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Organizational Theory and Practice
Submitted to: Submitted by: Prof. P. Ramakrishna Chadaga -Paminderjit Sunner
-Hima -Jitendra -Vineesh -Sailesh
........................................ 5......................................... Introduction............................................................... 7...............13 References................. 1 Evolving Concepts in MBO................................................................................................................................................................ 6....... 2.................... 9 Benefits and weaknesses of Management by Objectives......... 3........................Contents 1............................................................. 7 How to set objectives?............................. 4...................16 1 ............. 6 The Process of managing by objectives.............................. 1 Nature of objectives........................
low cost transportation for the average person. within the group. when employees themselves have been involved with the goal setting and choosing the course of action to be followed by them. A manager may have to choose between short term and long term performance. MBO aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization. The term "management by objectives" was first popularized by Peter Drucker in his 1954 book 'The Practice of Management' The essence of MBO is participative goal setting. choosing course of actions and decision making. etc. ➢ Nature of Objectives: Objectives state end results and overall objectives need to be supported by sub objectives. and personal interests may have to be subordinated to organizational objectives. Ideally. Organizations have multiple goals that are sometimes incompatible and may lead to conflicts within organization. All of the project manager’s expectations are clearly communicated to each project participant. The next level of hierarchy contains more specific objectives. and even within individuals. which might be to furnish convenient. The phrase “top-down” means that all the directions come from the top. plans and fund processes. and service automobiles. they are more likely to fulfil their responsibilities. employees get strong input to identifying their objectives. time lines for completion. ambiguity opens the door 1 . ranging from the broad aim to specific individual objectives. such as requiring the organization to contribute to the welfare of the people by providing goods and services at a reasonable cost. Project objectives are established by the top management. Then there is the mission or purpose of the business. Thus. to obtain 10 percent return on investment by end of financial year. The stated mission might be to produce. information. Ideally. objectives form a hierarchy as well as a network. Top managers provide guidelines. Hierarchy of Objectives Objectives form a hierarchy. e.g. such as those in key result areas. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. market. Following this approach. The top-down approach remains extremely popular in contemporary project management. MBO includes ongoing tracking and feedback in the process to reach objectives. These are the areas in which performance is essential for the success of the enterprise. The zenith of the hierarchy is the socioeconomic purpose of society.➢ Introduction: Management by Objectives (MBO) is a process of agreeing upon objectives within an organization so that management and employees agree to the objectives and understand what they are in the organization.
which makes it flow significantly faster.for potential failure. The to-do lists of all the team members are collected into the detailed general project plan. and the managers should be as specific as possible when communicating their expectations. that their voices didn't count. They feel involved into the project development and know that their initiatives are appreciated. However. Schedules. and team members now work together more productively. Then team members are encouraged to develop personal todo lists with the steps necessary to reach the milestones on their own. The New York Times is one of the good examples. There was no effective collaboration between the journalists. American Journalism Review (www. Bottom-up project management options The factors mentioned above may play a vital role in a project’s failure. One person’s emotions and opinions influenced all the project decisions. What was the result? Team members felt that they weren't listened to. and this person was the project manager. Issues are made clear by the project manager to avoid as many surprises as possible. and this is the reason why numerous organizations have turned to a bottom-up management style or at least some of its elements. According to many experts.com) reported that The Times’ executive management felt that they were far from what was necessary for creation of a vibrant workplace and a successful organization. Bottom-up project management can also be viewed as a way of coping with the increasing gap between the information necessary to manage knowledge workers and the ability of managers to acquire and apply this information. Similar problems caused by utilizing the top-down approach can be observed in many organizations with a traditional management style.ajr. a leader in the newspaper industry. Individual members of the team get an opportunity to come up with project solutions that are focused more on practical requirements than on abstract notions. Experience shows that this top-down management often results in reduced productivity and causes bottlenecks or so-called lockdowns. A lockdown gives the project manager total control over his team. The advantage of this approach is that it empowers team members to think more creatively. the bottom-up approach is not the perfect solution. Such lockdowns can lead to unnecessary pain and significantly slow down a project’s completion. The best way is to find a balance between the two opposite approaches and take the best practices from both of them as follows: 2 . Process formality is very important for this approach. One of such example is the New York Times. But. It took quite a while to introduce bottom-up management to the organization. it was worth the time and effort. as sometimes it lacks clarity and control. The bottom-up approach implies proactive team input in the project executing process. Several years ago. They were not morally motivated to do their jobs. Examples of the top-down approach applications can be found in many organizations. The managing executives then realized that they needed to give more freedom to the teams and change their management style. The planning process is facilitated by a number of people. e.g. Editors introduced the same management pattern in the projects for which they were responsible. The team members’ motivation to work and make the project a success is doubled. Team members are invited to participate in every step of the management process. The choice of methods and ways to perform their tasks is up to the team. through milestone planning. the bottom-up style alone will not make your projects flourish. Power was centralized and masthead editors experienced overall control. Bottom-up style allows managers to communicate goals and value. as New York Times employees say that collaboration became much more efficient. obviously. despite all its the advantages. The decision on a course of action is taken by the whole team. budgets and results are transparent.
