Management by Objectives

(MBO)
Peter Drucker
 Objective
• To understand the concept of Management By
Objectives
• To develop familiarity with the key concepts of
MBO
• To understand the process of MBO
• To understand the various benefits and limitations
of MBO
• To briefly understand alternative of MBO.
 Structure
• Evolution of MBO.
• Nature and Purpose
• Definitions and Concepts.
• The MBO Process.
• Ensuring Successful Implementation of MBO.
• MBO in India.
• Benefits & Limitations of MBO.
• HOSHIN PLANNING. Alternatives to MBO
• HOSHIN PLANNING.
• Conclusion.
 EVOLUTION OF MBO
• Management by Objectives (MBO) was first outlined
by Peter Drucker in 1954 in his book 'The Practice of
Management'.
• Name most associated with MBO is that of George
Odiorne and he stresses the superior-subordinate
relationship and propounds.
• John Humble of U.K. visualizes MBO as a "system
which integrates the company's need to achieve its
goals with the managers need to contribute and
develop himself"
 THE NATURE and PURPOSE OF MBO

• MBO is concerned with goal setting and planning for

individual managers and their units.
• The essence of MBO is a process of joint goal setting
between a supervisor and a subordinate.
• Managers work with their subordinates to establish
performance goals that are consistent with higher
organisational objectives.
• MBO helps clarify the hierarchy of objectives as a
series of well-defined means-ends chains.
 DEFINITION
• Heinz Weilrich and Harold Koontz define
M.B.O as “ A comprehensive managerial
system that integrates many key managerial
activities in a systematic manner and that is
consciously directed toward the effective and
efficient achievement of organizational and
individual objective. “
 THE NEED FOR MBO
• Today's technological sophistication requires
specialized knowledge, specialized skills and
specialized workers. The danger is that these
specialized workers, in their quest for perfection
within the narrow confines of their specialized
function, often tend to lose sight of the
organizational goals.
• MBO helps to mesh together the various functional
specialists for the achievement of the firm's overall
objectives.
 Core Concepts of MBO
According to Drucker managers should "avoid the
activity trap", getting so involved in their day to day
activities that they forget their main purpose or
objective. Instead of just a few top-managers, all
managers should:
• participate in the strategic planning process, in order to
improve the implementability of the plan, and
• implement a range of performance systems, designed
to help the organization stay on the right track.
 Concepts
• Emphasis on results rather than activities.
• Objectives for specific managerial positions.
• Participatory or joint objective setting.
• Identification of key result areas.
• Establishment of Periodic Review System.
 EMPHASIS ON RESULTS RATHER THAN
ACTIVITIES
• In MBO, the starting point is the identification
of results which are important to the
organization and then working backwards to
sections which activities can lead to these
results.
• if the manager always keeps in mind the
results for which he is accountable, he can
change his style of working towards result
achievement.
Objectives for specific managerial positions

• Aims – long term vision. Sometimes called

‘mission’. Example: to be the No. 1 Grocery
retailer in the UK

• Objectives – specific items that will help

achieve aims. Example: to increase customer
satisfaction through availability and online
shopping facilities.
Characteristics of sound objectives
• Smart.
• Measurable.
• Attainable.
• Reasonable/Realistic.
• Time-bound.
 Participatory or joint objective setting

• All operating objectives are derived from the

corporate objectives by breaking them down
into smaller workable and specific functional
area objectives.
• MBO these objectives are set by the
concerned managers themselves in
consultation with their superiors.
 Identification of key result areas
8 Key Result Areas Where Managers Must Pursue Clear
Objectives…..
• Marketing
• Innovation
• Human organization
• Financial resources
• Physical resources
• Productivity
• Social responsibility
• Profit requirements
Establishment of Periodic Review System

• The purpose is to review the performance

against the objectives'.
• The review may be held at intervals of every
three, six or twelve months.
• Review system is a way to ensure that the
action in the desired direction is being taken
and is yielding the desired results.
 THE PROCESS OF MBO

S t a r t in g t h e E s t a b lis h m e n t o f C o lla b o r a t iv e C o m m u n ic t in g P e rio d ic E v a lu a tio n

MBO O r g a n iz a t io n a l G o a l S e t t in g O r g a n iz a t io n a l G o a ls R e v ie w
P ro g ra m G o a ls a n d a n d P la n n in g a n d P la n s
P la n s

M e e t in g

V e r if ia b le
G o a ls a n d
C le a r P la n s

C o u n s e lin g a n d
C o a c h in g

R e so u rc e s
The M.B.O Process has many steps:-
Develop overall organizational goal.

Establish specific goals for various departments, subunits and

individual.

Formulate action plans identifying the problem areas.

Implement and maintain self-control.

Conduct periodic review of the plans.

Appraise performance of the subordinates.

The Five-Step MBO Process
 MBO Principles

• Cascading of organizational goals and objectives

• Specific objectives for each member
• Participative decision making
• Explicit time period
• Performance evaluation and feedback
 Six MBO Stages

• Define corporate objectives at board level.

• Analyze management tasks and devise formal job
specifications.
• Set performance standards.
• Agree and set specific objectives.
• Align individual targets with corporate objectives.
• Establish a management information system to monitor
achievements against objectives.
Making M.B.O effective:-

• Top management support.

