Management by Objectives or Management by results

is a systematic application of goal setting and planning to help individuals and firms to be more
productive. This 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 in order to achieve them. The system began in the 1950s and continues to
contribute to organizational effectiveness. An MBO program typically involves people setting
many objectives for themselves. However, management frequently imposes key organizational
objectives upon people.

1. Establishing organizational goals. Top level managers set organizational goals to begin
the entire MBO process. Quite often these goals are strategic. A group of hospital
administrators, for example, might decide upon the strategic goal of improving health
care to poor people in the community. After these broad goals are established, managers
determine what the organizational units must accomplish to meet goals.
2. Establishing unit objectives. Unit heads then establish objectives for their units. A
cascading of objectives takes place as the process moves down the line. Objectives set at
lower levels of the firm must be designed to meet the general goals established by top
management. Lower-level managers and operatives provide input because a general goal
usually leaves considerable latitude for setting individual objectives to meet that goal.
The head of inpatient admissions might decide that working more closely with the county
welfare department must be accomplished if the health-care goal is to be met.
3. Reviewing group members’ proposals. At this point, group members make proposals
about how they will contribute to unit objectives. For example, the assistant manager of
inpatient admissions might agree to set up a task force to work with the welfare
department. Each team member is also given the opportunity to set objectives in addition
to those that meet the strategic goals.
4. Negotiating or agreeing. Managers and team members confer together at this stage to
either agree on the objectives set by the team members or negotiate further. In the
hospital example, one department head might state that he or she wants to reserve ten
beds on the ward for the exclusive use of indigent people. The supervisor might welcome
the suggestion but point out that only five beds could be spared for such a purpose. They
might settle for setting aside seven beds for the needy poor.

GUIDES TO ESTABLISHING GOALS AND OBJECTIVES

Effective goals and objectives have certain characteristics in common.

 Are clear, concise, and unambiguous. An example of such an objective is “Reduce

damaged boxes of printer paper during April 27 to April 30 of this year”
  Are accurate in terms of the true end state or condition sought. An accurate objective
might state, “The factory will be as neat and organized as the front office after the
cleanup is completed”
 Are achievable by competent workers. Goals and objectives should not be so high or
rigid that the majority of competent team members become frustrated and stressed by
attempting to achieve them.
 Include three difficulty levels: routine, challenging, and innovative. Most objectives
deal with routine aspects of a job, but they should also challenge workers to loftier goals.
 Are achieved through team-member participation. Subordinates should participate
actively in setting objectives.
 Relate to small chunks of accomplishment. Many objectives should concern small,
achievable activities, such as un-cluttering a work area. Accomplishing small objectives
is the building block for achieving larger goals.
 Specify what is going to be accomplished, who is going to accomplish it, when it is
going to be accomplished and how it is going to be accomplished. Answering the
what, who, when and how questions reduce the chance for misinterpretation

The MBO process consists of five steps:

1. Review organizational objectives: The manager gains a clear understanding of

organization's overall objectives.
2. Set worker objectives: The manager and worker meet to agree on worker objectives to be
reached by the end of normal operating period.
3. Monitor progress: At periodic intervals during the normal operating period, the manager
and worker check to see if the objectives are being reached.
4. Evaluating performance: At the end of normal operating period, the worker's
performance is judged by the extent to which the worker reached the objective.
5. Give reward: Rewards given to the worker are based on the extent to which the objectives
were reached.

Features and Advantages

Behind the principle of MBO is for employees to have a clear understanding of the roles and
responsibilities expected of them. Then they can understand how their activities relate to the
achievement of the organization's goal. Also places importance on fulfilling the personal goals of
each employee.
Some of the important features and advantages of MBO are:

1. Motivation – Involving employees in the whole process of goal setting and increasing
employee empowerment. This increases employee job satisfaction and commitment.
2. Better communication and coordination – Frequent reviews and interactions between
superiors and subordinates help to maintain harmonious relationships within the
organization and also to solve problems.
3. Clarity of goals
4. Subordinates tend to have a higher commitment to objectives they set for themselves than
those imposed on them by another person.
5. Managers can ensure that objectives of the subordinates are linked to the organization's
objectives.
6. Common goal for whole organization means it is a directive principle of management.

Domains and Levels

Objectives can be set in all domains of activities (production, marketing, services, sales, R&D,
human resources, finance, information systems etc.).
Some objectives are collective, for a whole department or the whole company, others can be
individualized. Managers must determine the mission and the strategic goals of the enterprise.
The goals set by top-level managers are based on an analysis of what can and should be
accomplished by the organization within a specific period of time. The functions of these
managers can be centralized by appointing a project manager who can monitor and control
activities of the various departments. If this cannot be done or is not desirable, each manager’s
contributions to the organizational goal should be clearly spelled out.

Limitations

There are several limitations to the assumptive base underlying the impact of managing by
objective  including:

1. It over-emphasizes the setting of goals over the working of a plan as a driver of

outcomes.
2. It under-emphasizes the importance of the environment or context in which the goals are
set.
That context includes everything from the availability and quality of resources, to relative buy-
in by leadership and stake-holders. As an example of the influence of management buy-in as a
contextual influencer, in a 1991 comprehensive review of thirty years of research on the impact
of Management by Objectives, Robert Rodgers and John Hunter concluded that companies
whose CEOs demonstrated high commitment to MBO showed, on average, a 56% gain
in productivity. Companies with CEOs who showed low commitment only saw a 6% gain in
productivity.
When this approach is not properly set, agreed and managed by organizations, self-centered
employees might be prone to distort results, falsely representing achievement of targets that were
set in a short-term, narrow fashion. In this case, managing by objectives would be
counterproductive.
The use of MBO must be carefully aligned with the culture of the organization. While MBO is
not as fashionable as it was before, it still has its place in management today. The key difference
is that rather than 'set' objectives from a cascade process, objectives are discussed and agreed
upon. Employees are often involved in this process, which can be advantageous.
A saying around MBO – "What gets measured gets done", ‘Why measure performance?
Different purposes require different measures’ – is perhaps the most famous aphorism of
performance measurement; therefore, to avoid potential problems SMART and SMARTER
objectives need to be agreed upon in the true sense rather than set.
Characteristics of sound objectives
Smart
Measurable
Attainable
Reasonable / Realistic
Time bound