people very often pursue paths that may seem good for their own department but may be detrimental to the company as a whole. If goals are not interconnected and if they do not support one another. In fact. Fitting is a matter not only of having the various programs carried out but also of timing their completion. setting the company`s financial goals is a continuing process in which conflicting priorities must be balanced. Network of Objectives: Both objectives and planning programs form a network of desired results and events. managers too often see the objectives from their own perspective – on the basis of their self interest without understanding the total network of aims. Managers must make sure that the components of the network “fit” one another. Companies often set goals that are unrealistic without recognizing the many constraining factors such as the economic condition or the moves by competitors. since undertaking one program often depends on first completing another. Moreover. The manufacturing department may see that its goals are best served by long production runs. Goals and plans form an interlocking network. It is easy for one department of a company to set goals that may seem entirely appropriate for it. only to find itself operating at cross purposes with another department. but this might interfere with the marketing department`s desire to have all products in the line readily available or with the finance department`s goal of maintaining investment in inventory at a certain low level. Multiplicity of Objectives 1 .
” Early Impetus to MBO No one person can be called as the originator of this approach. consciously directed towards the effective achievement of organizational objectives. The number of objectives depends on how much the managers will do themselves and how much they can assign to subordinates. Emphasis on Performance appraisal In 1957. planning will be ineffective. Goals are not conceived of as dealing with every facet of a person`s job. If they are so many objectives that none receives adequate attention. Peter Drucker in 1954 emphasized that objectives must be set in all areas where performance affects the health of the enterprise. have speeded its development as a systematic process. perhaps two to five. in his article. supervising and controlling. The argument is that too many objectives tend to dilute the drive needed for their accomplishment and may unduly highlight minor objectives to the detriment of major ones. ➢ Evolving concepts in MBO: Some think about MBO as a planning and control device. criticized traditional appraisal programs that focused on personality trait criteria’s for evaluating subordinates. Some people think that a manager cannot pursue more than a few objectives. a major contributor. at every level in the hierarchy of objectives. others see it as a motivational technique and some think of it as a motivational tool. goals are likely to be multiple. they should not be confused with activities. Douglas McGregor. thereby limiting their role to one of assigning. The term MBO was coined by Peter Drucker in 1954 “MBO is a comprehensive managerial system that integrates many key managerial activities in a systematic manner. He laid down the philosophy that emphasizes self-control and self direction. However certain individuals have long placed emphasis on management by objectives and by doing so. Subordinates assume the responsibility of setting short-term objectives for themselves and they review those objectives with their superior.Aims are numerous and even the mission and broad major objectives of an enterprise are normally multiple. 2 . He suggested a new approach to appraisal based on Drucker’s concept of management by objectives. Likewise.
