Achieve Your Success to Next Level through Management By Objectives (MBO)! Focus Your Intelligence on Why, What, How, Where, When & Boost up Career!
Management by Objectives (MBO), is a result-oriented, goal-setting management model that focuses on collaborative goal-setting between managers and employees. It is also known as Management by Results, Goal Management and Management by Planning,
With an emphasis on clear communication and a unified commitment to organizational objectives, the MBO technique measures employee performance against mutually determined goals, standards and expectations.
Management by objectives can be a powerful framework for business success, but it does come with downsides that not everyone is aware of.
Management by Objectives, often referred to as MBO, is a management philosophy and technique introduced by Peter Drucker in his 1954 book “The Practice of Management.”
At its core, MBO is a goal-setting process that aims to improve organizational performance by defining specific objectives and aligning the efforts of individuals and teams toward achieving those objectives.
In the MBO (Management by Objectives) framework, objectives are established through a collaborative effort that integrates insights from both managers and employees. These objectives are meticulously crafted to adhere to the SMART criteria, which demands that they be Specific, Measurable, Achievable, Relevant, and Time-bound
MBO has allowed countless organizations to achieve — and in many cases exceed — their goals since the mid-1950s. The common outcome of managing by objectives is increased productivity, teamwork and communication.
By its very nature, the MBO framework makes the roles and responsibilities of every employee explicit, which ensures every contributor is aware of their input and impact.
MBO differs significantly from alternative management processes that operate from a predominantly siloed approach. There's usually a lower chance of success in instances like that, where the larger picture isn't visible to employees.
A well-implemented Management by Objective model empowers employees to take ownership of their piece of the organizational puzzle, increasing engagement and productivity. MBO also encompasses the regular monitoring and evaluation of employees against agreed goals, and any associated variable compensation or non-financial incentives.
Management by Objectives is an exhaustively comprehensive management approach that affects the entire organizational structure. While many organizations sing its praises, others sing from another hymn sheet.
The objectives of Management by Objective are:
- To aid employees in realizing their responsibilities at work. Each employee has key result areas customized to their interest, areas of expertise, and academic background. The staff members are aware of what is required of them because of MBO.
- To make employees feel valuable in the organization. Every employee plays a unique role in helping the company achieve its goals and objectives. Each employee plays a different role at work. Each person eventually begins to feel devoted to the group and feels valuable in the organization. They typically stay with the company for a longer period and provide significant contributions.
- To guarantee the effectiveness among employees. It fosters an encouraging atmosphere at work, allowing people to appreciate their jobs rather than viewing them as an obligation. Employees who use the MBO process are extremely enthusiastic and dedicated.
- To produce clearly specified hierarchies. It guarantees open-mindedness on all fronts. The Managing Director is not approachable directly by any superior in any company. First, he or she would communicate with their reporting boss, who would then convey the information to the senior, and so on. Each person understands where they fit within the company.
- To set a benchmark for every employee. For each member of the team, the managers establish different organizational and personal goals. Detailed job lists are provided to each employee. Eventually, it eliminates unnecessary complications and works incompatibility.
- To serve as a device for organizational control and integration.
- To serve as a basis for judgements about salary and promotions.
Resource Optimization: MBO ensures the proper utilization of the available resource (i.e., human resources) eliminating the wastage of these resources in terms of time and efforts.
Goal Orientation: The initial step in MBO is the goal formation, and all the efforts are directed towards the accomplishment of these set objectives.
Multiple Accountability: In MBO, goals are formed for the employees, and therefore, everyone has their course of action for which they are individually accountable.
Universally Applicable: The concept of MBO can be applied to almost all the organizations, whether business entities or non-profit organizations.
Systems Approach: It is applied to the whole system and thus integrates the efforts of the individual, the organization and its environments in a single direction.
Simple and Comprehensive: Since MBO is a non-technical process, it can be easily understood by all types of managers and employees.
Operational: It is practically applicable to the day to day business operations, and the performance can be evaluated periodically by comparing the actual result to the desired outcome.
