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Chapter: Principles of Management : Planning

The concept of MBO

Management by Objectives (MBO) is a process of agreeing upon objectives within an organization so that management and employees agree to the objectives and understand what they are in the organization.

The concept of MBO


Management by Objectives (MBO) is a process of agreeing upon objectives within an organization so that management and employees agree to the objectives and understand what they are in the organization.


The term "management by objectives" was first popularized by Peter Drucker in his 1954 book 'The Practice of Management'.


The essence of MBO is participative goal setting, choosing course of actions and


decision making. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. Ideally, when employees


themselves have been involved with the goal setting and the choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities.



Processof MBO


MBO is a system for achieving organizational objectives, enhancement of employee commitment and participation.


                        Setting of Organizational Purpose and Objectives

                        Key Result Areas

                        Setting Subordinate Goals


                        Matching Resources with Objectives






Features and Advantages


Unique features and advantage of the MBO process


The principle behind Management by Objectives (MBO) is to create empowered employees who have clarity of the roles and responsibilities expected from them, understand their objectives to be achieved and thus help in the achievement of organizational as well as personal goals.


Some of the important features and advantages of MBO are:


                        Clarity of goals


                        Clarity in Organizational actions


                        Personnel satisfaction


                        Basis of Organizational Change


                        Motivation – Involving employees in the whole process of goal setting and increasing employee empowerment increases employee job satisfaction and commitment.


                        Better communication and Coordination – Frequent reviews and interactions between superiors and subordinates helps to maintain harmonious relationships within the enterprise and also solve many problems faced during the period.


well to be supposed if yet this management by objectives has certain advantages as well as disadvantages, it is a virtual technique for effective management and it takes around 5 years to get mbo yielding results.



Domains and levels


Objectives can be set in all domains of activities (production, services, sales, R&D, human resources, finance, information systems etc.).Some objectives are collective, for a whole department or the whole company, others can be individualized.





Objectives need quantifying and monitoring. Reliable management information systems are needed to establish relevant objectives and monitor their "reach ratio" in an objective way. Pay incentives (bonuses) are often linked to results in reaching the objectives




There are several limitations to the assumptive base underlying the impact of managing by objectives, including:


            Time and Cost


            Fuilure to teach MBO


            Problems in Objecive Setting


            Emphasis on Short term Goals


            It over-emphasizes the setting of goals over the working of a plan as a driver of outcomes.


            It underemphasizes the importance of the environment or context in which the goals are set. That context includes everything from the availability and quality of resources, to relative buy-in by leadership and stake-holders. As an example of the influence of management buy-in as a contextual influencer, in a 1991 comprehensive review of thirty years of research on the impact of Management by Objectives, Robert Rodgers and John Hunter concluded that companies whose CEOs demonstrated high commitment to MBO showed, on average, a 56% gain in productivity. Companies with CEOs who showed low commitment only saw a 6% gain in productivity.


            Companies evaluated their employees by comparing them with the "ideal" employee. Trait appraisal only looks at what employees should be, not at what they should do.


            It did not address the importance of successfully responding to obstacles and constraints as essential to reaching a goal. The model didn’t adequately cope with the obstacles of:


            Defects in resources, planning and methodology,


            The increasing burden of managing the information organization challenge,


            The impact of a rapidly changing environment, which could alter the landscape enough to make yesterday’s goals and action plans irrelevant to the present.


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