Management by Objectives – MBO

What is 'Management by Objectives - MBO?'

Management by objectives (MBO) is a management model that aims to improve 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 should
ensure better participation and commitment among employees, as well as alignment of
objectives across the organization. The term was first outlined by management guru Peter
Drucker in 1954 in his book "The Practice of Management."

Key Concepts

The core concept of MBO is planning, which means that an organization and its members are
not merely reacting to events and problems but are instead being proactive. MBO requires
that employees set measurable personal goals based upon the organizational goals. For
example, a goal for a civil engineer may be to complete the infrastructure of a housing division
within the next twelve months. The personal goal aligns with the organizational goal of
completing the subdivision.

MBO is a supervised and managed activity so that all of the individual goals can be
coordinated to work towards the overall organizational goal. You can think of an individual,
personal goal as one piece of a puzzle that must fit together with all of the other pieces to
form the complete puzzle: the organizational goal. Goals are set down in writing annually and
are continually monitored by managers to check progress. Rewards are based upon goal
achievement.

The process of setting objectives in the organization to give a sense of direction to the
employees is called as Management by Objectives. It refers to the process of setting goals for
the employees so that they know what they are supposed to do at the workplace.
Management by Objectives defines roles and responsibilities for the employees and help
them chalk out their future course of action in the organization. Management by objectives
guides the employees to deliver their level best and achieve the targets within the stipulated
time frame.

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Need for Management by Objectives (MBO)

The essence of MBO is participative goal setting, choosing the 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.
The MBO should be defined that Management By Objectives is a management system in
which specific performance goal are jointly determined by employees and their managers,
progress toward accomplishing those goals is periodically reviewed and rewards are allocated
on the basis of this progress.

 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. Everyone
is clear about his position in the organization.
 The MBO Process leads to highly motivated and committed employees.

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  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.

Features of Management by Objectives

In the light of the above definitions of MBO, the following features of it can be identified;

1. It is a technique and philosophy of management.

2. Objective setting and performance review are made by the participation of the concerned
managers.
3. Objectives are established for all levels of the organization.
4. It is directed towards the effective and efficient accomplishment of organizational
objectives.
5. It is concerned with converting an organizational objective into a personal objective on the
presumption that establishing personal objectives makes an employee committed which
leads to better performance.
6. The basic emphasis of MBO is on objectives. Management by Objectives tries to match
objectives with resources.
7. Objectives in MBO provide guidelines for appropriate systems and procedures.
8. Periodic review of performance is an important feature of MBO.
9. MBO provides the means for integrating the organization with its environment, its sub-
systems, and people.
10. Employees are provided with feedback on actual performance as compared to planned
performance.

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Benefits of Management by Objectives
It provides a means to identify and plan for achievement of goals. If you don't know what
your goals are, you will not be able to achieve them. Planning permits proactive behavior and
a disciplined approach to goal achievement. It also allows you to prepare for contingencies
and roadblocks that may hinder the plan. Goals are measurable so that they can be assessed
and adjusted easily. Organizations can also gain more efficiency, save resources, and increase
organizational morale if goals are properly set, managed, and achieved.

In addition to the fact that goal-orientation of management promotes a sense of motivation

among the people within the organization, MBO has certain other benefits which are narrated
as under:

1. Improves Management: Objectives cannot be established without planning, and results-

oriented planning is the only kind that makes sense. MBO forces managers to think about
planning for results, rather than merely planning work or activities. In order to make
objectives realistic, Management by Objectives also requires that managers think of the
way they will accomplish results and the resources and assistance they will require.
2. Encourages Personal Commitment: MBO encourages employees to commit themselves
to their goals because they have before them clearly defined objectives. Moreover, the
fact that they often participate in goal- setting, improves their commitment to work. As a
matter of fact, people become enthusiastic when they control their own fate.
3. Clarifies Organization: MBO forces management to clarify organizational roles and
structures. So far as possible, organizational positions are built around the key results
expected of the people occupying them. Moreover, the companies that embark on MBO
programs can easily discover deficiencies in their organization and take necessary steps to
rectify.
4. Device for Organizational Control and Systematic Evaluation: It serves as a device for
organizational control integration. MBO helps in making a more systematic evaluation of
performance.
5. Develops Effective Control: There is no better incentive for self- control and no better way
to know the standards for control than having a set of clean goals. When each and every
employee knows what to achieve, control becomes very easy and automatic.

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6. Improving Productivity: Management by Objectives helps in improving productivity as the
management team concentrates on the important task of reducing costs.
7. Motivating the Subordinates: It stimulates the subordinates’ motivation.
8. Personal Satisfaction: It provides greater opportunity to managers for personal
satisfaction on account of participation in objective setting and rational performance
appraisal.
9. Locating Weak and Problem Areas: It helps in locating weak and problem areas because
of improved communication and organization structure.

Disadvantages/ limitations

However, MBO is not without disadvantages. Application of MBO takes concerted effort. You
cannot rely upon a thoughtless, mechanical approach, and you should note that some tasks
are so simple that setting goals makes little sense and becomes more of silly, annual ritual.
For example, if your job is snapping two pieces of a product together on an assembly line,
setting individual goals for your work isn't really necessary.

Rodney Brim, a CEO and critic of the MBO technique, has identified four other weaknesses.
There is often a focus on mere goal setting rather than developing a plan that can be
implemented. The organization often fails to take into account environmental factors that
hinder goal achievement, such as lack of resources or management support. Organizations
may also fail to monitor for changes, which may require modification of goals or even make
them irrelevant. Finally, there is the issue of plain human neglect - failing to follow through
on the goal.

The following are the limitations of Management by Objectives;

1. Difficulty in setting verifiable goals which help in the process of control.

2. Emphasis on short-run goals often jeopardizes the achievement of the long-term
objectives.

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3. The danger of inflexibility also causes a serious problem since managers may strive for
goals that have been made obsolete by revised corporate objectives, changed premises,
or modified policies.
4. MBO cannot be implemented effectively on account of difficulty in setting verifiable
objectives.
5. The open atmosphere for appropriate objective-setting is absent because of differences in
the status of subordinates.
6. Managers may not get time to do even their normal work as MBO involves much
paperwork and holding of many meetings.
7. There is a tendency on the part of the managers to emphasize short-term objectives and
to become more precise in objective setting and accomplishment
8. MBO is a philosophy of managing an organization in a new way. However, many managers
fail to understand and appreciate this new approach.
9. MBO represents the danger of inflexibility in the organization, particularly when the
objectives need to be altered. In a dynamic environment, a particular objective may not
be valid forever.
10. It sometimes ignores the prevailing culture and working conditions of the organization.
11. 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.
12. 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.

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