1 . But. This type of appraisal encourages self-development and self-appraisal. it has been used to motivate individuals and most recently in strategic planning. which will result in costly repairs later. in the follow-up study made. Recognizing these short comings. MBO should be considered as a way of managing and not as an addition to the managerial job ➢ The Process of Managing By Objectives: The success of “Managing by Objectives” can be judged by checking how it works in practice. In short. For example: A production manager may neglect necessary expenses to reduce the maintenance costs. Improvement in the attainment of goals and a continuing increase in productivity were noted in the firms. many organizations now include long-range and strategic planning in MBO programs. Those are: a) Design of organizational structures b) Portfolio Management c) Management Development d) Career Development e) Compensation Programs f) Budgeting MBO as a comprehensive system of managing indicates that most key managerial activities can and should be integrated with MBO process. The factors which motivate the employees are: a) Goal Setting b) Incentives c) Participation d) Autonomy Goal setting is not restricted to only business organizations but also it is also applicable to public organizations.Performance is then evaluated against the present objectives. Emphasis on Short-term objectives and motivation Performance is higher when people had specific objectives than when they were simply asked to do their best. the focus tends to be on short-term objectives. Inclusion of Long-Range Planning in the MBO process When the MBO programs emphasis on performance appraisal and motivation. There are still some managerial subsystems which can be integrated into the MBO process. This may result in undesirable managerial behavior. The systems approach to MBO MBO has undergone many changes. the productivity tapered off. primarily by the subordinates themselves. The emphasis is on performance rather on personality.
Clarifying Organizational Roles: It is important to clarify goals and responsibilities. It is not mandatory that the exercise starts at the top. The time period may range from one quarter to five years. Down the hierarchy. The supervisor comes up with a set of preliminary objectives. No manager can be expected to set goals or establish budgets without guidelines.the manager/ supervisor. This helps to build a sense of accountability. As H. The responsible parties must be identified clearly: the person setting the objectives. strategies and planning premises. whereas for the CEO the time frame cold well be one fiscal year. one of the critical needs in the MBO is the development and dissemination of consistent planning premises. department’s goals. These objectives fall in line with the broad aims. direction of the company.The exercise generally starts at the top of the organization. the time periods set tend to become shorter. cost levels etc. Koontz says in his book “As in all other kinds of planning. For example: a trainee may have defined goals to achieve in a three-month time frame. The parameters considered while setting the objectives are: company’s strengths and weaknesses.individual employee. Koontz. profits. This step is essentially a two-way process. the questions the manager must be asking during goal-setting are: 1) What can you contribute? 2) How can we improve our operation to help me improve mine? 2 . percentages. as and when the need is felt by the respective department head. The Chief Executive Officer gives direction to the organization. The supervisor then establishes metrics to evaluate the progress towards goal accomplishment. The discussion then moves on to what is in line with the company’s. the supervisor then proceeds to work with subordinates in setting their objectives. where the objectives defined are broad and cover many aspects. readiness for minor changes on consultations with subordinates. For a junior level executive this could be six months. Many a time. the purpose of the objectives gets lost because of the lack of clarity on who is responsible for what. It can start at division level. Longer time frames are usually assigned at top levels. as the goals pertain to a specific field or aspect. department level etc. the person for whom objectives are set. individual’s skills/ competencies. He then asks for the subordinate’s views on what he thinks to be a feasible target. According to H. The supervisor first presents his preliminary objectives to his subordinates individually. The metrics could be sales dollars. depending upon the objectives.” Setting Preliminary Objectives at the top: The top manager determines the mission/ purpose of the organization for the given time period. Setting Subordinates’ Objectives: After making sure that subordinate managers have been informed of pertinent general objectives. the resources that he might require to improve. responsibility in the employee.
