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Proceedings of ASBBS Volume 15 Number 1

MANAGEMENT BY OBJECTIVES,
AN EFFECTIVE TOOL FOR ORGANIZATIONAL
PERFORMANCE: A CASE STUDY OF PAKISTANI
INDUSTRIES
By

Qureshi, M. Tahir
Assistant Professor, Faculty of Management Sciences,
International Islamic University, Islamabad Pakistan
tahirmasood2002@hotmail.com

Khan, A. Shafkat
International Islamic University, Islamabad Pakistan
shafkatalikhan@yahoo.co.uk

Khan, B. Mohammad
Senior Consultant/Professor,
International Islamic University, Islamabad Pakistan
drbashir@hotmail.com

ABSTRACT:
This paper is analyzing the new revolutionary aspect of ‘Management by
Objectives’ (MBO) in different Pakistani companies. In principle, the
implementation of MBO Practices improves employee skills, motivation, and
behavior and in turn, creates comparative advantage for the organizations.
This research study effectively contributes to the growing literature on the
influence of MBO practices on organizational productivity and employee
performance.
The aim is to identify the relationship between effective management by objective
practices, organizational productivity and employee performance of the
organizations. As a sample, 36 organizations listed with Islamabad Stock
Exchange were approached. The MBO practices, Coaching and mentoring,
Performance Based Reward, Employee participation and Job Description were
selected for analysis. Study concluded that all these practices are positively
contributing towards organizational and employee performance but employee
participation (β = 0.43) and Coaching & Mentoring (β = 0.40) are major
contributors.
Hence, this research paper provides practical confirmations to support
theoretical models that link MBO practices with organizational and employee
Productivity.

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KEY WORDS: -
‘Management by objective’ practices, Motivation, Comparative advantage for the organization,
Organizational productivity, Employee performance, Performance based reward, Employee
participation, Job description and coaching and mentoring, Group goal commitment, Task
interdependence, Group processes, Group effectiveness, Self-regulatory teamwork, Job rotation, Job
satisfaction, Team competencies.

1. INTRODUCTION
In the early stages of industrialization management, MBO was used primarily at higher management
levels. Today, it has to be adopted on the shop floor as well. This implies that one should be able to define
objectives at the group level and minimum base should be settled down to measure the performance of
employees. Growth of international competition has lead to an increase in customer’s expectations
regarding quality. To be competitive today, an organization is required to implement a continuous and
effective MBO system. This can be viewed as a goal-setting technique for management.
MBO is also a mechanism for appraising performance. In fact, it is often used for assessing managers and
professional employee. With applying different MBO practices such as coaching and mentoring,
performance based reward; employee participation, and job description, employees are evaluated based
on how they accomplish specific goals set up by the manager. This research calculates the influence of
these MBO practices in Pakistan’s corporate sector. Majority of the MBO type organizations evaluated
here, were affected dramatically in the form of better employee performance as well as organization
productivity. So MBO, performance planning program will clarify job responsibilities, provide clear
performance goals and reduce ambiguity through feed back.
MBO offers a practical support at team level and leads employee performance as well as organizational
productivity. Group productivity and job satisfaction also improved by commitment of group member
towards their goals. The encouragement by participation of Group in organization planning affects on job
satisfaction of each group member. According to Antoni, C. (2005) MBO is an effective tool for leading
self-regulating teams.
Proper coaching and mentoring promotes better organizational productivity. It enables teams to solve
prospective group inconsistency. MBO serves well as a means to attain control, especially if a systematic
and proper coaching program for teams is adopted. In practice, however, the use of this type of control in
organizations also requires support by a separate operation within the organization. Managers should
select best performing and most energetic employees who utilized all their capacity, with the hope of
attaining the performance based reward. Overlooking the use of MBO in practice in developed societies
for better performance; it has been selected for the study here in developing economies.
Recent research indicated an extensive use of MBO type of management. Employee performance and
organization productivity flourished in superb manner due to utilization of MBO rather than tradition
Management practices. Still various reasons tend to view the operationalization part of MBO as more
complicated, and less attractive to follow. From an efficiency stand-point, an organization that gives
power to employees and assigns goal to them deems them capable of business-oriented significant
thinking. It is ideal while from an effectiveness point of view, control and unquestioned execution is more
sufficient.
A more positive view of MBO practices supported by the mutual research method would be more
reasonable when looking for scrutinize practical problems in organization. Studying practices in industry
is a better approach instead of theory or literature driven research. Conducting mutually exclusive
research is thus a means for communicating on a more equal balance with practicing managers.
Hopefully, this research approach will be further developed in the future. There is more to MBO than the
scanty objectives. (Dahlsten F., Styhre A. and Williander M. June 2005).

