16MG003 – PRINCIPLES OF

MANAGEMENT

B.Banuselvasaraswathy
Banuselvasaraswathy.b@skct.edu.in
Google Classroom code: yyx4es
 Course Outcomes
Upon completion of the course, students shall have ability to
C701.3 Apply the management concepts in an organization [AP]
 module

3
MANGEMENT
CONCPETS
 SESSION OBJECTIVE

Students will able to realise the need for framing

objective of any organization and list of companies
implementing MBO
LEARNING OUTLINE
This lecture will make us understand the

Objectives
Managing by Objectives
Benefits of MBO
Weakness of MBO
 OBJECTIVES
Objectives are the important ends toward which
organizational and individual activities are
directed. They are the ends that state
specifically how the goals shall be achieved.

An objective is verifiable when at the end of the

period one can determine whether or not it
has been achieved. They facilitate the
measurement of the surplus as well as the
effectiveness and efficiency of the managerial
action
 GOALS
Goals denote what an organization hopes to
accomplish in a future period of time.

GOALS OBJECTIVES
Denote what an organization hopes They are the ends that state
to accomplish in a future period of specifically how the goals shall be
time. achieved

More generalized in nature More specific and concrete

Qualitative Mainly quantitative in specification
Broadly stated aims Specifically stated aims
Usually long-term Short to Mid Term
NATURE OF OBJECTIVES
Forms a hierarchy
Forms a network
Multiplicity of objectives
Must be SMART
The objectives must be predetermined.
A clearly defined objective provides the clear direction for
managerial effort.
Objectives may be short-range, medium-range and long-range.
Objectives need to be supported by sub-objectives.
NATURE OF OBJECTIVES
1.
Forms a hierarchy Socio
econ
omic
Board of Directors
purp
ose
2.
Mission

3. Over all
Top level
Objectives of the Managers
organization

4. More Specific and over all

objectives
Middle level
Managers
5. Division Objectives

6. Department and Unit Objectives

Lower level
Managers
7. Individual Objectives (Performance, Personal Development
etc)
NATURE OF OBJECTIVES
Forms a hierarchy
1. Socioeconomic purpose: social purpose(welfare of people) and purpose
of business
2. Mission 3. Overall objectives
4. Specific objectives(KRA-Key Result Areas)
KRA: An area in which performance is essential for the
success of an enterprise. E.g.. Marketing, Innovation, Human
organization, Physical and Financial resources
5. Divisional objectives 6. Departmental and unit objectives
7. Individual objectives

Top down vs. Bottom Up

Top down: Objectives are management driven
Total organization needs direction through corporate objectives set by CEOs
Bottom Up: Objectives must be set by the sub ordinates, which will keep
them committed to and motivated towards the objectives. Top level managers
needs information from lower level managers to set objectives.
NATURE OF OBJECTIVES
Forms a Network
• Goals should be interconnected and support one another.

• Goals and programs must form an interlocking network.

• If the various objectives do not support each other, people may pursue goals
that may be good for their own function but ma be detrimental to the company.
 NATURE OF OBJECTIVES
Forms a Network
 NATURE OF OBJECTIVES
Multiplicity of Objectives
• Goals are likely to be multiple.
• The number of objectives that a manager can pursue at a time depends on the
work load that he can handle himself and work load he can assign to his
subordinates.
Overall objectives of a University can be
 Attract highly qualified students
 Attract highly regarded faculty
 Discover and organize new knowledge through research
 Provide state-of-the art facilities
Overall objectives of marketing department can be
 Sales of products
 Distribution of products
 Market Research, advertising, promotion
 IMPORTANCE OF SETTING OBJECTIVES
Direction: Clear definition of objectives encourages unified planning and keep
attention focussed on common purpose

Motivation: Goals provide motivation to people in the organization.

Coordination: Objectives keep the activities on track, more coordinated, rational

and effective

Benchmark for success: Objectives serve as a performance standard against

which the performance may be checked.

Legitimacy: Objectives define the organization's purpose, so that people know

what it stands for and will accept its existence and continuance

Managerial Control: Objectives provide standards which aid in the control

of human efforts and administrative controls in an organization. When the
work is goal-oriented, unproductive tasks can be avoided.
HOW TO SET OBJECTIVES
Goals and Objectives Should Be SMART
HOW TO SET OBJECTIVES
 The objectives must be specific, measurable, attainable, realistic and
timed

 must be challenging and priorities must be assigned to each of them

 Should be communicated and stated very clearly

 should promote personal and professional growth and development

 Should cover the main features of the job.

 Should be verifiable and must clearly state the company’s mission.

 Short term objectives should be consistent with long-term objectives

 Should be periodically reviewed.

 Should indicate the authority and resources required for achieving it.

 Should provide timely feedback so that corrective action can be taken.

Checklist of Manager Objectives
AREAS OF OBJECTIVE SETTING
Peter Drucker emphasized the following areas in which an organization must
set its objectives.

