MBO V/S MBE

TABLE OF CONTENT

1. Introduction

2. MBO

3. Origin of MBO concept

4. Core concept of MBO

5. Basic principles of MBO

6. Application of MBO

7. Process of MBO

8. Advantages and disadvantages of MBO

9. Strengths of MBO

10.MBO at Hyundai Motors

11. MBE

12. Significance of MBE

13. Types of Exceptions

14. Process of MBE

15. Variance analysis and MBE

16.Material variances

17. MBE at Cisco Systems

18. CONCLUSION
 INTRODUCTION
This project focuses on two branches of strategic management
of human resource management that are management by
objective (MBO) and management by exception (MBE). These
both system helps in controlling function of a business
enterprise. They are two different techniques by which a
business enterprise can give direction to their plans (MBO) and
later on effectively controll it (MBE).
Let us further discuss these topics ……..
 WHAT IS MBO ?

1. Management by objectives is a systematic and organized approach that

aims to increase organizational performance by aligning goals and
subordinate objective throughout the organizations.

2. It allows management to focus on achievable goals and to attain the best

possible result from available resources.

3. One of the components of is that all managers should participate in the

strategic planning process for implementation of plans. It includes on going
tracking and feedback in the process to reach objectives.
 ORIGIN OF THE MBO CONCEPT

1. MBO was first outlined by PETER DRUCKER in 1954 in his book

“The practice of management”

2. Since the book introduced the concept, MBO has been accepted
and implemented in many business like:-

◦ GENERAL MOTORS

◦ GENERAL ELECTRICS

◦ GENERAL FOODS, ETC.

 CORE CONCEPT OF MBO

1. According to DRUCKER managers should, “avoid the activity

trap”, that is getting so involved their day to day activities that
they forgot their main purpose or objectives.

2. MBO is primarily a tool for strategic planning, employee

motivation, and performance enhancement .

3. It intends to improve communication between employees and

management, increase understanding of company goals , focus
employee efforts upon organizational objectives and provide a
concrete link between pay and performance.

4. The emphasis is on the results achieved by employees rather

than activities performed in their jobs.
 BASIC PRINCIPLES OF MBO

1. Unity of management action is more likely to occur when

there is pursuit of a common objective.

2. The greater the focus on the result on a time scale, the

greater likelihood of achieving them.

3. The greater the participation in setting meaningful work

with a countable result, the greater the motivation for
completing it. These call for:
 APPLICATIONS FOR MBO

1. The MBO concept is appropriate for knowledge

based enterprises where staff is competent.

2. Appropriate in situations where one wishes to build;

 Employees’ management and self
leadership skills
 Tap their creativity, tacit knowledge and
initiative

3. Used by chief executives of Multinational

Corporations for their country managers abroad.
 SETTING OBJECTIVES

1. In MBO systems, objectives are written down for

each level of organization, and individuals are given
specific aims and targets.

2. It provides focus and emphasizes on team and

individual targets in congruence with organizational
goals.

3. For MBO to be effective, individual managers must

understand the specific objectives of their job and
those objectives fir in with overall company
objectives set by Board of Directors.
 SETTING EMPLOYEES’ TARGETS

1. The management has to set the targets for each employee

and outline their accountability for the timely fulfillment of
the same.

2. Thus, the organizational goals are bifurcated into

individual objectives and targets.

3. A successful MBO program requires each employee to

produce five to ten specific measurable goals.

4. Each target should be supported with a means of

measurement and a series of steps towards completion.

5. The targets should be proposed to the employee’s

manager in writing. Then discussed and approved.
 MONITORING AND EVALUATING
PERFORMANCE

1. To monitor the performance of employees in pursuit

of the targets assigned to them, a proper review
system and Management Information System has
to be designed and made operational.

2. Periodical and strict performances appraisals form a

crucial part of the MBO process. Actual Performance
is compared to the standards and employees are
appraised accordingly.
 PERFORMANCE BASED INCENTIVES

The performance of the employees at all levels of

management are assessed and evaluated and based on
the same, performance incentives are given to
employees. These incentives can be:
 DISADVANTAGES OF MBO

Incurs time & cost

Failure to teach MBO Philosophy to employees

Problems in objective settings

Emphasis on short-term objectives

Inflexibility

Frustration of employees
 STRENGTHS OF MBO

1. One of the best reviews on the strengths of MBO program

is reported by Henry J. Tosi and Stephen J. Carroll. They
opine:
2. MBO stresses collaborative efforts between managers
and subordinates which aids in planning.
3. MBO lets subordinate know what is expected of them by
forcing managers and subordinates to establish attainable
objectives within specified periods of the time.
4. MBO improves communication between managers and
subordinates and makes individuals cognizant of
organizational objectives and goals.
5. MBO improves the performance review and evaluation
process by focusing on the result and by providing
systematic feedback.
 WHAT IS MBE?

Management by exception[MBE] is a “policy by

which management devotes its time to
investigating only those situations in which actual
results differ significantly from planned results”.
The concept of MBE was propounded by:
Fredrick Winslow Taylor.
Attention and priority is given only to material
deviations requiring investigation and correction. It
is a part of motivational and control techniques.
Its objective is to facilitate management’s focus on
really important tactical and strategic tasks.
 SIGNIFICANCE OF MBE

Proper and timely decision making and appropriate flow

of action and employees’ activities.

Better utilization of managers’ time by bringing to their

attention only those conditions that appear to need
managerial action.

Easy identification of discrepancies.

Benefit to customers since MBE makes it easier for the

business to grow and improve its service rather than
use valuable resources on routine tasks.
 TYPES OF EXCEPTIONS

There are two types of exceptions which are identified and

managed through MBE:
 Variance Analysis and MBE

• Variance analysis and performance reports are

important elements of MBE.

• MBE aims at directing the managers’ attetion

towards those parts of the organisation where plans
are not working out for one reason or another.

• If actual results do not conform to the budget and to

standards, the performance reporting system sends
a signal to the management that an “exception” has
occurred.
 MATERIAL VARIANCES

 Variances may and do occur for a variety of reasons.

But the only some of them are significant and
warrant management attention and action.

• The materiality of a variance may be determined by :

 The size of variance.

 The size of the variance relative to the amount
of spending involved.
 Plotting variance on a Statistical Control Chart.
 CONCLUSION

Through the mentioned information I

conclude that both the programs i.e.
management by objective and
management by exception are very
strategic part of HUMAN RESOURCE
MANAGEMENT. They both make
managers more logical to manage the
daily work and even allows him to
delegate some of his powers.
 BIBLIOGRAPHY

• Drucker, Peter F., "The Practice of

Management", in 1954. ISBN 0-06-011095-3
• Odiorne, George S., "Management by
Objectives; a System of Managerial
Leadership", New York: Pitman Pub., 1965.
• Deming, W. Edwards, "Out of the Crisis",
The MIT Press, 1994, ISBN 0-262-54116-5
• Deming’s 14 Points and Quality Project
Leadership
• J. Alex Sherrer, March 3, 2010
• Drucker, Peter, "Management Tasks,
Responsibilities, Practices", Harper & Row,
1973