for sensational success in development and results (see: J. Doerr, OKR Objectives & Key Results, 2017).

Ideas are simple, implementation is everything! OKR

In his book, Doerr uses numerous real examples from global corporations as well as small companies to demonstrate that consistent goal orientation is an indispensable key to sustainable success.
The concept of leading with goals is not new. Peter Drucker already laid the foundation for this approach in his publication “The Practice of Management” as early as 1954. George Odiorne described the theoretical concept of Management by Objectives (MBO) and concretized the practical implementation in “The Human Side of Management (1987)”. It seems important to us that Odiorne recognized that the successful application of the MBO system only occurs when objectives are not set by a superior but are transformed into a cross-hierarchical agreement on objectives. Doerr came to the same conclusions (OKR Objectives and Key Results, p. 10).

According to Doerr, an objective determines the “what?”. Objectives should be aggressive and yet realistic, tangible and unmistakable. Their achievement should represent a clear added value for the organization (cf. ibid., p. 226). The SMART formula attributed to P. Drucker (specific, measurable, actively influenceable, realistic and terminated) means almost the same in terms of content.
Key Results express milestones with the associated results. The latter must be measurable, be it with key figures or with documented results (OKR, p. 226).

Management by agreeing on objectives has been an integral part of our management control systematics for years. We are therefore very pleased that Doerr, with his examples from the practice of successful companies, brings two elements to the fore: The objectives must be agreed upon so that the results to be achieved by the individual actors fit in with the overall objectives of the organization and each objective must be defined in a measurable or at least verifiable form. Every manager will confirm from his experience that finding objectives is relatively easy, but realizing them is very exhausting.
In our opinion, objectives, their metrics and the results achieved should be documented in the management control system. Google even goes so far as to allow every employee to see all objectives, including those of his colleagues, bosses and even the executives.
Management by agreeing on objectives is completely interwoven with the management cycle in the integrated management system, since the latter also serves to determine the results and to look for corrective measures if a goal has not been fully achieved. In the various planning or management levels (corporate policy, strategy, operational management) it is also necessary to agree on objectives, to provide the necessary resources and, in accordance with the management cycle, to analyze whether the intentions have become results.
These interrelationships are consequently also determinants for the design of the management control system.

No Objectives / no Success

Objectives are results or states to be realized. Therefore they must be formulated in a measurable or at least verifiable way.

No Objectives / no Success

An athlete wants to finish the next competition as one of the three best. If he reaches rank 3 or better, he is successful. An efficiency target of 3% is agreed in a production. It is achieved when the production costs per unit are at least 3% lower than in the previous year.

It is necessary to define the results to be achieved as objectives in order to be able to judge whether a target has been achieved at all. Objectives are results or states to be realized. Therefore they must be formulated in a measurable or at least verifiable way.

Target contents and target levels must be agreed. On the one hand, an objective should be a challenge for the person taking over and, on the other hand it should be achievable with effort. Target setting “from above” causes a defensive attitude in the person whose goal is being set and is hardly accepted.

Objectives should primarily be formulated for a planned year. This makes them easier to coordinate with the annual planning and it can be monitored during the course of the year to see how far the achievement of objectives has already progressed. Corporate policy, strategic and medium-term objectives form the basis for agreeing on annual objectives. The latter are also to be formulated as conditions or results to be achieved.