• Training for M.B.O.
• Formulating clear goal.
• Effective feedback.
• Encouraging participation.
• The prerequisites of a successful MBO are:
• Evaluation
• Preparation
• Top management support
• Time horizon and
• Proper entry point
 MBO IN INDIA
• MBO was introduced in India in the early
seventies.
• The Indian company with the longest history
of practising MBO is Madura Coats.
• Some of the other companies which have
successfully implemented MBO are
 Some of the other companies which have successfully
implemented MBO are

• Bharat Heavy Electricals Limited,

• Grind lays Bank,
• Blue Star,
• Shaw Wallace &,
• Glaxo Limited.
Benefits of M.B.O:-

• Better managing
• Clarity in Organizational action
• Personal satisfaction
• Development of skills and abilities
• Basic for organizational change.
• Encouragement of personal commitment.
• Increases motivation
• Development of effective control.
• Improved communication
• Appraisal is more objective and specific
Limitations of M.B.O:-

• Failure to teach M.B.O Philosophy.

• Failures to give guideline to goal setters. Lack
of interpersonal skills in managers
• Difficulty in goal setting. Resentment by
subordinates
• Emphasis on short-term goal.
• Inflexibility.
HOSHIN PLANNING.
Alternatives to MBO???
 Hoshin Kanri

Hoshin Kanri is a step-by-step planning,

implementation and review process for managed
change. It is a systems approach to the
management of change in critical business
processes.

Hoshin Kanri is a proven technique that helps

organizations focus efforts and achieve results.
 HISTORY
• Hoshin Kanri is a planning process that was
developed in Japan but it is based on the US
techniques of Management by Objectives and
the classical Plan-Do-Check-Act (PDCA)
improvement cycle.
 Hoshin Planning
• Hoshin is a Japanese term = “compass needle”
– Designates setting strategic direction of the organization

• For HOS Hoshin is:

– A closed loop management system for identifying, focusing and linking the organization
to achieve results. Additionally it contains a daily management that drives constant
progress monitoring of these results and reacts to issues as they arise
• Traces roots to:
– Management By Objectives (MBO) – Drucker
– Plan-Do-Check-Act (PDCA)- Shewhart/Deming

• Sometimes referred to as:

– Policy Deployment
– Management By Policy
– Management By Planning

• U.S. Based Companies That Have Embraced It

– Danaher, Hewlett-Packard, Proctor & Gamble, Xerox, Florida Power and Light (FP&L)
 Hoshin is an active relationship between 2 parts

• The two parts of Hoshin are…

– Hoshin Management
– Daily Management

• Hoshin Management (Strategies & Objectives)

– Special actions/plans are required to achieve a desired result

• Daily Management (Routine KPI Management)

Hoshin
– Can achieve targets withHas
usualTwo Sides activity and
improvement
resources
 Why Use Hoshing Planning?

Strategic
Strategic
Objective
Objective
Hoshin
isis
Planning Achieved!
Achieved!
KAIZEN
Improvement

Hoshin
Planning
KAIZEN
Hoshin Base
Planning
KAIZEN Base
Base
Base
Base

Year 0 Year 1 Year 2 Year 3 Year 4

To Build Sustainable Competitive Advantage

 7 Phase Hoshin Planning Process
Establish
Organizational Vision
PLANNING P Strategic Planning/ Develop 3-5
Year Breakthrough Objectives

Develop Annual Breakthrough

Objectives and Improvement
Priorities
Self-Diagnosis
Deploy Improvement Priorities
D
Implement
IMPLEMENTATION
A Improvement Initiatives

REVIEW Root Cause Monthly Review Critical Step

Countermeasures
C
Annual Review
Annual Review
 Hoshin Planning Summary
• Aligns Strategy and Execution

• Systematically develops and links plans from

organizational vision to operational tactics

• Ensures deep and common understanding and

maximizes ownership and buy-in to plan

• Requires thoughtful, detailed planning for each and

every improvement action

• Consistently assesses actual performance vs. plan and

addresses issues and learns from the process
All Employees are Engaged in the Process
 COMPARISON
HOSHIN KANRI
• FOCUS ON PROCEDURE
• DEFINES CLEARLY THE MEAN
THROUGH TARGET TO GET.
• MEANS & TARGET BREAKDOWN.
• THIS WAY AVOIDS “TARGET GOT
THROUGH BAD MEANS”
MANAGEMENT.
• PLANNING DEFINITION,TARGET
AND MEAN DEVELOP BASED ON
COMM. BETWEEN
SUPERIOR(VERTICAL)
&SUBORDINATES (HORIZONTAL).
MBO
• FOCUS ON TARGET.
• TARGETS ARE IMPOSED.
• EVEN IF TARGET GOT,NO
WAY TO CLARIFY.
• FOCUS ON RESULTS EITHER
HOOK OR BY CROOK.
• LACK OF COMM.
• LACK OF HORIZONTAL
SUPERVISORS.
 THANK YOU…

by
Sujay Vikram Singh
(sujayvikramsingh@gmail.com)