MANAGEMENT BY OBJECTIVE

WHAT IS MANAGEMENT BY OBJECTIVE (MBO)

Management by objectives (MBO) is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources. It aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees get strong input to identify their objectives, time lines for completion, etc. MBO includes ongoing tracking and feedback in the process to reach objectives.

It was first outlined by Peter Drucker in 1954 in his book ‘The Practice of Management’. In the 90s, Peter Drucker himself decreased the significance of this organization management method, when he said: “It’s just another tool. It is not the great cure for management inefficiency… Management by Objectives works if you know the objectives, 90% of the time you don’t.”

CORE CONCEPTS OF MBO

According to Drucker managers should “avoid the activity trap”, getting so involved in their day to day activities that they forget their main purpose or objective. Instead of just a few top-managers, all managers should:

• participate in the strategic planning process, in order to improve the implement-ability of the plan, and
• Implement a range of performance systems, designed to help the organization stay on the right track.

MANAGERIAL FOCUS

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. Management by Objectives (MBO) is about setting yourself objectives and then breaking these down into more specific goals or key results.

Main Principle of MBO

• The principle behind Management by Objectives (MBO) is to make sure that everybody within the organization has a clear understanding of the aims, or objectives, of that organization, as well as awareness of their own roles and responsibilities in achieving those aims. The complete MBO system is to get managers and empowered employees acting to implement and achieve their plans, which automatically achieve those of the organization.

WHERE TO USE MBO

• 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 skills and tap their creativity, tacit knowledge and initiative. Management by Objectives (MBO) is also used by chief executives of multinational corporations (MNCs) for their country managers abroad.

INDIVIDUAL RESPONSIBILITY

Management by Objectives (MBO) creates a link between top management’s strategic thinking and the strategy’s implementation lower down. Responsibility for objectives is passed from the organization to its individual members. It is especially important for knowledge-based organizations where all members have to be able to control their own work by feeding back from their results to their objectives.

Management by objectives is achieved through self-control, the tool of effectiveness. Today the worker is a self-manager, whose decisions are of decisive importance for results.

In such an organization, management has to ask each employee three questions:

• What should we hold you accountable for?
• What information do you need?
• What information do you owe the rest of us?

MBO STRATEGY: THREE BASIC PARTS

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.

Performance reviews are conducted periodically to determine how close individuals are to attaining their objectives.

Rewards are given to individuals on the basis of how close they come to reaching their goals.

MBO ADVANTAGES & DISADVANTAGES

Advantages

• MBO programs continually emphasize what should be done in an organization to achieve organizational goals.
• MBO process secures employee commitment to attaining organizational goals.

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.