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2. LITERATURE REVIEW
Antoni, C. (2005), study supports MBO at individual and organizational level. He gives stress on group
member’s commitment to their goals; so that job productivity and satisfaction of employee and
organizational teams can be improved. Group effort and group planning seem partially to mediate this
effect on job satisfaction. These results show that MBO can be an effective tool for leading self-regulating
teams. In order of competency of teams, the basic factor is that teams must be able to influence the degree
of goal achievement. This influence is just achieved by team characteristics, such as team competencies
and decision opportunity, but requires resources of the technical system and external influences .e.g.
market development. In light of the above critical reasons, team competencies have to be developed in
such a way so that they meet the assigned tasks and goal requirements. ‘Coaching and mentoring for
team’ plays a crucial role in this respect and team coaches should be trained in this aspect. In goal-setting
differences between teams (which is external factors having influence on goal attainment), have to be
considered carefully. Otherwise team members might attribute goal attainment to external factors and no
longer strive for these goals. This highlights the boundary management tasks of team leaders and
supervisors and the necessity to discuss these factors with the teams in the goal-setting process. If these
aspects are handled carefully, the reported positive impacts of MBO can occur and be preserved in the
long run.
MBO, as proposed by Drucker (1954) in the management literature in a very simple manner. MBO has
come up to induce managers so that they incorporate their efforts in order setting goals for the group of
employees within organization. These objectives should be split at each management level; to ensure that
attaining goals at each level will help to reach the objectives gradually at the next-higher level and finally
appear as company goals (Carroll and Tosi, 1973).
Recent research proposed that the settlement of higher specific group goals eventually caused better group
outcomes (O’Leary-Kelly et al., 1994). Practical demonstration for this phenomenon, group’s
commitment towards their goals at individual and group level is necessary. Setting the goal that a person
or group supposes for themselves cannot have subsequent action if they are not really trying for attaining
these goals (Locke and Latham, 1990: 124). DeShon and Landis refers Goal commitment as the degree by
which an individual or a group ‘deems the goal to be significant, is determined to reach it by growing
effort over time, and is reluctant to discard or lower the goal when face up with delay or negative
feedback’ (DeShon and Landis, 1997). Goal commitment can be distinct by determination of each group
member to reach a desired goal (Klein et al., 1999).
Determination and effects of goal commitment is such a crucial variable for individual and group goal
setting that these are still confusing (Tubbs, 1993). Extensive research concludes only direct and no
reasonable effects of goal commitment (Donovan and Radosevich, 1998; Erez and Zidon, 1984;
Hollenbeck and Klein, 1987).
Group goals and group commitment effect on group process is made up by task interdependence which
can be proved right now. Task is defined as the degree to which group members must actually work
together to perform the task and influence each other’s performance (Campion et al., 1993). Moreover
task interdependence, Weldon and Weingart (1993) supposes that task complexity is another variable
moderating the effects of group goals on group processes by influencing the effectiveness of special
action strategies. Group planning is not important for simple tasks which are easy to evaluate, but many
choices exist for complex tasks, which are difficult to compare in their effectiveness. Arbitrate processes
are assumed to explain how goal setting leads to higher performance. At the individual level, it has been
shown that goals influence the direction and determination of individual behavior (Locke and Latham,
1990). At other hand at group level, higher group goals lead to superior group effort, commitment
towards group goals, influence the kind of planning, co-operation and communication in the group
(Weldon and Weingart, 1993).
Antoni (2005) used goal-setting theory to develop a model of MBO at team level. The model views group
goals and goal commitment as influencing group effectiveness in terms of organization productivity,

