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Management By Objectives

Dr Raj Singh

Management by Objectives
According to Howell, the concept of MBO has passed through different stages of management development, viz.
1. MBO for performance appraisal 2. For integrating the individual with the organisation and 3. For long-range planning.

Nature of Objectives
1. 2. 3. 4. Major and derivative Objectives Time Dimension of Objectives Hierarchy of Objectives Network of Objectives

Concept of Management By Objectives Management by Objectives (MBO) can be

described as a process, whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individuals major areas of responsibility in terms of results expected of him, and use these measures as guides for operating the unit and assessing the contribution of each of its members MBO is also Known as: Management by Results Accountability Management Performance Results and Individual Development Evaluation (PRODE)

Characteristics Of MBO
1. A comprehensive management philosophy 2. Emphasis participative approach to management 3. Focus on goals at each levels of the organization 4. Concentrates on key result areas 5. Attain maximum results from available resources by focusing on Goals.

1. 2. 3. 4. 5. 6.

Defining Overall corporate objectives Setting Departmental Goals Setting of targets for Individuals Establishing Check Points Review of Performance Employee Counselling

Steps in Managing By Objectives

Pre-requisites for Installing MBO Program (i) The purpose and the area of MBO should be defined

clearly as MBO is a means but not an end in itself. (ii) Since the top management plays a crucial role, its favourable attitude and support is a must. (iii) Employees who will be involved in the program should be prepared mentally and psychologically for it. This requires a systematic training and management development program. (iv) Participation of superiors and subordinates in setting organizational objectives, superiors objectives, subordinates objectives, and their ongoing performance, periodic review of progress and final review and appraisal of the performance is highly essential. (v) Each employee should be provided with feed-back information for self-direction and self-control. (vi) MBO programs should be implemented at all levels, including the strategic business unit level and the

Practical Utility of MBO

1. 2. 3. 4. 5. 6. Better planning Better Organization Self control Higher Productivity Better Appraisal of Performance Executive Development

How to Make MBO Effective

1. 2. 3. 4. 5. 6. Top level Commitment Training for managers Clarity of Purpose Encouragement of participation Delegation of Adequate authority Overall Integration

Essentials of MBO program

(i) Regular critical review and restatement of an organization's overall tactical and strategic plans. (ii) Clarification with each manager of his key results and performance standards. (iii)Acceptance by each manager of his contribution and commitment to these results and standards. (iv)Establishment of strict procedures for control and self-control of progress, performance review. (v) Provision of imaginative MBO development programs. (vi)Provision of conditions in which these results can be achieved:

1. 2. 3. 4. 5. 6. 7.

Difficulties in Implementing of MBO

Hesitation to change Lack of preparation Imposition of Goals Non-quantifiable Targets Unnecessary paperwork Lengthy process Neglect of Goals of Individuals

Hierarchy of Objectives

A simple acronym used to set goals is called SMART objectives. SMART stands for: 1.Specific Goals should specify what they want to achieve. 2.Measurable You should be able to measure whether you are meeting the goals or not. 3.Achievable Are the goals you set, achievable and attainable? 4.Realistic Can you realistically achieve the goals with the resource you have? 5.Time When do you want to achieve the set goals?

Means-Ends Chain (Hierarchy of Objectives)

Mission and Purpose Ends (Objectives)

Mean s Sub-means

Subsub Means

Formulating Objectives
(i) Profitability (ii) Markets (iii) Productivity (iv) Innovation (v) Product (vi) Financial Resources (vii) Physical Facilities (viii)Organisation Structure and Activities (ix) Managers Performance and Development (x) Employee Performance and Attitude (xi) Customer Service (xii) Social Responsibility

Characteristics of Effective Objectives

(i) Specific Objectives (ii)Level of Effort (iii)Changing Objectives (iv)Measurable Objectives (v)Consistent Long-run and Short-run Objectives

Importance of Objectives
(i) Objectives help to define the organisation in its environment. (ii) Objectives help in coordinating decisions and decisionmakers. (iii) Objectives help in formulating strategies. (iv) Objectives provide standards for assessing organisational performance. (v) Objectives are more tangible targets than mission statements. (vi) Objectives help to reflect changes in the environment.

Nature of Objectives
All but the simplest organisations pursue multiple objectives. The objectives pursued are given a time weighing by strategists. Since there are multiple objectives in the short-rum at any one time, normally some of the objectives are weighed more heavily than others. Strategists should establish priorities for each objective among all the objectives at corporate and strategic business unit levels. There are many ways to measure and define the achievement of each objective. The implementation phase of strategic management involves clarifying the measurement of achievement of objectives. There is a difference between official objectives and operative objectives. Operative objectives are ends actually sought by the organisation. Official objectives are ends which firms seek on official occasions such as public statements to general audiences.

Factors Influencing the Formulation of Objectives

Guidelines for Formulating Objectives

(i) Involve all those employees responsible for carrying out the objectives. (ii) All objectives within an organisation should support the overall objectives. (iii) Objectives should have some reach. (iv) Objectives should be realistic. (v) They should be contemporary as well as innovative (vi) The number of objectives for each manager should not be too many. (vii) Objectives should be inconsistent with the mission. (viii)Objectives should be ranked according to their relative priority. (ix) They should be in balance within a given enterprise.

Process of Formulating Objectives

Step 1: Environmental analysis Step 2: Vision and Mission Step 3: Organisational Objectives Step 4: Specific Targets

Reasons for Change of Objectives

(i) Change in Goal Orientation (ii)Crisis Situations (iii)Changes in the Demands from Coalition Group (iv)Changes in the Normal life cycle of the enterprise

DEFINING KEY RESULTS AREAS Key results areas may be defined as the important or critical categories of functions to be performed by any role incumbent, over a given period of time.


KRAs and targets indicate what the manager is expected to do by himself (rather than what his department, subordinates etc., are expected to do). KRAs should cover a large part of his job and include all significant contributions expected from his role. KRAs should indicate the priority areas of work for the employee during the year. The performance of KRAs should be able to be able to grade a employee. Set the challenging targets to stretch the capabilities of the employee moderately rather

Limitations in Implementation of MBO

1. 2. 3. 4. Poor Planning Lack of Training Lack of Follow-up Infexibility

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