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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 order to achieve them.

The term Management by Objectives" was first popularized by Peter Druker in his book The Practice of Management in 1954.

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Terms - Aim, Goals and Objectives

Usually the long term vision. Sometimes called mission.

Broad statements of intent, direction & purpose.

Statements that describe specific things to Be accomplished to achieve the goals Foundation of Management by Objectives
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Concept of MBO
The KEY to MBO is that it
is a participative process, actively involving of members at every organizational level. When employees themselves are involved with the goal setting and choosing the course of action to be followed by them, they are more likely to fulfil their responsibilities focuses on What to achieve, not How to achieve.

Other Names 'Management by Results' (MBR) 'Goal Management' 'Planning by Objectives' (PBO) 'Results Management' 'Joint Target Setting' 'Work Planning and Review'
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Features of MBO
MBO is a Philosophy Reflects a Proactive way of managing that is, More than a set of techniques Results oriented Emphasizes accomplishments rather than inputs rests on a concept of human action, behaviour, and motivation MBO is an Approach
Approach refers to various tools or techniques used in order to achieve the objectives. So, its a sophisticated tool which works in an integrated way.

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Four Basic Principles of MBO

Unity of management action is more likely to occur when there is pursuit of a common objective. The greater the focus on results on a time scale, the greater likelihood of achieving them. The greater the participation in setting meaningful work with accountable results, the greater the motivation for completing it. Progress can only be measured to evaluate and so there can always be scope for improvement.
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MBO Process
A process consisting of a series of

interdependent and interrelated steps:

Formation of clear, concise statements of objectives The development of realistic action plans for their attainment The systematic monitoring and measuring of performance and achievement, and The taking of corrective actions necessary to achieve the planned results. The employee is rewarded on the basis of goal attainment.
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The SMART Objectives

Is it specific? Does it clearly talk about the thing that all the staff member and the supervisor know exactly what output they are talking about? Is it measurable? Can the output be quantified? Is it appropriate? Does the staff member have the power to accomplish the task? Is it realistic? Based upon experience & data, can the output be achieved in the allotted time with a given amount of resources? Is it time-bound? Is a specific, reasonable amount of time specified to accomplish each objective?
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Progress, Evaluation & Reward

Preliminary evaluation may call for adjusting objectives. Performance evaluations focus on how well employees accomplish their specific unit objectives (not artificial criteria such as appearance, being on time, cooperativeness). Provide the basis for identifying more effective job behaviour The reasons for both success and failure are explored. The employee is rewarded on the basis of goal attainment.
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MBO Process
Starting the MBO Program Establishment of Organizational Goals and Plans Collaborative Goal Setting and Planning Communicting Organizational Goals and Plans
Periodic Review Evaluation

Verifiable Goals and Clear Plans


Counseling and Coaching Resources

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Advantages of the MBO Process

Clarity of goals and Organisational Action Motivation Involving employees in the whole process of goal setting and increasing employee empowerment. This increases employee job satisfaction and commitment. 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. It instils the result oriented attitude in employees

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Advantages of the MBO Process

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. It develops managerial self-control. Its a universal tool for management & includes many subsystems of management including; planning, budgeting, resource allocation, design of organizational structure, performance appraisal. It covers both economic & human aspects of management to gather. Periodic review and evaluation of progress helps to take necessary remedial actions after preliminary evaluation.
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Limitations of MBO
Incomplete Understanding of MBO Philosophy MBO appears to be simple to teach but it is not so easy to put in practice. Difficulty in Setting Objectives Quantitative Bias trying to measure non quantifiable objectives and emphasizing numbers only leads to downgrade important goals that are difficult to state in quantitative terms or end-results. Poor Planning and Lack of Guidelines Inflexibility goal that has been made obsolete by revised corporate objectives, changed premises, or modified policies.
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Limitations of MBO
Increases Pressure and Frustration on the Subordinates It leads to a tug-of-war in which the subordinate tries to set the lowest possible targets and superior the highest Short Term Nature of Goals Strategic goals are displaced by operational goals. Time Consuming Plenty of time is required to carefully set objectives at all levels of the organization. formal, periodic progress and final review sessions also consume time Increases Paperwork circulars, instruction booklets, training manuals, questionnaires, performance data, and reports. Lack of Follow up Timely follow-up is must.
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MBO has achieved considerable acceptance, even though it requires a great deal of time and energy, because it appears to result in improved performance and higher degree of morale. Today, MBO is used not only as a technique of goal setting but also as a total system of planning, motivation, performance appraisal and self-control.
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