By tying the objectives to the goals themselves. resources to accomplish the said goals. He/she must make sure that his/her subordinates get sufficient time. This revision of objectives can happen only if the process is open to recycling. materials and human resources at the same time. without additional costs and while maintaining the current 1 1 . Recycling Objectives: Top-down approach by itself seldom succeeds in delivering the desired results. involving not more than 40 working hours of preparation time (after the first issue) To increase production output by 5% by December 31. The focus must rather be on long term growth. but in fact could be vice versa. Forcing objectives on an employee might prove detrimental to the employee productivity and most importantly. Table: Examples of non-verifiable and verifiable objectives Non-verifiable objectives To make a reasonable profit To improve communication To improve productivity of the production Verifiable objectives To achieve a return on investment of 12% at the end of the current fiscal year To issue a two-page monthly newsletter beginning July 1. based on employee feedback/ recommendations. . The following table illustrates some objectives and how can they be restated in a way that allows measurement. It might not always result in reduction of the target. For example: a manager might set an employee a sales target of 50 units/ month. However. the final authority of approving the objectives and responsibility for following-up lies squarely with the manager/ supervisor. the superiors can find out the most effective and economical way of allocating the resources. 1994. what obstruction keeps you from a higher level of performance? 4) What changes can I make? 5) How can I help? These questions give an insight into the real growth potential and the hurdles that need to be dealt with. ➢ How to set objectives? Nobody can be expected to perform effectively and efficiently without clear objectives. The key to success is the readiness of the system for minor changes. 1994. The supervisor at this stage must play a supporting role. 3 . morale.3) What stands in the way. whereas the employee himself might be convinced that he can achieve a sales target of 60 units/ month. One of the major advantages of carefully setting up a network of verifiable goals and a requirement for doing so effectively is tying the need of capital. within company guidelines. 2 . Individuals at various levels need resources to fulfil their objectives.
Quantitative and Qualitative Objectives To be measurable. a former special assistant to the President and one of the driving forces in the implementation of MBO in the Federal government. requiring not more than 500 working hours of systems analysis and operating with not more than 10% downtime during the first three months nor 2% thereafter. it is difficult to state results in verifiable terms. Three Types of Objectives Used in MBO 1. pinpointing responsibility for their achievement. To install a computer system quality level To design and conduct a 40-hour in-house program on the “fundamentals of management”. Maintenance Objective “Continue to meet the increased sales goals specified last quarter” Setting objectives in Government The need of managing by objectives in government has been recognized by Frederic V. Then goal accomplishment can be measured. if the objective is “to install a computerized control system (with certain specifications) in the production department by December 31. He stated: “If the executive branch of the government is to be managed effectively. it clearly needs a system for setting priorities. requiring follow-through. 1994. 1994. how do I know if the objective has been accomplished? For example: a return of investment of 12 percent at the end of the current fiscal year can be measured. objectives must be verifiable. Improvement Objective “Increase sport-utility sales by 10%” 2. to be completed by October 1. Personal Development Objective “Attend five days of leadership training” 3.” The MBO program initiated in the federal government in the early 1970s indeed had some success. This means. Moreover. and generating enough feedback that programs can be monitored and evaluated from the top. department To develop better managers 5 . quality can also be specified (in terms of computer downtime). involving not more than 200 working hours of the management development staff and with at least 90% of the 100 managers passing the exam(specified) To install a computerized control system in the production department by December 31. it answers these questions: How much or what? When? At times. but “to install a computer system” is not a verifiable goal.4 . For example: installing a computer system is an important task. one must be able to answer the following question: At the end of the period. with an expenditure of not more than 500 working hours”. Malek. However. 1994. For 1 .
there is a time element to each objective as objectives do change over time. How Do Objectives Align Throughout an Organization? Of course. an objective that seemed almost impossible to achieve.example: the department of health. Thus. Objectives should be verifiable and should state what is to be accomplished and when.e. SMART) objective setting. • Measurable: Self explanatory – you must be able to measure success against the objective. It requires intelligent coaching by the superior and extensive practice by the subordinate. the setting of objectives. and promote personal and professional growth and development. education. As in SMART objective setting. yet it should cover the main features of the job. If possible. Drucker was a proponent of meaningful and relevant (i. List of objectives should not be too long. Guidelines for setting objectives: Setting objectives is indeed a difficult task. we are able to set objectives for any level of an organization which compliment the strategy of the organization (and hence the vision and mission). The alignment of objectives and strategy starts at the executive level of an organization. • Achievable: It must be possible to achieve the objective. Those managers then set objectives for their direct reports who will meet the higher 2 . as in MBO programs. and welfare set an objective for training 35000 welfare recipients and placing them in meaningful jobs. which is often discussed in the same ‘breath’ as business objectives. Furthermore. When we combine this definition with the acronym SMART (and variations thereof). • Relevant: The objective must compliment higher objectives and strategy and be relevant to the person/department for which the objective is being set. SMART means: • Specific: The objective must not be too broad and must be defined. not only is essential for making line managers in business organizations more effective but also is equally important for improving the performance of staff personnel and public administrators. • Time-based: Don’t leave objectives open-ended. indicate priorities. objectives which are SMART are not necessarily good objectives unless they align with the strategy of the organization. the quality desired and the projected cost of achieving the objectives should be indicated. 40000 welfare recipients were trained and placed on payrolls. the strategy is set at a high organizational level and then objectives (which are aligned to the strategy) are set for divisional and senior managers.com as ‘something worked toward or striven for’. Have a specific date as to then the objective must be met. What is a Good Objective? An objective is defined excellently by dictionary. The goal was not only achieved but also exceeded. objectives should present a challenge.