Employee Management Participation: The top management does not just set the goals in MBO but involves the active participation of the employees and the managers too
Key Result Areas (KRA): The priority zones in the organization which require special attention and are considered to be crucial for the growth and development of the business are termed as KRA. Thus, MBO focuses on this KRA for enhancing the overall performance.
- Defining Organizational Goals: The initial step is to establish the short-term and long-term organizational goals and objectives which evolves from the mission and vision of the company.
- Determining Employees’ or Subordinates’ Objectives: The next step is to define the individual goals and objectives. For this, opinion is taken from the employees on their ability of goal accomplishment and targets which they will set for themselves.
- Constant Monitoring Employee Progress and Performance: The managers need to continuously monitor the performance of each employee to identify any loopholes or hurdles in business operations.
- Performance Evaluation: After monitoring the work, the managers need to evaluate and review the performance of every individual to spot any scope for improvement.
- Providing Feedback: With the help of the above evaluation, the managers now need to give valuable feedback to every individual to motivate them. And, at the same time making them aware of their weaknesses and potential for improvement.
- Performance Appraisal: The last step is reviewing the performance of the employees regularly to bring in efficiency in their workstream.
As these goals are usually set for short-term, the process can be repeated again and again.
- Detailed planning: Managers and employees work together to define measurable goals, leaving less room for uncertainty and more room to focus on what will drive success.
- Clearly assigned roles and responsibilities: When employees help set organizational goals and metrics, they better understand what success looks like, how to obtain it, and how you will evaluate them.
- Enhanced communication and transparency: Clear and effective communication between management and employees is part and parcel of MBO. Transparent communication minimizes ambiguity and cultivates confidence across the business.
- Increased productivity and morale: MBO highlights the relevance of each employee in achieving the goals that have been mutually set. When the employee knows that their unique contribution plays a fundamental role in the business's overall success, it can boost motivation, productivity and accountability.
- Regular feedback and opportunities for career development: MBO is a process of constant refinement which prompts managers to take a guiding role in areas for employee development. Since employees also understand where their current skills are being utilized, they are aware of areas that could be improved and can seek them out.
- Quantifiable objectives: Specific goals and objectives are an agreed-upon benchmark to measure the performance of employees and the organization. With high significance placed on measurable objectives, the performance appraisal and evaluation process is more precise.
- Overall improvement to the organization: With its performance and result-oriented focus, MBO brings about clarity, communication and collaboration among managers and team members. This winning combination promotes business growth in a proactive and responsive framework.
- Unanimous support from all levels of the organization is required: The success of Management by Objectives hinges on senior management's complete support and acceptance. Many underlying issues may stall the process of unifying the goals of the ‘unequal’s,’ i.e. management and junior to mid-level employees. Cross-functional support is essential to overcome them.
- Time-consuming: Integrating MBO is an investment that requires a concerted commitment to be beneficial. Additional time to define goals and evaluation processes is necessary, requiring meetings and paperwork that can infringe on daily work.
- Some aspects are difficult to quantify: The emphasis on measuring everything that can be measured ignores non-measurable factors like teamwork, company culture and other interpersonal activities. That could lead to those factors being devalued and less practiced. The extreme focus on numbers and metrics could have an anxiety-inducing impact on employees who feel they have to be ‘always on’ and performing optimally.
- Emphasis on short-term goals: Goals are usually set based on six to 12-month intervals, which often means long-term objectives aren’t treated with the same level of importance. With this being the case, it’s possible to lose sight and direction of overarching long-term goals.
- Inflexibility: Fixation on particular goals could cause stakeholders to miss signs that the revision of a goal may be necessary or beneficial.
- Potential gaps in management’s skillset: MBO, though deep-rooted in collaboration, rests heavily on the shoulders of leadership to create a sense of direction. If a manager lacks the skills, the potential benefits of the Management by Objectives model will not be realized.
- Integration issues - Limited application Seamless integration into an existing management system is unlikely, and businesses should be aware of this before attempting to do so.
Can Management by Objectives be applied in all types of organisations?
MBO is versatile but may not be suitable for every organisation, especially those in creative, research, or highly unpredictable environments. Its effectiveness depends on the nature of the work and the organization's structure and culture
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