Management by Objectives (MBO)

Management by objectives is a dynamic system which seeks to integrate the company's need to clarify and achieve its profit and growth goals with the manager's need to contribute and develop himself. It is a demanding and rewarding style of managing a business.

Since the best managers have always practised management by objectives, the cynic's view that it is merely old wine in new bottles is perhaps valid. However, it is timely and useful to restate basic principles and to demonstrate that there is a practical approach which will help all managers to improve their performance. Companies are meeting increased pressures of competition and rising costs and management’s task is becoming more complex with accelerating changes in markets, technology, and social environment. Yet, many companies are content to follow tradition based on past success. The explosive growth in knowledge had led to more specialisation, with the result that fewer general managers and entrepreneurial types are being produced. Moreover, the time span and range of objectives set by companies is often dangerously restricted. Management by objectives must create a climate of opinion in which these and other problems are recognised as well as providing the framework of techniques for solving them.

Developing management training plans to help each manager to overcome his weaknesses. and potential review to identify men with potential for advancement. Agreeing with each manager a job improvement plan. Management control information in a form. ii. Using systematic performance review to measure and discuss progress towards results. 5. and at a frequency. 7. and succession plans. 4. Clarifying with each manager the key results and performance standards he must achieve.Illustration When a worthwhile system of management by objectives is operating in a company there is a continuous process of: 1. 3. and gaining his contribution and commitment to these. Reviewing critically. to build on his strengths. in line with unit and company objectives. which makes a measurable and realistic contribution to the unit and company’s plans for better performance. and to accept a responsibility for self-development. and restating. notably: i. which makes for more effective self-control and better and quicker decisions. Providing conditions in which it is possible to achieve the key results and improvement plans. the company’s strategic and tactical plans. Strengthening a manager's motivation by effective selection. An organisation structure which gives a manager maximum freedom and flexibility in operation. salary. . 6. 2.

These techniques are interdependent and the dynamic nature of the system can be shown as in the diagram above. (OR) . which is a matter of vital importance to every company. It follows that the development of managers. management development and training. management development is a valuable by-product of running a business efficiently. Looked at in this way. key results analysis. Some further comments can be made on: setting company objectives. only makes sense if it is integrated with the purpose of the business.

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 the organization. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. 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. define each individual's major areas of responsibility in terms of the results expected of him. This increases employee job satisfaction and commitment. choosing course of actions and decision making. and use these measures as guides for operating the unit and assessing the contribution of each of its members. Clarity of goals . the system of management by objectives can be described as a process whereby the superior and subordinate managers of an organization jointly identify its common goals. Motivation – Involving employees in the whole process of goal setting and increasing employee empowerment. According to George S.[1] The essence of MBO is participative goal setting. Some of the important features and advantages of MBO are: 1. they are more likely to fulfill their responsibilities. The term "management by objectives" was first popularized by Peter Drucker in his 1954 book 'The Practice of Management'. 2.[2] • [edit] Features and Advantages [edit] Unique features and advantages of the MBO process The basic principle behind Management by Objectives (MBO) is for employees to have a clear understanding of the roles and responsibilities expected of them. when employees themselves have been involved with the goal setting and choosing the course of action to be followed by them. Odiorne. They can then understand how their activities relate to the achievement of the organization's goal. Ideally. MBO also places importance on fulfilling the personal goals of each employee. 3.

for a whole department or the whole company. R&D. services. [edit] Practice Objectives need quantifying and monitoring. marketing. human resources. Pay incentives (bonuses) are often linked to results in reaching the objectives. a 56% gain in productivity. it still has its place in management today. managing by objectives would be counterproductive. agreed and managed by organizations. Companies with CEOs who showed low commitment only saw a 6% gain in productivity. It underemphasizes the importance of the environment or context in which the goals are set. [edit] Limitations There are several limitations to the assumptive base underlying the impact of managing by objectives. to relative buy-in by leadership and stake-holders. The use of MBO must be carefully aligned with the culture of the organization. The key difference . Some objectives are collective. As an example of the influence of management buy-in as a contextual influencer. 3.). Reliable management information systems are needed to establish relevant objectives and monitor their "reach ratio" in an objective way. information systems etc. finance. including: 1. on average. In this case. It over-emphasizes the setting of goals over the working of a plan as a driver of outcomes. When this approach is not properly set.4. in a 1991 comprehensive review of thirty years of research on the impact of Management by Objectives. 2. 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. [edit] Domains and levels Objectives can be set in all domains of activities (production. Trait appraisal only looks at what employees should be. not at what they should do. That context includes everything from the availability and quality of resources. others can be individualized. Robert Rodgers and John Hunter concluded that companies whose CEOs demonstrated high commitment to MBO showed. narrow fashion. While MBO is not as fashionable as it was before. self-centered employees might be prone to distort results. falsely representing achievement of targets that were set in a short-term. 5. sales. Companies evaluated their employees by comparing them with the "ideal" employee.

[3] Additionally. notably among them W. Concept of Six Sigma . Employees are often involved in this process.is that rather than 'set' objectives from a cascade process. Edwards Deming. objectives are discussed and agreed upon. [edit] Arguments Against MBO has its detractors. A saying around MBO -. which usually results in poor quality. who argued that a lack of understanding of systems commonly results in the misapplication of objectives. which can be advantageous.[4] Point 7 of Deming's key principles encourages managers to abandon objectives in favour of leadership because he felt that a leader with an understanding of systems was more likely to guide workers to an appropriate solution than the incentive of an objective. ‘Why measure performance? Different purposes require different measures’ -. Deming also pointed out that Drucker warned managers that a systemic view was required [5] and felt that Drucker's warning went largely unheeded by the practitioners of MBO 2_b."What gets measured gets done". Deming stated that setting production targets will encourage resources to meet those targets through whatever means necessary.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.

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