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better employee performance and employee satisfaction through the group processes of joint planning and
group effort. The key findings and conclusions of this research are that:
1. MBO systems can improve group effectiveness with respect to organizational productivity,
employee performance and job satisfaction and can be an effective tool for coaching and
mentoring employees in self-regulating teams. However, its usage depends on contextual factors,
with an addition of teams influence in the way of goal achievement. This is completely dependent
on team characteristics such as team competencies and decision freedom, as well as on external
influences such as market development.
2. Prediction of group productivity is the key of group goals whereas determining the commitment
towards goal is another valuable key towards explaining better employee performance as well as
job satisfaction. The secret of organizational productivity and employee performance and
satisfaction is hidden in commitment of group members towards their goals.
3. Effort and planning which are key group processes can influence levels of job satisfaction but not
productivity.
The points above denote the usage of MBO type of management results in organizational productivity as
well as employee performance. The companies that have implemented MBO style of management
achieve high level of group productivity and job satisfaction of team members.

3. RESEARCH METHODOLOGY:
Identification of high productivity generating factors with better performance is a difficult task but
many organizations from the corporate world are claiming that ‘our employees are our most valuable
resource’. This expression has been repeated so often that it is now a golden favorite. Despite this,
various organizations still ignore importance of MBO within the organizations. This assumption
needs to be carefully tested. This Research Study addresses this assumption directly and therefore the
focus of the research remained spinning around whether MBO practices make a difference in the
company productivity and employee Performance or not. If so, which practices appear to be crucial.
Following are the major objectives of this research study:

• To examine and realize the scope of the association between Management by objectives
practices and organizational productivity of Pakistani Corporate Sector.
• To scrutinize and recognize the degree of association between Management by objectives
practices and Employees Performance within organizations.

3.1 SAMPLING TECHNIQUE


In this research study, “Convenience Sampling” (a form of non-probability sampling) technique has
been used. This technique is used to formulate research process faster by obtaining a large number of
completed questionnaires speedily and economically. Only listed companies having minimum three
years of corporate life were selected for the study. The platform which helped us to select the sectors
and the organizations is the website of Islamabad Stock Exchange containing all necessary
information of the listed companies. The postal addresses of the registered offices of these listed
organizations were collected and later on questionnaires were distributed to them.
Management science research studies have used surveys as methods of data collection many times in
history. We followed the same approach because secondary data in this field is not available in
Pakistan. Due to the scarcity of time and limited budget, we used one-to-one interviewing survey for
data collection. Through this method we collected 36 responses from the listed organizations,
Organizations operating in the twin cities (Rawalpindi and Islamabad) were personally visited and
the questionnaires were distributed to the HR Managers/Executives of the organizations. For making
responses quicker and eliminating excessive traveling, telephonic interviewing and e-mail method

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was used. This method was somewhat more productive and through this method, we collected 24
responses.
Descriptive surveys are sketched for providing a picture of the contemporary matters and relational
surveys are developed for experimental analysis. This research attempt is relational for exploring
association between organizational Productivity and MBO practices. For the survey, likert scale
questionnaire was developed consisted on 5 for strongly agree 4 for agree, 3 for indifferent, 2 for
disagree and 1 for strongly disagree.

3.2 RESPONSE RATE:


For concrete research work, information regarding MBO practices and Organizational Productivity
was collected from the Human Resource Management professionals of the targeted organizations.
The HRM professionals were requested to reply all the questions to the best of their knowledge with
orientation to the MBO practices implemented in their organizations and also about the employee’s
performance of their organizations. There was an open option that any person from the HRM
department at the managerial level and employees which are being given objectives by their
managers can fill out the questionnaire.
Table (3.1) is showing industries’ response rate of 36 organizations. After data collection, we coded
it in Excel 2003 and SASS 10.0. For calculating results, Regression analysis and Correlation are
used.

