Management by Objectives

• In the present changing economic environment old techniques

of management do not give better results.
• The expansion of business and changes in technology have
necessitated a new thinking in managerial approach.
• A number of new techniques of management have been
developed in the recent past and MBO is one of them.
• The credit for developing MBO goes to Peter Drucker who
emphasised that performance of each job should be directed
towards the achievement of whole business objectives.
• MBO is also known by the names management by motivation,
management by exception, management by results etc.
• MBO is a comprehensive managerial system that integrates many
key managerial activities in a systematic manner, consciously
directed towards the effective and efficient achievement of
organisational objectives.:- Koontz and O’ Donnell.
Features of MBO
• MBO focuses on goals and their achievements. They are not
merely the organisational goals but also the personal goals of the
managers and the employees.

MBO tries to relate the long term goals of the organisation with the
short range goals, overall system goals with the goals of various
subsystems and the organisational goals with the goals of the
society.
• The philosophy of MBO views organisation as a dynamic
entities.
• Consistent attention is given to refine, modify and improve
goals and the approaches to achieve them on the basis of
experience.
• MBO recognizes the fact that the goal setting and
achievement process is a cooperative and participation
endeavour.
• MBO places emphasis not merely on goals, but on effective
performance and tangible results also.
• MBO aims at radical realignment of relations between
superior and subordinate managers. Superior managers are
required to adopt a supportive stimulative role in relation
to their subordinates.
• Effective management of organisation is possible when
managers at all levels have the required authority,
responsibility, and accountability for getting things done
and for getting things done and for producing results.
• The technique of MBO establishes a community of interest
and a shared sense of vision among all managers.
Steps in the process of MBO
Formulating
organisational
objectives

Setting up
subordinate goals

Periodic Meetings

Performance
appraisal
• Formulating organisational objectives:-
• The first step in MBO programme is to determine main
objectives of the business.
• The major objectives of business are survival and
expansion.
• To achieve these major objectives, derivative objectives are
set up.
• Different departments set departmental objectives.
• The objectives from top level to individual level are aimed
at achieving the main business objectives.
• Setting up subordinates goals:- The subordinate goals are set
at departmental level, unit level and individual level etc.
• The subordinate objectives will assign specific responsibilities
to persons at various levels.
• Every body in the organisation should know what is expected
of him.
• The subordinate goals, in no way should be inconsistent with
the overall objectives of the business.
• These goals should aim at contributing towards the overall
business goals.
• Periodic meetings:- There should be periodic meetings to
know the views of subordinate staff.
• The top level management will be able to know the views
and difficulties faced by the staff in achieving the targets.
• If circumstances have changed and objectives need any
modification, it should also be done to make the objectives
realistic.
Performance appraisal :- Evaluation of performance at the
end of a period is essential to assess the work.
• The superior should evaluate the work of the subordinates
and find out deviations if any.
• The person whose performance is below the standard
performance are penalised and those whose performance is
outstanding is rewarded.

• The process off appraisal will enable the management to take

collective measures if there are deviations in performance.
 Advantages of MBO
• Since Management by objectives (MBO) is a result-oriented
process and focuses on setting and controlling goals, if
encourages managers to do detailed planning.
• Both the manager and the subordinates know what is
expected of them and hence there is no role ambiguity or
confusion.
• The managers are required to establish measurable targets
and standards of performance and priorities for these targets.
In addition, the responsibilities and authority of the
personnel is clearly established.
• It makes individuals more aware of the company goals. Most
often the subordinates are concerned with their own
objectives and the environment surrounding them. But with
MBO, the subordinates feel proud of being involved in the
organizational goals. This improves their morale and
commitment.
• Management by objectives (MBO) often highlights the area
in which the employees need further training, leading to
career development.
• The system of periodic evaluation lets the subordinates know
how well they are doing. Since MBO puts strong emphasis on
quantifiable objectives, the measurement and appraisal can be
more objective, specific and equitable.

It improves communication between management and

subordinates.
 Disadvantages of Management by Objectives
• MBO can only succeed if it has the complete support of
the top management.
• Management by Objectives (MBO) may be resented by
subordinates. They may be under pressure to get along with
the management when setting goals and objectives and these
goals may be set unrealistically high. This may lower their
morale and they may become suspicious about the
philosophy behind MBO.
• They may seriously believe that MBO is just another of the
management’s ploys to make the subordinates work harder
and become more dedicated and involved. The emphasis in
the MBO system is on quantifying the goals and objectives.
It does not leave any ground for subjective goals. Some areas
are difficult to quantify and even more difficult to evaluate.
• There is considerable paperwork involved and it takes too
much of the manager’s time. Too many meetings and too
many reports add to the manager’s responsibility and burden.
Some managers may resist the program because of this
increased paperwork.
• The emphasis is more on short-term goals. Since the goals are
mostly quantitative in nature, it is difficult to do long-
range planning because all the variables affecting the
process of planning cannot be accurately forecast due to the
constantly changing socio-economic and technological
environment which affect the stability of goals.
• Most managers may not be sufficiently skilled in interpersonal
interaction such as coaching and counseling, which is
extensively required.
• The integration of MBO system with other systems such as
forecasting and budgeting etc., is very poor. This makes the
overall functioning of all systems mare difficult.
• Group goal achievement is more difficult. When the goals
of one deportment depend on the goals of another
department, cohesion is more difficult to obtain. For
example, the production department cannot produce a set
quota if it is not sufficiently supplied with raw materials
and personnel.