Management by objectives

Management by objectives (MBO) is a strategic management model that aims to improve the performance of an organization by clearly defining objectives that are agreed to by both management and employees. According to the theory, having a say in goal setting and action plans encourages participation and commitment among employees, as well as aligning objectives across the organization.

Management by objectives (MBO) is the establishment of a management information system to compare actual performance and achievements to the defined objectives. Practitioners claim that the major benefits of MBO are that it improves employee motivation and commitment and allows for better communication between management and employees. However, a cited weakness of MBO is that it unduly emphasizes the setting of goals to attain objectives, rather than working on a systematic plan to do so.

In his book that coined the term, Peter Drucker set forth several principles. Objectives are laid out with the help of employees and are meant to be challenging but achievable. Employees receive daily feedback, and the focus is on rewards rather than punishment. Personal growth and development are emphasized, rather than negativity for failing to reach objectives.

Drucker believed MBO was not a cure-all but a tool to be utilized. It gives organizations a process, with many practitioners claiming that the success of MBO is dependent on the support from top management, clearly outlined objectives, and trained managers who can implement it.

Management by Objectives in Practice

Management by objectives outlines five steps that organizations should use to put the management technique into practice.

1. The first step is to either determine or revise organizational objectives for the entire company. This broad overview should be derived from the firm’s mission and vision.
2. The second step is to translate the organizational objectives to employees. Drucker used the acronym SMART (Specific, Measurable, Acceptable, Realistic, Time-bound) to express the concept.
3. The Step three is stimulating the participation of employees in setting individual objectives. After the organization’s objectives are shared with employees, from the top to the bottom, employees should be encouraged to help set their own objectives to achieve these larger organizational objectives. This gives employees greater motivation since they have greater empowerment.
4. The Step four involves monitoring the progress of employees. In step two, a key component of the objectives was that they are measurable in order for employees and managers to determine how well they are met.
5. The fifth step is to evaluate and reward employee progress. This step includes honest feedback on what was achieved and not achieved for each employee.

Need for Management by Objectives (MBO)

• The Management by Objectives process helps the employees to understand their duties at the workplace.
• KRAs are designed for each employee as per their interest, specialization and educational qualification.
• The employees are clear as to what is expected out of them.
• Management by Objectives process leads to satisfied employees. It avoids job mismatch and unnecessary confusions later on.
• Employees in their own way contribute to the achievement of the goals and objectives of the organization. Every employee has his own role at the workplace. Each one feels indispensable for the organization and eventually develops a feeling of loyalty towards the organization. They tend to stick to the organization for a longer span of time and contribute effectively. They enjoy at the workplace and do not treat work as a burden.
• Management by Objectives ensures effective communication amongst the employees. It leads to a positive ambience at the workplace.
• Management by Objectives leads to well defined hierarchies at the workplace. It ensures transparency at all levels. A supervisor of any organization would never directly interact with the Managing Director in case of queries. He would first meet his reporting boss who would then pass on the message to his senior and so on. Every one is clear about his position in the organization.
• The MBO Process leads to highly motivated and committed employees.
• The MBO Process sets a benchmark for every employee. The superiors set targets for each of the team members. Each employee is given a list of specific tasks.

Limitations of Management by objectives Process

• It sometimes ignores the prevailing culture and working conditions of the organization.
• More emphasis is being laid on targets and objectives. It just expects the employees to achieve their targets and meet the objectives of the organization without bothering much about the existing circumstances at the workplace. Employees are just expected to perform and meet the deadlines. The MBO Process sometimes do treat individuals as mere machines.
• The MBO process increases comparisons between individuals at the workplace. Employees tend to depend on nasty politics and other unproductive tasks to outshine their fellow workers. Employees do only what their superiors ask them to do. Their work lacks innovation, creativity and sometimes also becomes monotonous.