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Management By Objectives – MBO | Definition , Process , Advantages

MANAGEMENT BY OBJECTIVES (MBO)

• MBO was first popularized by Peter Drucker in 1954 in his book ‘The practice of Management’.
• MBO (Management by objectives) as a comprehensive managerial system that integrates many key managerial activities in a systematic manner and is consciously directed toward the effective and efficient achievement of organizational and individual objectives.

This view of MBO as a system of managing is not shared by all. While some still define MBO in a very narrow, limited way, we prefer to see it as a comprehensive goal-driven, success-oriented management system as shown below. Besides being used for performance appraisal, as an instrument for motivating individuals, and in strategic planning, there are still other managerial subsystems that can be integrated into the MBO process. They include human resource planning and development (staffing as well as individual and organization development), career planning (building on personal strengths and overcoming weaknesses), the reward system (paying for performance), budgeting (planning and controlling), and other managerial activities important for a specific position. These various managerial activities need to be integrated into a system. In short, MBO, to be effective, must be considered a way of managing as shown in below, and not an addition to the managerial job.

MBO Definition:

• “MBO is a process whereby the superior and the mangers of an organization jointly identify its common goals, define each individual’s major area 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.”

Features of MBO

• MBO is concerned with goal setting and planning for individual managers and their units.
• The essence of MBO is a process of joint goal setting between a supervisor and a subordinate.
• Managers work with their subordinates to establish the performance goals that are consistent with their higher organizational objectives.
• MBO focuses attention on appropriate goals and plans.
• MBO facilitates control through the periodic development and subsequent evaluation of individual goals and plans.

Process of MBO:

The various steps in the MBO process are
• Setting of organizational purpose& objectives (long term objectives)
• Planning premises (certain assumptions about future happenings.
• Fixing Key result areas (it indicates the strength of the organization)
• Setting superior’s objectives (long term &short term objective).
• Superior’s recommendations for subordinate’s objectives.
• Subordinates statement of his objective.
• Matching of goals& resources.
• Subordinate’s agreed objectives
• Setting standard for subordinate performance
• Periodic review and appraisal of performance.

Benefits of management by objectives

• Better managing of organizational resources and activities.
• Clarity in organizational action& objectives.
• MBO provides greatest oppourtunity for personal satisfaction (for managers)
• MBO provides a basis for organizational change and provide a framework and also it provide guideline for planned change ,enabling the top mgt to initiate, plan , direct and control the direction , speed and change.
• MBO helps the manager to understand their role in the total organization involvement.
• Commitment and hardwork by managers as they are involved in setting the objectives.(participating in the mgt
• MBO helps in evaluating the performance systematically.
• MBO motivates the workers &make the job meaningful.
• Mgt takes the decision very quickly as the workers know the purpose of taking decisions
• Improvement of managing through results-oriented planning
• Clarification of organizational roles and structures as well as delegation of authority according to the results expected of the people occupying the roles
• Encouragement of commitment to personal and organizational goals
• Development of effective controls that measure results and lead to corrective actions

Failures of management by objectives and some recommendations

Despite all its advantages, an MBO system has a number of weaknesses. Most are due to shortcomings in applying the MBO concepts.
1. Failure to teach the philosophy of MBO is one of the weaknesses of certain programs. Managers must explain to subordinates what it is, how it works, why it is being done, what part it will play in appraising performance, and, above all, how participants can benefit. The
philosophy is built on the concepts of self-control and self-direction.

2. Failure to give guidelines to goal setters is often another problem. Managers must know what the corporate goals are and how their own activities fit in with them. Managers also need planning premises and a knowledge of major company policies.

3. There is also the difficulty of setting verifiable goals with the right degree of flexibility. Participants in MBO programs report at times that the excessive concern with economic results puts pressure on individuals that may encourage questionable behavior. To reduce the
probability of resorting to unethical means to achieve results, top management must agree to reasonable objectives, clearly state behavioral expectations, and give high priority to ethical behavior, rewarding it as well as punishing unethical activities.

4. Emphasis on short-run goals can be done at the expense of the longer-range health of the organization.

5. Moreover, the danger of inflexibility can make managers hesitate to change objectives, even if a changed environment would require such adjustments.

Limitations of MBO:
• Time consuming process: requires large amt of time of the senior managers and cost high due to paper work and other resources which are scarce.
• Fail to teach philosophy: managers fail to teach MBO philosophy of managing an organization.
• Variable objective: Setting of variable objectives difficult at least in time areas.
• Much emphasis for short term objectives at the cost of long term objectives.
• Danger on inflexibility
• Difficulty of setting goals

How to make MBO effective:
– Support from all types of MGT
– Acceptance of MBO program by managers
– Training of managers
– Organizational commitment: MBO
– Allocation of adequate time and resources
– Provision of uninterrupted information feedback