M.B.

O (Management By Objective) by Peter Drucker

A. Introduction- History of MBO

B. Features of MBO
a. Superior - Subordinate interaction
b. Superior - Subordinate mutually set goals
c. Superior - Subordinate determine performance criteria
d. Progress evaluation
e. Supportive role of superior
f. Object is to get result (Management by result)

C. Steps in MBO
a. Determining Organizational objective
b. Determining individual objective
c. Plan of action
d. Scope for creativity
e. Performance evaluation

D. Merits/Demerits of MBO

M.B.O (Management By Objective):-

According to classical school, top management is responsible for preparing plans

and execution of plans takes place at lower level. But it was observed that lower level did
not co-operate with top management in executing the plan. Many studies & research were
made to find out the reason for non- cooperation & finally the problem was diagnosed in
1954 by an American management consultant called Peter Drucker. He presented MBO
as a solution to the problem. Peter Drucker is known as the “FATHER OF MBO”.
According to him, the lower level did not cooperate since they were not involved in
decision-making & preparing plans. Therefore the feeling of isolation & frustration
started developing in the minds of the subordinate & the result was non- cooperation.

Under MBO, Peter Drucker suggested “Involvement of subordinates in decision

making”.

Involvement leads to commitment and commitment is the biggest motivation due

to which objectives are materialized.

In this way MBO brings participative management, democratic element, two way
communication, uses Y theory & provides tremendous job satisfaction to his
subordinates. It helps to maintain good relationship between superior & subordinate.
MAIN FEATURES of MBO:-

1. There is a perfect interaction between superior and subordinate through effective

communication network.
2. The goals are mutually set by superior & subordinate for entire organization and
for various departments.
3. Superior & subordinate mutually decide even the performance criteria.
4. Periodically, there is evaluation of progress to find out whether there is any
deviation so that corrective actions can be taken in order to get desired
performance.
5. The role of the superior is to act as a helping hand & not to act as an authoritative
boss.
6. The main purpose of MBO is to achieve desired results. MBO is also called
management by result.

STEPS IN MBO:-

1. Organizational objective:- The first step in MBO is to determine the

objectives of the organization. It is the duty of the top management to decide
those objectives, which may be financial, tangible or intangible. But these
objectives have to be very specific & achievable.
2. Tangible Objectives: - After determining the objective of the organization, the
next step is to determine the individual objective so that everyone in the
organization should know his duties, assignments and responsibilities. There
should be perfect coordination between setting the organizational objective &
individual objective.
3. Plan of Action: - After deciding the various objectives of organization &
individuals, the next step is to decide plan of action. It determines how the
objectives have to be materialized. The involvement of subordinates is
necessary to prepare plan of action.
4. Scope for Creativity: - While preparing the plan of action, new ideas and new
techniques coming from the subordinates must be considered & if possible
should be incorporated. There should be scope for creativity in the plan of
action.
5. Performance evaluation: - Periodically the progress has to be evaluated to find
out whether there is any deviation so that actions can be taken to rectify the
deviation and desired results can be achieved.

ADVANTAGES OR MERITS OF MBO: -

1. It involves subordinate in decision making.

2. It brings participative management.
3. It leads to democratic process.
4. It uses Y theory in place of X theory.
 5. It establishes good relations between superior & subordinates.
6. It creates commitment in the minds of the subordinate.
7. It motivates the subordinate.
8. It provides job satisfaction.
9. It increases efficiency & productivity.
10. It helps us to identify those people who can be promoted due to their active
participation in decision-making.
11. It permits perfect coordination
12. It helps us to achieve pre-determined objectives.

DEMERITS OF MBO: -

1. It is a time consuming process.

2. It is an expensive exercise
3. It does not permit quick decision
4. It is difficult to coordinate views of superiors & subordinate
5. It brings many changes in the organizational structure.
6. It demands good relations between superior & subordinate.
7. It demands pre-education of subordinates because in a country like India where
workers are illiterate, it is difficult to bring their involvement in decision-
making and MBO cannot be practiced in such an environment.

In spite of these drawbacks MBO is extremely used in advanced countries to bring

democracy in management process & for achieving organizational objectives.