What is Management by Objectives? (MBO)

MBO (Management by Objectives) is a personnel management technique where managers and employees work together to set, record and monitor goals for a specific period of time. Organizational goals and planning flow top-down through the organization and are translated into personal goals for organizational members. The technique was first championed by management expert Peter Drucker and became commonly used in the 1960s.

Thus, MBO is a 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.

Features and Advantages of MBO

The principle of MBO is for employees to have a clear understanding of their roles and the responsibilities expected of them, so they can understand how their activities relate to the achievement of the organization’s goals. MBO also places importance on fulfilling the personal goals of each employee.

  1. Motivation – Involving employees in the whole process of goal setting and increasing employee empowerment. This increases employee job satisfaction and commitment.
  2. Better communication and coordination – Frequent reviews and interactions between superiors and subordinates help to maintain harmonious relationships within the organization and also to solve problems.
  3. Clarity of goals.
  4. Subordinates tend to have a higher commitment to objectives they set for themselves than those imposed on them by another person.
  5. Managers can ensure that objectives of the subordinates are linked to the organization’s objectives.
  6. Common goal for whole organization means it is a unifying, directive principle of management.

Process Of MBO

MBO Process

MBO is good summarize all the objectives of the organization together with individual goals. The six steps involved in the process of MBO are determining organizational goals, determining employees’ objectives, constantly monitoring progress and performance, performance evaluation, providing feedback and performance appraisal. Moreover, all these steps are briefly defined as follows.

1. Determining Organizational Goals: Determining goals don’t mean creating goals, as the preliminary goals are set by the top level supervisors on the basis of in-depth analysis and judgment about what should be accomplished and how to do so in a certain period.

2. Determining Employees’ Objectives: After determining the organizational goals, the next thing to do is to know the individual’s goals or more clearly employees’ goals. It is the responsibility of the manager to ask employees about what goals they can accomplish within a specific time period and what resources will they use to achieve the goal. Also, if needed, then managers and employees can classify the goals from the most important to the least one in order to make the goal achieving process more easily and in favor of the organization.

3. Monitoring Progress and Performance: There are certain things stated below that can help managers to monitor performance and progress.

  • Checking less-effective or ineffective programs by performing a comparison of performance with already prepared objectives.
  • Using ZBB (Zero Based Budgeting)
  • For measuring plans and individuals, implementing MBO concepts
  • Defining short and long term plans and objectives
  • Installing efficient and effective controls
  • Eventually, composing completely sound structure of the organization with all things at appropriate places such as responsibilities, decision making and so on.

4. Performance Evaluation: As per the basic concept of MBO, the performance evaluation comes under the responsibility of concerned managers and is made by their participation. Keep in the mind, performance evaluation is one the most important factors of the organization that can help operating certain objectives smoothly.

5. Providing Feedback: The psychologically influential factor of MBO is constantly providing feedback to employees regarding their performance and individual goals, so that they can monitor, correct and extra improve their skills and mistakes. Mostly, the feedback is provided in periodic meetings where supervisors and their subordinates review the performance and progress towards achievement of goals. At one point, feedback helps individuals know their weakness. While on the other hand, it also motivates already potential individuals to enhance and develop their performance additionally.

6. The Performance Appraisal: Performance appraisals are the final step of the process of Management by Objectives. By definition, a day by day review of the employee’s performance across the organization can be called as performance appraisal. Performance appraisal is associated with the term performance evaluation, but in some cases, both differ from each other.