Table No 3.1 (Industry Response Rate)

No. Industry Sample % No. Industry Sample


%
1 BANKING SECTOR 1 2 OIL & GASS 3
3 SOFTWARE ENGINEERING 10 4 PHARMACEUTICAL SECTOR 1
5 MANUFACTURING 3 6 TELECOMMUNICATION 17
7 OTHERS 1

N =36

3.3 DESCRIPTION OF THE INSTRUMENTS:


Questionnaires included the age of the organization, the number of employees as a control variable
and MBO practices as the independent variable. Perceived organizational Productivity and
employee’s performance of the organization are selected as dependent variables. Statistical tools used
were multiple regression, correlation and descriptive statistics for finding the impact of MBO
practices on organizational performance were used.
8 variables are considered for analysis. Out of these, 4 are independent variables, 2 are control
variables and 2 are dependent variables.

3.4 RESEARCH MODEL


The research model is developed on the basis of previous research studies; following variables (Coaching
and mentoring, Performance Based Reward, employee participation and Job Description) are included.
For the analysis following four equations were tested.

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Equation no. 01 Y1 = α +β1 (x1) +β2 (x2) + β3 (x3) +β4 (x4) + ε

OP = α + β1 (C&M) + β2(PBR) + β3 (EP) + β4(JD) + ε

Equation no. 02 ‘With addition of control variables’

Y1 = α +β1 (x1) +β2 (x2) + β3 (x3) +β4 (x4) +β5 (x5) +β6 (x6) + ε

OP = α +β1 (C&M) + β2(PBR) + β3 (EP) + β4(JD) + β5 (NE) +β6 (LO) + ε

Equation no. 03 Y2 = α +β1 (x1) +β2 (x2) + β3 (x3) +β4 (x4) + ε

EP = α + β1 (C&M) + β2(PBR) + β3 (EP) + β4(JD) + ε

Equation no. 04 ‘With addition of control variables’

Y2 = α +β1 (x1) +β2 (x2) + β3 (x3) +β4 (x4) +β5 (x5) +β6 (x6) + ε

EP = α +β1 (C&M) + β2(PBR) + β3 (EP) + β4(JD) + β5 (NE) +β6 (LO) + ε


Where as:
1. X1 = C&M =Coaching and Mentoring
2. X2 = PBR= Performance Based reward
3. X3 = EP = Employees Participation
4. X4 = JD = Job Description
5. X5 = NE = Number of Employees (Log is taken)
6. X6 = LO = Life of Organization in years
7. Y1 = OP = Organizational Productivity (equation 1,2)
8. Y2 = EP = Employees Performance (equation 3,4)

Figure- 3 (Research Model)


Org.
Performance

1 +

MBO 2
Perf. Based reward +
Org.
Effects

Practices Performance

3 Emp. Participation +

4 + Employee
Job Description
Performance

3.5 HYPOTHESIS
On the basis of an extensive literature review, one main and four supplementary hypotheses are
developed for this research study.

H1: There is a positive/significant relationship between the effective MBO practices and
Organizational Productivity and Employees Performance.

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H1-a: Coaching and mentoring positively affects organizational Productivity and


Employees performance.

H1-b: Performance based reward positively affects organizational Productivity and


Employees performance.

H1-c: Employees Participation positively affects organizational Productivity and


Employees performance.

H1-d: Job Description positively affects organizational Productivity and Employees


performance.