1. Market Standing

2. Innovation

3. Productivity

4. Resources-Financial and Physical

5. Profitability

6. Manager performance and development

7. Worker performance, attitude and development

8. Public and social responsibility

Qualitative and Quantitative objectives (OR)
Non verifiable & Verifiable Objectives
Non verifiable Verifiable Objectives
Objectives
• To achieve a ROI of 12% at the end of the current
• To make a reasonable profit
fiscal year
• To improve communication
• To issue a two page monthly newsletter beginning July
1, 2010, involving not more than 40 working hrs of
preparation (after the first issue)

• To improve productivity of the • To increase production output by 5% by Dec 31, 2010

production department without additional costs by maintaining the current
quality level

• To develop better managers • To design and conduct a 40 hr in house program on

“management”, to be completed by October 1, 2015,
involving not more than 200 work hrs. of the mgmt.t
development staff and with at least 90% of the 100
managers passing the exam
Management by Objectives
(MBO)
Management by Objectives
Definition
A comprehensive managerial system that integrates many key
managerial activities in a systematic manner and is consciously
directed toward the effective and efficient achievement of
organizational and individual objectives.

A method whereby managers and employees define goals

for every department, project, and person and use them to
monitor subsequent performance.

Set-out by Peter Drucker in 1954;

Also called as Management by Results
Features of MBO
• Joint goal setting by superior and subordinates
• Integration among organizational ,departmental and individual
objectives.
• Focus on goals to achieve maximum results
• Translates abstract philosophy of management into concrete
phraseology
• Matches the objectives and resources
• Periodic review of performance
• Has an evaluative mechanism by which contribution of each
individual can be measured
• High degree of motivation and satisfaction is available to employees
 System Approach to MBO

Reenergizing the system

Transformation Process
Action
Strategic Planning
Planning
Organiza-
Setting tional Imple
INPUTS Objective development ment
s ation OUTPUTS
Hierarchy of Control &
Objectives
Appraisal

Subsystem
Human Resource
Planning And Career Reward Others
planning Budgeting
Development System

Information handling Organizational

Boundary
External constraints external opportunities & threats
System Approach to MBO
System Approach to MBO

MBO is an integrated system used for

 Performance Appraisal
 Motivating individuals
 Strategic Planning
 Human resource planning and development
 Career planning
 Reward system
 Budgeting
The process of MBO (OR) Steps in MBO
The process of MBO (OR) Steps in MBO

1. Setting Preliminary Objectives

2. Fixing Key Result Areas
3. Setting Subordinate Objectives
4. Recycling Objectives
5. Matching resources with objectives
6. Periodic Performance reviews
7. Appraisal
The process of MBO (OR) Steps in MBO

Setting Preliminary Objectives

 MBO program starts with an absolute enthusiastic support of top
management and moves downward.
 The long term objectives of the organization must be outlined
initially.
 The short term objectives are framed taking into account the
feasibility of achieving the long-term objectives
 The objectives are framed by keeping in view the internal and
external environment of the organization
 These objectives are preliminary and tentative and subject to
modification.
The process of MBO (OR) Steps in MBO

Fixing Key Result Areas

 KRA are identified on the basis of organizational objectives and

planning premises.
 These are the areas reference to which the organizational health can
be measured.
 They indicate the strength of the organization.
 E.g. Market Standing, profitability, Innovation, Productivity,
Public and social responsibility
The process of MBO (OR) Steps in MBO

Setting Subordinate Objectives

 Organizational objectives are achieved through individuals
 So each individual must know what he is expected to achieve.
 Superior works with subordinates to set their objectives
 While setting subordinate objectives, consider the
• organizational goals
• subordinate ability
• Time period
• resources available to him
 Open discussion must happen between superior and subordinates
 Resource allocation should be done in consultation with
subordinates
The process of MBO (OR) Steps in MBO

Recycling Objectives
Objectives can hardly be set by starting at the top nor from the bottom.
So a degree of recycling is required.

Top managers may have some idea of what their subordinates’

objectives must be but will change these preconceived goals as the
contributions of the subordinates comes into focus.

So setting objectives is a joint and interactive process.

The process of MBO (OR) Steps in MBO

Matching resources with objectives

 Objectives should be matched with the available resources.
 If certain resources are inadequate the company’s objectives should
be changed accordingly.
 Allocation of resources should be done in consultation with the
subordinates
 In the absence of proper distribution of resources, the proper
setting of objectives is meaningless.
The process of MBO (OR) Steps in MBO

Periodic Performance reviews

 At specified intervals, the superior and subordinate should hold
regular meetings in which they discuss the progress in the
accomplishment of objectives.
 Such reviews are made to identify shortcomings and to take timely
steps to improve the results.
 Feedback from these reviews is provided to each individual to
facilitate self regulation and control.
The process of MBO (OR) Steps in MBO

Appraisal
 Actual results are compared measured against predetermined
standards
 Tries to measure whether the subordinate is achieving his objective
or not.
 At the end of the fixed period for achieving the objectives, there
should be discussion between the superior and subordinate.
 If subordinate did not achieve their objectives, then the superior
should identify what are the problems and how these problems can
be overcome.
 Purpose of appraisal is to find out the shortcomings in achieving
objectives and to remove them promptly.
 It ensures that everything is going on according to the plan
Simplified Steps in a Typical MBO Program

1
2

4
3
Steps in a Typical MBO Program
 The process of MBO (OR) Steps in MBO

Step 1: Set Goals

Step 2: Develop Action
Plans

Step 4: Performance Appraisal

Step 3: Review Progress

The process of MBO (OR) Steps in MBO
1) Setting objectives:
 For MBO to be effective, individual managers must understand the
specific objectives of their job and how those objectives fit in
with the overall company objectives set by the board of directors.

