Management by objectives (MBO)

Management by objectives (MBO) is a process of defining objectives within an organization so that management and employees agree to the objectives and understand what they need to do in the organization.

The term "management by objectives" was first popularized by Peter Drucker in his 1954 book 'The Practice of Management'.

The principle behind Management by Objectives (MBO) is for employees to have a clear understanding of the roles and responsibilities expected of them. They can then understand how their activities relate to the achievement of the organization's goal. MBO also places importance on fulfilling the personal goals of each employee.

MBO managers focus on the result, not the activity. They delegate tasks by "negotiating a contract of goals" with their subordinates without dictating a detailed roadmap for implementation.

The MBO style is appropriate for knowledge-based enterprises when your staff is competent. It is appropriate in situations where you wish to build employees' management and self-leadership sills and tap their creativity, tacit knowledge and initiative.

The MBO Strategy :

1. All individuals within an organization are assigned a special set of objectives that they try to reach during a normal operating period. These objectives are mutually set and agreed upon by individuals and their managers.
2. Performance reviews are conducted periodically to determine how close individuals are to attaining their objectives.
3. Rewards are given to individuals on the basis of how close they come to reaching their goals.

The principle behind Management by Objectives (MBO)

Six MBO stages:

1. Define corporate objectives at board level
2. Analyze management tasks and devise formal job specifications which allocate responsibilities and decisions to individual managers
3. Set performance standards
4. Agree and set specific objectives
5. Align individual targets with corporate objectives
6. Establish a management information system to monitor achievements against objectives.

Some of the important features and advantages of MBO are:

• Motivation – Involving employees in the whole process of goal setting and increasing employee empowerment. This increases employee job satisfaction and commitment.
• Better communication and Coordination – Frequent reviews and interactions between superiors and subordinates helps to maintain harmonious relationships within the organization and also to solve many problems.
• Clarity of goals
• Subordinates tend to have a higher commitment to objectives they set for themselves than those imposed on them by another person.
• Managers can ensure that objectives of the subordinates are linked to the organization's objectives.

Objectives can be set in all domains of activities (production, marketing, services, sales, R&D, human resources, finance, information systems etc.).

Disadvantages

•     The development of objectives can be time consuming, leaving both managers and employees less time in which to do their actual work.
•     The elaborate written goals, careful communication of goals, and detailed performance evaluation required in an MBO program increase the volume of paperwork in an organization.