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.
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
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.