Management By Objectives

The term "Management by Objectives" was

introduced in 1954 by Peter Drucker in his book
"The Practice of Management"


Management By Objectives (MBO)

o A process of joint objective setting between superior and
subordinate
Management by Objectives (MBO)
Management By Objectives (MBO) is defined
as a program that encompasses specific
goals , participatively set ,for an explicit time
period, with feedback on goal progress.
A comprehensive management system based
on measurable anticipatively set objectives
that leverages the motivational power of
objectives.

Management By Objectives (MBO)
MBO is a motivational program based on goal
setting. The goal(s) should:
o be mutually agreed upon.
o be difficult, but achievable (realistic).
o have a defined time frame
o be measurable (objective and budgeted).
o provide means for feedback.

Management By Objectives (MBO)
In an MBO program, good goals are
SMART goals:

o Specific
o Measurable
o Attainable
o Results-oriented
o Time-related
Management by objectives (MBO)
Subordinates work with their supervisor to establish
specific task-related objectives.
MBO is the most individualized appraisal method .
MBO works well with counseling, provided the goals
focus on important activities.
MBO is not highly subjective to rating errors.

Key elements of MBO
Goal specificity
participative decision making
an explicit performance/evaluation period
feedback
Management By Objectives (MBO)
Is a four-step process in which
1.Managers and employees jointly set
objectives for the employee
2.Managers develop action plans
3.Managers and employees periodically review
the employees performance
4.The manager makes a performance appraisal
and rewards the employee according to the
results
3 Types of Objectives Used in MBO
Improvement Objective
Increase sport-utility sales by 10%
Personal Development Objective
Attend five days of leadership training
Maintenance Objective
Continue to meet the increased sale goals
specified last quarter"

MBO Requirements
For MBO to be successful, three things have to happen:
1.The Commitment of Top Management is
Essential
2.It Must Be Applied Organization-wide
3.Objectives Must CascadeMBO works by
cascading objectives down through the organization;
that is, objectives are structured in a unified hierarchy,
becoming more specific at lower levels of the
organization
Steps in a Typical MBO Program
1. The organizations overall objectives and strategies are
formulated.
2. Major objectives are allocated among divisional and
departmental units.
3. Unit managers collaboratively set specific objectives for
their units with their managers.
4. Specific objectives are collaboratively set with all
department members.
5. Action plans, defining how objectives are to be achieved,
are specified and agreed upon by managers and employees.
6. The action plans are implemented.
7. Progress toward objectives is periodically reviewed, and
feedback is provided.
8. Successful achievement of objectives is reinforced by
performance-based rewards.
The Strengths & Limitations of MBO
Strengths
It can improve performance at all levels
It emphasizes getting results
It motivates employees to do better
Top management commitment and
involvement
Limitations
It can take too much time and energy
MBO requires considerable training of
managers
It wont work in rigid, authoritarian
organizations
Specific objectives can distract from
strategic goals
MBO can be misused by zealous or
punitive managers
Not as effective in dynamic
environments that require constant
resetting of goals
Overemphasis on individual
accomplishment may create problems
with teamwork
Allowing the MBO program to become
an annual paperwork shuffle.
Overall
organizational
objectives
company
Consumer products division Industrial products division
producti
on
sales
Custome
r
service
marketin
g
resear
ch
developme
nt
Individual
objectives
Divisional
objectives
Departmental
objectives