Management by Objectives (MBO)
The ideas behind management by objectives (MBO) were advocated and popularized by Peter Drucker, who stressed that business performance requires that each job be directed towards the objective of the whole business. Even though it is comparatively a new area, a lot of attention has been paid to it, notably by John Humble in England and George Odiorne in America.
George Odiorne has explained the concept as follows:
“The system of management by objectives can be described as a process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individual’s major areas of responsibility in terms of results expected of him, and use these measures as guides for operating the unit and assessing the contribution of each of its members.”
MBO can also be referred as Management by Results or Goal Management, and is based on the assumption that involvement leads to commitment and if an employee participates in goal setting as well as setting standards for measurement of performance towards that goal, then the employee will be motivated to perform better and in a manner that directly contributes to the achievement of organizational objectives.
John Humble seems to be highly excited about this new and challenging concept and defines management by objectives (MBO) as a dynamic system which integrates the company’s need to achieve its goals for profit and growth with the manager’s need to contribute and develop himself. It is a demanding and a rewarding style of managing a business.
Management by objectives (MBO) by definition is a goal-oriented process and not a work-oriented process. Just being busy and doing work is not important, if it does not effectively lead to achievement. It is both an aid to planning as well as a motivating factor for employees. By its proper use, some of the planning errors can be eliminated or minimized.
It is a comprehensive system based upon set objectives in which all members participate. These objectives are common objectives for all participants and the extent or rewards for each member would be determined by the degree of achievement. This leads to a fair appraisal system. Additionally, a good MBO plan involves regular and face-to-face superior-subordinate communication and hence it improves the communication network.
Management by Objectives (MBO) Process
Some of the elements in the Management by objectives (MBO) process can be described as follows:
1. Central Goal Setting: The first basic phase in the MBO process is the defining and clarification of the organizational objectives. These are set by the central management and usually in consultation with the other managers. These objectives should be specific and realistic.
This process gets the group managers and the top managers to be jointly involved. Once these goals are clearly established, they should be made known to all the members of the organization and be clearly understood by them.
2. Manager-subordinate Involvement: After the organizational goals have been set and defined, the subordinates work with the manager in setting their individual goals. Such joint consultation is important because people are much more motivated in achieving objectives that were set by them to start with.
The goals of the subordinates are specific and short range, and primarily indicate what the subordinate’s unit is capable of achieving in a specified period of time. The subordinates must set goals in consultation with the individuals who comprise his unit. In this manner, everyone gets involved in the goal setting.
3. Matching Goals and Resources: The objectives in themselves do not mean anything unless we have resources and means to achieve those objectives. Accordingly, management must make sure that the subordinates are provided with necessary tools and materials to effectively achieve these goals.
If the goals are precisely set, then the resource requirements can also be precisely measured thus making the resource allocation easier. However, just like goal setting, the allocation of resources should also be done in consultation with the subordinates.
4. Freedom of Implementation: The manager-subordinate task force should have adequate freedom in deciding on the utilization of resources and the means of achieving the objectives. As long as these means are within the larger framework of organizational policies, there should be minimum interference by the superiors.
5. Review and Appraisal of Performance: There should be periodic reviews of progress between a manager and the subordinates. These reviews would determine if the individual is making satisfactory progress. They will also reveal if any unanticipated problems have developed. They also help the subordinate understand the process of management by objectives (MBO) better. They also improve the morale of subordinates since the manager is showing active interest in the subordinate’s work and progress.
However, the performance appraisal at these intermediate reviews should be conducted, based upon fair and measurable standards. These reviews also will assist the manager and the subordinates to modify either the objectives or the methods, if necessary. This increases the chances of success in meeting the goals and makes sure that there are no surprises at the final appraisal.