2 . Deadlines. That is. Instead. they need to be realistic given the tasks to be completed. 4. By setting objectives for every level of the organization (which helps to meet the strategy) ensures that the organization is aligned and working towards common goals as follows: Steps in goal setting 1. The purpose of prioritizing is to encourage the employee to take action and expend effort on each goal in proportion to its importance. however. When goals are rated. Specify the target for the employee to hit. Identify the level of performance expected of each employee. not just going through the motions. Establish specific and challenging goals for each key task. individuals can be given credit for trying difficult goals. 2. 7. even if they don’t fully achieve them. Rather. Prioritize goals. 3. Allow the employee to actively participate. goals should be rated for their difficulty and importance. Rate goals for difficulty and importance. When employees participate in goal setting. should not be set arbitrarily. When you give someone more than one goal. Goal setting should not encourage people to choose easy goals. 5. it must be sincere participation. However. Putting deadline on each goal reduces ambiguity. Identify an employee’s key job tasks. Specify the deadlines for each goal. The best source for this information is each employee’s job description. Goal setting begins by defining what it is that you want your employees to accomplish. 6. Build in feedback mechanisms to assess goal progress. employees must perceive that you are truly seeking their input.objectives and so on (this is illustrated in the diagram below). they are more likely to accept the goals. it is important for you to rank the goals in order of importance.
It’s natural for employees to ask “What’s in it for me?” Linking rewards to the achievement of goals will help answer that question. Link rewards to goal attainment. Clarification of Organization: MBO forces managers to clarify organizational roles and structures. positions should be built around the key results expected of the people occupying them. Benefits of Management by Objectives 1. ➢ Benefits and weaknesses of Management by Objective: MBO is one of the most frequently used management approaches nowadays. Feedback should be both self.Feedback lets employees know whether their level of effort is sufficient to attain the goal. It also facilitates in better incentives to control and set the standards for control. The MBO system at Zytec is organization-wide and fully participatory. its effectiveness is questioned sometimes mainly due to faulty implementation or because of its application as a mechanical technique focussed on selected aspects of the managerial process without integrating them into a system. but the company also won the Baldridge Award for quality. But. 1 . In either case.generated. To the extent possible. They evaluate the plan’s feasibility and make suggestions about how to modify or improve it. Each function then uses the broad goals in the plan to set more specific goals for each manager and each team in the organization. This has a long term positive impact on the firm. Managers often forget that to get work done one has to delegate work and MBO helps managers identify these deficiencies. feedback should be frequent and recurring. Not only has organizational costs dropped dramatically. 2. rather merely planning activities or work. This plan is then reviewed by employees from all areas of the company. Zytec’s MBO system has been very effective.and supervisor. 8. An EXAMPLE of MBO: ZYTEC CORPORATION---a leading manufacturer of power supplies for computers and other electronic equipment. Each of Zytec’s managers and workers participate in goal setting. MBO forces managers to think about planning for results. these goals are reviewed with top managers. and performance is reviewed both from an annual and a five-year time horizon. Top managers first establish cross-functional teams to create a five-year plan for the company and to set broad goals for each function. Improvement of managing: Objectives of a business cannot be achieved without planning. MBO also provides for better resource allocation as mangers start thinking about how to accomplish the goals and the personnel and organization they will require to do so.
