What is Management by Objectives?
Management by Objectives (MBO) is a strategic management technique in which measurable goals are set by a joint effort of seniors and subordinates and the contribution of each individual is measured in terms of their accomplishment of the goals.
The goals set in MBO are not unilaterally set by the superior or imposed on the subordinates. These identified goals are set in close consultation with subordinates.
In 1954, Peter Drucker coined the term Management By Objective in his book, The Practice of Management.
MBO is an autonomous and participative style of management. The concept has become popular these days as a rewarding style of management. It focuses concentration on the achievement of objectives through partaking and involvement of all concerned persons.
Table of Contents
Definition of MBO
According to George S. Ordioruc, “The system of management by objectives can be described as a process whereby the superior and subordinate managers of an organisation 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.”
According to Koontz and Weihrich, “Management by objectives is a comprehensive managerial system that integrates many key managerial activities in a systematic manner and that is consciously directed toward the effective and efficient achievement of organisational and individual objectives.
S.K. Chakravarty defines it as. “MBO is a result-centred, non-specialist, operational managerial process for the effective utilisation of material, physical, and human resources of the organisation by integrating the individual with the organisation and organisation with the environment.”
According to Terry and Franklin, “A managerial objective is the intended goal that prescribes definite scope and suggests direction to the planning efforts of a manager.” This definition states four aspects of management by objectives i.e. goal, scope, definiteness, direction. From managerial point of view the target to be achieved should be identified and clear. The scope of the goals should be stated in the prescribed boundaries. The goal should also state definiteness, a vague goal will create more confusion and has no managerial value.
Pros Reddin says that MBO is the establishment of effectiveness areas and effectiveness standards for management positions and as produce conversion of all these into measurable time sound objectives linked vertional, and horizontally with future planning”.
Features of MBO
These are the following features of MBO:
- MBO is not merely a technique but a philosophy to management. A technique is applicable only in specified areas by a philosophy or approach guides and influences every aspect of management. MBO is an approach which includes various techniques of better management.
- In this approach various objectives of the organisation and of individuals are collectively decided by superiors and subordinates. These objectives become the targets which are to be achieved by various persons in the organisation. The review of objectives is also done collectively.
- The corporate, departmental and individual objectives are used as a yardstick to measure performance. A comparison of targets and actual results will enable managers to judge the performance of subordinates and top level will similarly assess the performance of managers.
- MBO provides for a regular review of performance. This review is normally held once in a year. It emphasises initiative and active role by the manager who is responsible forachieving the objectives. The review is future oriented and provides a basis for planning and corrective actions.
- The objectives in MBO provide guidelines for appropriate system and procedures. The degree of delegation of authority, fixation of responsibility, allocation of resources etc. can be decided on the basis of objectives of various individuals. These objectives also become a basis of reward and punishment in the organisation.
Process of Management by Objectives
The basic assumption behind such a philosophy is that when people are aware of the expectation from them they align their personal goal with the organizational goal and can perform better.
Steps of the MBO process are:
- Preliminary Goal Settings
- Setting Subordinate Objectives
- Action Planning
- Periodic Performance review
- Final appraisal
Preliminary goal settings
The initial stage in the process of MBO is to identify the organizational objectives. The top management generally in consultation with other managers determines it.
The important aspect of determining these is identifying “Key-Result Areas’ (KRA). Once these goals are identified they must be shared with other members.
Setting specific performance objectives
The organization goals can only be achieved if they are divided amongst the individuals and every individual performs the given task. Therefore every individual should be informed about the task that is expected from them.
The subordinate should be consulted before providing with the resources for performing the task. The resources provided should be proportionate according to the goals.
Goal setting is a two-way process it is not imposed on the subordinate by the superior. Superior suggests a goal to subordinate and subordinate accepts it.
Development of Action Plans
After the goals are set, action plans are developed to bring the things into force. Procedures are formed for achievement of set goals.
Under MBO the subordinates and superior jointly and interactively perform a given task. The superior gives suggestion and the subordinates perform. The objectives are so formed that every objective accomplished at lower level contributes to the fulfilment of the greater goal.
Periodic performance review
At specified time interval evaluation of the work is done with joint participation to identify shortcomings or deviations if any. Subordinate and superior sit and discuss the problems area identified Feedbacks and suggestions are made available for the potential development.
The main purpose is to improve the quality instead of focusing on criticism.
Final appraisal
At the end of the year, the performance of the individual is evaluated on the basis of the task completed.
The standards which are set are compared with the actual. The actual work is evaluated based on which the appraisal or rewards of the subordinate is decided.