4. RESEARCH FINDINGS:
While Table 4.1 is showing correlations for all the variables, Table 4.2 is indicating the descriptive
statistics indicating mean, standard deviation, variance mode, range, minimum, maximum values and
count. There is a high correlation amongst the dependent variables. Organizational productivity and
employee performance, correlation is (0.46). Mean of the Organizational productivity is highest
(3.83), whereas standard deviation is lowest (0.65). Where as Mean of the employee performance is
(3.67), and standard deviation is (0.89). It indicates a highly strong relationship of dependent
variables. There is also high correlation amongst dependent variables and independent variables.
Coaching and mentoring has correlation of (0.48) with Organizational Productivity and (0.24) with
employee performance. Performance based rewards have (0.40) and (0.33) correlation with
Organizational productivity and employee performance respectively. These correlations indicate that
whenever proper coaching and mentoring is provided to the employee and the performance based
reward is on merit, both organizational productivity and employee performance will be automatically
increased. Correlation between independent variables is showing high relationship with each other, in
particular with employee participation and Coaching & mentoring e.g. (0.55), this correlation is
indicating that a mentoring system caused better employee participation. (0.60), the correlation
between Job description and Coaching & mentoring system is showing mentoring effect. Between
performance based reward and job description, correlation is highest (0.59), which indicate that
whenever a highly scientific and rigorous performance based reward is delivered to employees, they
act on job description in a proper manner therefore their performance increased significantly. (0.59),
the correlation between Employee Participation and Job description indicates that employee’s
increased participation in MBO Practices automatically describes his/her Job area and goal.
In a nutshell, coefficient of correlation between ‘Organizational Productivity’ and ‘Employees
performance’ is (0.46), the results show that the usage of transparent coaching and mentoring,
performance based reward, employee participation and job description lead to higher organizational
productivity and employee performance.

Table (4.1) Correlations of Variables


Emp Org. # of
O.P C&M P.B.R E.P J.D
Perf Life Emp.
ORGANIZATIONAL
1
PRODUCTIVITY
EMPLOYEE'S PERFORMANCE 0.46 1

Coaching and Mentoring 0.48 0.24 1

Performance Based Reward 0.40 0.33 0.47 1

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Employees Participation 0.04 0.06 0.55 0.47 1

Job Description 0.37 0.26 0.60 0.57 0.59 1

Organization's Life in Years -0.10 -0.06 -0.31 -0.24 -0.19 0.08 1

No of employees -0.01 0.04 -0.15 0.24 -0.11 0.12 0.54 1

The significant association between Job description, Organizational Productivity and the employee’s
performance of organization (0.46) reflects the psyche of the Pakistani organizations i.e. the
performance of the employees is measured on the basis of quantifiable results. The Coaching and
mentoring system in these organizations can be growth and development-oriented if the employees of
the organizations are provided performance based feedback. Counseling employees will increase
their faith on the Job description and the employee participation will have a strong influence on the
individual as well as team behavior.
The mean of the Employees participation/empowerment within the organization is (3.59) and the
Standard Deviation is (0.76) which is comparatively higher than the Job description. The impact of
Coaching and mentoring on the employee’s performance of the organizations is showing a positive
relationship up to (0.24). It is indicating that Pakistani industrialists are moving steadily towards
coaching & mentoring approach, further it indicates that among individual MBO practices, coaching
& mentoring in routine decision-making as well as in strategic decision-making, is also a very
important factor which is likely to increase the organizations’ market share. It also indicates that the
employees in the organizations are allowed to make decisions related to cost and quality matters.
They are asked by their supervisors to participate in operations related decisions and suggest
improvements in the way things are being done.

Table 4.2 Descriptive statistics mean standard deviation


Vari/DS Mean SD Variance Mode Range Minimum Maximum Count

OP 3.83 0.65 0.43 4.00 2.33 2.33 4.67 36

EP 3.67 0.89 0.80 3.75 4.00 1.00 5.00 36

C&M 3.73 0.81 0.65 4.40 3.00 1.80 4.80 36

PBR 3.75 0.85 0.72 3.50 3.33 1.67 5.00 36

EP 3.59 0.76 0.57 4.60 2.40 2.20 4.60 36

JD 3.57 0.83 0.69 3.60 3.00 2.00 5.00 36

LIFE 11 14 193 3 54 3 57 36

Highest mean of Performance Based Reward (3.75) is indicating that majority of the managers in the
corporate sector are thinking that Performance Based Reward is the most important factor in
organizational productivity but job description is showing the lowest mean (3.57).
Table 4.3 gives the regression outcomes for Pakistani listed organization from model A to D. These
regression models are noteworthy and significant. Not even a single control variable is statistically
significant. Four different varieties of models are used for analysis. Models A and C includes all the
MBO practices into the equation along with the control variables, while models B and D contain
MBO practices exclusive of the control variables. The output in the case of model A is 29%
variability and is explained through the organizational performance. ‘Employee Participation’ and
‘Coaching and mentoring’ are high impact creators in Organizational Performance. In model B,
variability in dependent variable is increase to 33% since ‘Employee Participation’ and ‘Coaching