it is virtually impossible for managers to tune in with them. Danger of inflexibility Managers often hesitate to change objectives. Difficulty in setting goals Truly verifiable goals are difficult to set. Failure to give guidelines to goal setters MBO cannot succeed if those who are expected to set goals are not given needed guidelines. Encouragement of Personnel commitment: MBO helps people to commit themselves to their goals. Development of effective controls: MBO not only helps in more effective planning but also aids in developing effective controls. etc. year in and year out. 5. Other dangers 2 . 6. unreal or inconsistent. Control involves measuring results and taking actions to correct deviations from plans in order to ensure that goals are reached. Individuals are working towards clearly defined purposes. how participants can benefit. setting up of which was partly done by them. Failure to teach the philosophy of MBO Managers who are to put MBO into practice should have good understanding of it. 3. Although goals may cease to be meaningful if they are changed too often and do not represent a well thought out and well planned result. There is clearly a danger of emphasising the short run. Managers must understand what the corporate goals are and how their own actions fit in with them. why is it being implemented. 2. how it is done. although it will probably take more study and work to establish verifiable objectives that are formidable but attainable than to develop many other plans. quarter in and quarter out. it is nonetheless important to change the goals as per the changes in corporate policies. etc. change in environment. which tend to lay out work to be done. They in turn must explain to subordinates what it is. Goal setting may not be much more difficult than any other kind of effective planning. 4. The philosophy is built on concepts of self control and self direction that are aimed at making managers professionals. If corporate goals are vague. 4. Weaknesses of Management by Objectives 1. particularly if they are to have the right degree of stretch or pull. Emphasis on Short run goals In most MBO programs managers set goals for short run rather than long run. This means that superiors will have to ensure that current objectives are designed to serve longer range goals.3. perhaps at the expense of the longer range.
a.wrike.org/wiki/Management_by_objectives 1 .id. Over use of quantitative methods.com http://www.scribd.wikipedia. It’s difficult to arise at a goal oriented planning in a very dynamic and complex environment.12manage. References  Management: a global perspective by Heinz Weihrich.com/methods_smart_management_by_objectives.au/71/management/management-by-objectives-mba-drucker/  http://www. b. Harold Koontz  http://eckstein.html  www.com/projectmanagement/02/07/2008/Top-down-and-Bottom-up-ProjectManagement-Leveraging-the-Advantages-of-the-Two-Approaches  http://en.
http://www. and Change (Fifth Edition) by Gareth R. Jones.htm  Organizational Theory. and Nancy Langton 2 . Robbins. Mary Coulter. Mary Mathew  Fundamentals of Management by Stephen P.us/psw/topics/fire_science/craft/craft/Four_stages/Objectives/Objectives _hierarchy_tutorial. Design.fed.fs.
Over use of quantitative methods. 5. it is nonetheless important to change the goals as per the changes in corporate policies. 6.that superiors will have to ensure that current objectives are designed to serve longer range goals. Other dangers a. Danger of inflexibility Managers often hesitate to change objectives. Although goals may cease to be meaningful if they are changed too often and do not represent a well thought out and well planned result. It¶s difficult to arise at a goal oriented planning in a very dynamic and complex environment. 15 . change in environment. b. etc.
Mary Mathew  Fundamentals of Management by Stephen P.org/wiki/Management_by_objectives http://www. Harold Koontz  http://eckstein. and Change (Fifth Edition) by Gareth R.htm  Organizational Theory.scribd. Mary Coulter.fed.au/71/management/management-by-objectives-mba-drucker/  http://www.12manage.id.com/projectmanagement/02/07/2008/Top-down-and-Bottom-up-ProjectManagement-Leveraging-the-Advantages-of-the-Two-Approaches  http://en.com/methods_smart_management_by_objectives.References  Management: a global perspective by Heinz Weihrich. and Nancy Langton 16 .wrike.html  www. Robbins.us/psw/topics/fire_science/craft/craft/Four_stages/Objectives/Objectives _hierarchy_tutorial. Design.wikipedia. Jones.fs.com http://www.
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