Advantages of Management by Objectives
- Helps in reducing wastage of resources as the resources are provided in proportion to goals set.
- Helps in making planning effective with the help of action plans and result oriented planning.
- The subordinate is able to relate his goals with organizational objectives and feels proud of his contribution towards the organizational objectives
- Induces team spirit with a democratic and participative style of work.
- It gives subordinate valuable feedback through the system of periodic evaluation. The employee becomes aware of his progress and can take timely corrective action if he is lacking somewhere.
- Induces employee morale as their participation is given due consideration. Also, the rewards are according to the contribution which raises their morale.
- It acts as an effective tool of self-control as every individual knows what is expected out of him, which helps in self-regulation.
Limitations of Management by Objectives
These are limitations of management by objectives:
Rigidity
The problem is that it sometimes fails to incorporate prevailing trends and the current scenario of the organization.
Goal Setting
Which criteria should be given more preference quantity or quality? The goal should be long term or short term, these are various issues confronted while setting goals. Sometimes overemphasis on measurable goals can neglect crucial qualitative goals like job satisfaction.
Time Consuming
Setting up of goal that are measurable and that too in participative style requires a lot of time. Instilling confidence, deciding on tasks all these require a lot of time. The process of evaluation and performance appraisal involves considerable paperwork and time.
Unhealthy Environment
Sometimes more emphasis is laid on work rather than improving the quality which produces a lot of pressure and unhealthy competition between workgroup.
Participation Problem
At times to avoid wastage of time, superior do not consult subordinates and set the goals authoritatively which loses the essence of the process.
Managerial Skill
Some managers may not be very good at human skills. They may not be effective in motivating and leading people towards the work.
Prerequisites for Installing MBO Programme
The installation of MBO programme will require a change in organisational culture and environment. The philosophy of MBO should be properly explained to everybody in the organisation. The purpose of installing this system may also vary from organisation to organisation.
Following are the prerequisites for installing MBO programme:
Defining Purpose
The first thing for implementing MBO programme is to define its purpose. Different organisations may have different purposes to be achieved from MBO programme. Howell suggested three stage evaluation of MBO: management appraisal and development, improvement of productivity and profitability and long range planning.
An organisation may like to use MBO for improvement of its productivity, another may use it for improving managerial efficiency. In the absence of a definite purpose MBO will not be a useful exercise.
Support from Top Management
In order to succeed MBO programme must have the support of top management. The subordinates will implement this programme effectively only when they are sure of the sincerity of top management in pursuing it. MBO is a method of managing effectively, it is a continuous process and not a single time activity.
Managers will discuss with subordinates their targets and will regularly evaluate their performance. If the performance is lower than the predetermined standards then the causes of deviations are ascertained and corrective actions are taken. Top management will have to show a constant interest in MBO programme otherwise it is likely to fail.
Training for MBO Programme
The success of any programme depends upon the knowledge of the persons implementing it. If they understand what they are implementing then others can be explained about the concept, philosophy and need for such a programme. The persons implementing MBO should be given proper training about the programme and its implementation.
If people are not sure about the aims of the programme then they will find difficult to implement it. There is a need for structural change, behaviour change and attitude change for making the programme effective and successful.
Participation
In order to secure commitment of subordinates for the programme, there is a need for participation by everybody in the organisation. Subordinates should be made an integral part of this system. In case subordinates take MBO as any other method for evaluating their performance then it will not succeed.
Subordinates should participate in setting their objectives and deciding their areas of accountability. The areas of participation, however, may vary according to the area of activity and the level of hierarchy. The type and extent of participation will vary from organisation to organisation.
Feedback
In MBO system every individual decides and controls his own performance. The person working under such a system should regularly know his performance and standing. In case the performance is not as per the goals then required correctives will be undertaken. The feedback will help in learning and improving situations. There should be periodic counseling and appraisal interviews where superior helps the subordinate in knowing his good and bad points and making suggestions for future improvements.
Key Takeaway
Management by Objectives: It is a technique in which measurable goals are set by a joint effort of senior and subordinate and the contribution of each individual is measured in terms of their accomplishment of the goals.
Reference
- T. V. Rao, “Appraising and Developing Managerial Performance“, Excel Books, New Delhi, 1999.
- D. Grote, “Performance Appraisal Reappraised,’’ Harvard Business Review, Jan- Feb 2000.
- K. R. Murphy, J. Cleveland, “Performance Appraisal”, Boston, M. A: Allyn & Bacon, 1991.
- Scott Snell and G. Bohlander, “Human Resource Management”, Cenpager, New Delhi, 2007.
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