Managers of the various units or sub-units, or sections of an

organization should the objectives of their unit as well as actively
participate in setting these objectives and make responsibility for
them.

Objectives are written down for each level of the organization, and
individuals are given specific aims and targets.

 Managers need to identify and set objectives both for themselves,

their units, and their organizations.
The process of MBO (OR) Steps in MBO

2) Developing action plans

• Actions plans specify the actions needed to address each of the top
organizational issues and to reach each of the associated goals, who
will complete each action and according to what timeline

• An overall, top-level action plan that depicts how each strategic goal
will be reached is developed by the top level management.

• The format of the action plan depends on the objective of the

organization.
The process of MBO (OR) Steps in MBO

3) Reviewing Progress

 Performance is measured in terms of results.

 Job performance is the net effect of an employee's effort as

modified by abilities, role perceptions and results produced.

 At specified intervals, the superior and subordinate should hold

regular meetings in which they discuss the progress in the
accomplishment of objectives.
The process of MBO (OR) Steps in MBO

4) Performance appraisal
communicate to employees how they are performing their jobs, and
they establish a plan for improvement.
extremely important to both employee and employer, as they are
often used to provide predictive information related to possible
promotion.
provide input for determining both individual and organizational
training and development needs.
encourage performance improvement.
Feedback on behaviour, attitude, skill or knowledge clarifies for
employees the job expectations their managers hold for them.
In order to be effective, performance appraisals must be supported
by documentation and management commitment
Benefits & Limitations of MBO
Benefits & Limitations of MBO
Benefits of MBO Limitations of MBO
Improvement of managing Danger of inflexibility and
and clarity of goals Over emphasis on setting objectives
Clarification of An environment of poor employer
organizational roles and employee relations reduces MBO
structures effectiveness.
Encouragement of personal More pressure on employees
commitment Failure to give guidelines to goal setters
Development of effective Burdensome paperwork and time
controls consuming
Better communication Difficulty in objective setting
and Coordination
Result oriented philosophy More importance to short term objectives
Failure to teach the philosophy of MBO
How to make MBO effective?
• Teach the nature and philosophy of the entire system
• Insist on verifiable objectives
• Make goals realistic and attainable
• Give managers adequate time and resources
• Be willing to change goals
• Practice joint goal setting Goals should be seen as an interlocking
system.
IMPLEMENTATION
 Where to Use MBO

• The MBO process is appropriate for knowledge-based enterprises when

staff is competent.

• It is appropriate in situations where you wish to build employees'

management and self-leadership skills and tap their creativity and initiative.

• Management by Objectives (MBO) is also used by chief executives of

multinational corporations (MNCs) for their country managers abroad.
MBO at Microsoft By Bill Gates

• Eliminate politics, by giving everybody the same message.

• Keep a flat organization in which all issues are discussed
openly.
• Insist on clear and direct communication.
• Prevent competing missions or objectives
• Eliminate rivalry between different parts of the organization
• Empower teams to do their own things
 MBO at Hewlett-Packard
• MBO received a boost when it was declared an integral part of “The HP
Way”, the widely acclaimed management style of Hewlett-Packard, a
computer company.
• At every level within Hewlett-Packard, managers had to develop objectives
and integrate them with those of other managers and of the company as a
whole.
• Written plans were produced that showed what people needed to achieve if
they were to reach those objectives.
• The plans were then shared with others in the corporation and coordinated.
MBO at Hewlett-Packard

• MBO urged that the planning process, traditionally done by high-

level managers, should be delegated to all members of the
organization.
• The plan, when it finally emerged, would then have the commitment
of all of them.
• As the plan is implemented, MBO demands that the organization
monitor a range of performance measures, designed to help it stay
on the right path towards its objectives.
• The plan must be modified when this monitoring suggest that it’s no
longer leading to desired objective.
MBO at Hewlett-Packard
• Bill Packard, one of the two founders of Hewlett-Packard, said of
MBO:
“No operating policy has contributed more to
Hewlett-Packard's success…
…Management by objectives refers to a system
in which overall objectives are clearly stated and
agreed upon, and which gives people the
flexibility to work toward those goals in ways
they determine best for their own areas of
responsibility.”
Some Other Organizations Practicing
MBO
MBO IN INDIAN CONTEXT
Management by Exception
Managers give more attention to activities that do not meet the
required standards
Top management gives more attention to mediocre department
and moderate managers
Management by exception is a style of business management
that focuses on identifying and handling cases that deviate
from the norm, recommended as best practice by
PRINCE2.
LATERAL THINKING
LATERAL THINKING
LATERAL THINKING