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and mentoring’ are having a significant impact on Organizational Performance here. Similarly, in
case of the perceived ‘Employees performance’, under model C, variability has extended to only 9%.
This is because ‘Employee participation’ is the only significant factor having impact on employee
Performance. In model D, variability in dependent variable is increased to 14% and is impacted by
‘Employee participation’.

Results of Regression Model for Organizational


Table 4.3 Productivity & Employees Performance by
MBO Practices
Organizational Productivity Employees Performance
Coefficients
Model A Model B Model C Model D
Coaching & Mentoring **0.40 **0.40 0.19 0.22
Performance Based Reward 0.27 0.21 0.40 0.33
Employees Participation **0.43 **0.41 **0.56 **0.53
Job Description 0.14 0.16 0.25 0.25
Organization's Life in Years 0.00 -- 0.00 --
No of employees 0.00 -- 0.00 --
R Square 0.41 0.40 0.25 0.24
Adjusted R Square 0.29 0.33 0.09 0.14
F 3.42 5.23 1.59 2.4
n = 36, *** P< 0.10, ** P<0.05, *P<0.01.

The MBO Practices selected for the research study are Coaching and mentoring, Performance Based
Reward, employee participation and Job Description. Research study highlighted that organizations
involved in coaching and mentoring system and employee participation increased organizational
productivity and suitable employee performance. Confidence level; which refers to the probability
about estimations correctness, for coaching and mentoring and employee participation in model A
and B is less than 0.05 (P <0.05), a 95% confidence level – which implies that there is only a 5%
probability about findings may not be correct. Whenever managers assign tasks to the employee,
implement proper supervision on the employee while the employee is determined himself to achieve
his goals with competency, organizational productivity and employee performance get increased.
The data in Table 4.1 is giving the confirmation of the association sandwiched between effective
MBO practices and organizational Productivity. The results have shown a positive correlation
amongst several MBO practices (coaching and mentoring, performance based reward, employee
participation, job description and employee performance.

5. CONCLUSION:

Analysis is indicating positive relationship amongst effective MBO practices, organizational


Productivity and employee performance. Independent variables namely coaching & mentoring,
employee participation, performance based rewards and job descriptions are having positive effect on
organizational and employee performance. Job description system has a positive and significant
impact and is one of the main indicators of high organizational performance. Employee
participation/empowerment is another Effective MBO practice that has a significant impact on the
employee performance and proving that an employee’s participation in decision-making leads an
organization to perform much better than its competitors in the industry, performance base pay is

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also important indicator of high employee and organizational performance Finally organizations
investing in Coaching & mentoring tend to have a high employee productivity level that ultimately
contributes towards high organizational productivity.
Pakistani scenario varies to some extent from the western corporate world. This is because the
corporate sector of Pakistan is in its growing stages. The good news is that the results are quite
satisfactory for both, local and foreign investors. This globally oriented approach has increased the
popularity of MBO practices in the country’s corporate sector as employee and mangers want to get
rid of old stereotype ways of management. Today, they want to change with a new revolutionary
aspect of management i.e. MBO. This study identified that MBO practices have positively affected
the Pakistani corporate sector, and is acting like a catalyst towards growth in organizational
productivity and better employee performance.
Companies form private and public sector interested in high growth and employee satisfaction must
focus on regular coaching & mentoring, employee participation in decision making, performance
base rewards and proper job description.
Further area of research could be longitudinal study of management by objective and management by
values impact on organizational performance and on employees’ performance working at (finder-
strategic, minder-tactical, grinder-operational and reminder level- non managerial levels of the
organization.

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