Management by Objective (MBO) is a management approach that clearly defines every employee’s goal and sets performance measures with respect to the goals being set. Managers at all levels are made aware of the central goal of the organization and then they work together, as a team, to achieve it. MBO aims to improve the performance of the employees working at all levels in the organization. It binds the whole organization to a central goal.
This, management by objective or MBO, approach was first ever brought up
by Peter Drucker in his book “The Practice of Management”, in 1994. It
was discovered to increase the efficiency in management, which it did to
quite some extent. It aimed to regulate management via objectivity but
instead it did it by enhancing the organizational performance on the
If you are looking forward to enhance your organizational performance or achieve your work goals in a timely manner then MBO is what you are looking for. It provides a faster feedback mechanism by setting short-term goals and therefore keeps the organization going in the right direction by ensuring that all the short-term goals are directing towards that one central objective of the organization. Everyone is supposed to present their own performance objectives, which in turn encourages effective communication throughout the organizational hierarchy. Effective communication throughout the organization is one of the work relationship rules that management by objective or MBO seamlessly covers.
Furthermore, it encourages managers at all levels to make their own decisions and set their own objectives. Employees are given the flexibility to fullfil their responsibilities the way it works best for them. Everyone is given their own area of responsibility and they are supposed to set their own set of objectives in order to fullfil their responsibilities.
Written plans are a crucial part of MBO, everyone is supposed to have a plan in accordance with their objective and their objective should help in getting closer to the organizational goal. These written plans act as a clear guideline through all levels of management.
Management by objective was a crucial part of management in Hewlett Packard (HP). Since 2009 till modern times, it is known that they followed MBO as part of their management. Managers had to prepare written plans, share them with other managers, coordinate with other managers and develop initiatives to reach the company’s objective. Bill Packard, the founder of HP said, “MBO is the opposite of ‘Management by Control’ - it gives the employees the freedom to prepare a plan of their own and be more productive for the company. It gives them the flexibility to achieve their goals the best possible way for themself”
Another feature of MBO is that it sets some checkpoints. Those checkpoints act as guidelines for performance evaluation and ensure that everyone is going in the right direction. The best part is that the managers set those checkpoints collectively as a team, for them self. It binds the whole organization and allows them to work as a team, be more committed to the self-set goals and be more productive for the company as a whole.
Not to forget, MBO gave us the S.M.A.R.T objective way to manage our organizational issues and gave us the philosophy of ‘what gets measured gets done’.
• S = Specific
• M = Measurable
• A = Achievable
• R = Realistic
• T = Time-bound
According to MBO, your objectives should be all of the above-mentioned things to help you achieve your long-term goal successfully.
To recap, the key features of Management by Objective are;
1. MBO allows you to achieve the long-term central goal by setting short-term objectives.
2. Increases coordination and promotes effective communication between the managers and their subordinates.
3. Keeping the subordinates involved in the management plan/process, keeps them highly motivated and committed towards the goals.
4. MBO requires the whole management team to set some performance guides to keep moving towards the same original purpose/goal. This in turn enhances employee performance.
5. The S.M.A.R.T objective method.
6. It acts as a guideline for performance evaluation and feedback provision. Therefore, we can use this method to increase the whole organizations work performance.
Management by Objectives (MBO) is a crucial management approach. It helps defines every employee’s goal and establishes performance measures.
The sole purpose of MBO is for managers and employees to work together to achieve company’s central goal. A successful MBO process can enhance employee efficiency and performance.
On an organizational level, it ensures that the business moves in the right direction. The whole organization works as a team to achieve company goals.
If you want to make the most of MBO, follow these 5 strategies:
Set clear, well-defined goals that are achievable and realistic. In other words, they should neither be too challenging nor too easy to achieve.
They should be specific and easy to measure. Everyone concerned should be able to understand them.
For goal setting, it’s essential to involve subordinates. It should be a joint effort between subordinates and seniors. Also, open, honest communication is necessary for setting objectives. It also provides subordinates the opportunity to let the management know their problems.
Furthermore, goals will need to be reviewed and modified consistently. Once goals are set, they need to be properly understood and accepted by the parties involved. MBO works when the goals are accepted by everyone on board.
MBO should reflect the overall philosophy of the company. It isn’t merely an employee performance appraisal process. It is a key part of the entire organization.
When it comes to MBO implementation, integration matters. The approach can’t be implemented in isolation. As mentioned earlier, it’s a core component of the company. Coupled with supporting company philosophy, MBO should easily integrate into organization climate. Thus, you may have to update old systems to implement MBO.
All parties involved must know their respective role, objectives and responsibilities. MBO should be accepted by all departments concerned.Decentralized authority
Decentralization of authority is the foundation of MBO. Without sufficient decentralization, MBO won’t achieve the desired results. If a manager isn’t ready to delegate authority to their team, MBO won’t work.
Subordinates must be given challenging tasks and adequate authority. This is the only way to achieve goals on an individual and organizational level.Management support
Without management support, employees can’t achieve organizational goals.
Therefore, it’s essential for top managers to provide support to their subordinates. Managers should consider them as part of their decision-making process.
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Management by objective (MBO) is an ancient management model. First introduced by management guru, Peter Drucker in 1954 in his book The Practice of Management, MBO has become a common part of organizations.
Put simply, MBO entails defining organizational objectives, which are acceptable by both the management and employees. Its end goal is to improve the performance of an organization. With the active participation of both employees and managers for goal setting, it’s believed that MBO leads to better outcomes. As a result, it enhances employee and organizational productivity.
The following are some major advantages of MBO:
MBO leads to better management. The MBO process is all about defining organizational goals and developing action plans.
Managers and employees determine specific objectives. Thereafter, they work together to develop concrete action plans to fulfill these objectives.
Planning is a pre-requisite for successful management. Without planning, it’s impossible for managers to achieve their targets.
Keep in mind, goals set should be realistic and measurable. Managers use these goals as standards of control.
Firm commitment towards achieving goals
The provision of clearly defined objectives motivates employees to work hard. Thus, Management by Objective serves as a strong motivational tool. If implemented well, the MBO approach encourages individuals to commit to their objectives
This is because the approach allows them to participate in the goal setting process, thereby leading to greater motivation in fulfilling the company goals.
Clarity in organizational structures
Management by Objective starts with the identification of key target areas.
Thereafter, specific roles and responsibilities are assigned to different individuals to achieve these targets. As a result, it leads to the creation of various organizational positions.
There’s much more clarity in the overall structure of the organization. The process typically relies on delegation of authority or responsibility.
Another significant benefit of the MBO approach is that results in result-oriented controls. Besides effective planning, MBO provides organizations the measurement criteria to determine where employees stand. It also facilitates objective appraisals by offering systematic measurement and evaluation of employee performance.
With the above mentioned benefits, there’s no question that MBO provides many rewards to companies.
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