Management By Objectives (MBO)
Imagine that you have multiple tasks to accomplish today. Each of those tasks is unrelated and you need the help…
May 4, 2021 | 7 mins read
Imagine that you have multiple tasks to accomplish today. Each of those tasks is unrelated and you need the help of other people in completing a few of those tasks. Now imagine attaching objectives to the respective tasks; you get an idea of what purpose it’ll fulfill. It additionally helps you prioritize tasks and complete them accordingly.
Managers in organizations shoulder the responsibility of driving business objectives. However, they can’t do it all by themselves. They delegate responsibilities to their team, who carry out tasks and achieve goals. When managers have particular objectives in mind, they know exactly what they need from employees. Management by Objectives (MBO) is one such process that enhances the process of goal-setting and achievement.
Effective management goes a long way in helping employees work collaboratively toward common objectives. It was Peter Drucker—one of the most influential management gurus in the world—who believed that effectiveness was more important than efficiency in an organization. He questioned the role of effectiveness in both classical and human relations schools of management. Drucker developed Management by Objectives in his book The Practice of Management (1954).
Peter Drucker’s Management by Objectives deals with a certain type of interaction specific to managers and employees. It suggests multiple hierarchies be integrated within an organization for greater outcomes. MBO becomes a process for effective utilization of resources that provides employees with a sense of direction and helps them set up clearly defined objectives. It’s characterized by commitment, maturity and responsibility and the goal is to improve an organization’s performance.
Let’s look at a few examples to understand the meaning of management by objectives better.
Human Resources: Increase employee engagement by 35%
Marketing: Double newsletter subscriptions
Sales: Decrease sales cycle to three months
These examples of management by objectives indicate that the targets are specific and measurable. MBO relies on the SMART framework of setting objectives.
Target a specific area of improvement
An indicator helps to measure progress
Specify who will perform what role
State what they can realistically achieve with available resources
Specify when targets can be achieved
Management by objectives is a systematic, functional and result-oriented strategy that places plenty of emphasis on the goal-setting process. It provides ample freedom for individuals to create and complete their tasks on their own time. Besides promoting creative problem-solving and critical thinking, MBO has the following features:
Creating objectives using MBO is impossible without joint effort. It must involve both managers and team members. The goals should be set collectively and they should divide roles and responsibilities only after proper discussion.
The ultimate objective of MBO is to achieve goals successfully. However, the objectives need to be realistic, verifiable and measurable. Only by quantifying can you track progress and make any changes mid-way if needed.
MBO focuses on what must be accomplished instead of how it can be accomplished. Once the goals are identified, different people across various levels of management mutually agree on how to accomplish those goals and upon the standards for evaluating performance.
MBO helps put resources to best use and pave the way to accomplishment. Everyone is encouraged to think creatively to help them meet their objectives. When needs and expectations are clear, and there is freedom and motivation, performance is likely to improve.
MBO isn’t a one-time intervention but a continuous cycle for improvement. Managers provide support as continuous guidance, mentoring and feedback.
An MBO outlines six steps that organizations should use to enhance their management technique. Consider these steps if you want to create your own MBO cycle.
Organizational goals define what businesses need to achieve—both in the short-term and long-term. They provide direction and define individual responsibilities. When you define and verify the overall goals and objectives, everyone is on the same page. Streamlined processes make individuals feel confident about executing responsibilities. To create an MBO, it’s essential that you do a detailed analysis of available resources to set realistic objectives. Once you establish the goals, communicate them with every person across all levels.
What is MBO without successful personal goal-setting? While identifying and mapping overall objectives are crucial, department and employee objectives are equally important. Executive or top management should discuss objectives with department heads and department heads should discuss individual objectives with their teams. Increased participation from every level is important in motivating employees toward common objectives.
Setting objectives is only the first of many steps in the process of management by objectives. Unless there are resources and tools available, it’s challenging to achieve objectives on time. The onus of providing necessary means and materials falls on the management’s shoulders. However, employees must be involved in resource allocation discussions. Even the way you set goals determines the efficiency of resource use. When goals are precisely set, you know exactly what you need to drive performance.
While an MBO leads to more effective management, it’s also important to monitor employee performance and progress. To make sure that everyone meets their designated timelines, create milestones. Even tracking sheets can help measure progress. Managers should hold regular meetings with their team, provide timely feedback and offer support whenever needed. There should be room to discuss limitations and celebrate achievements.
MBO establishes periodic meetings to help create milestones for measuring performance. But how do you review efficiency? Managers can evaluate progress and success by encouraging employees to create performance reports. It provides individuals ample scope to reflect on their strengths and weaknesses. Managers should provide actionable feedback that employees can apply to their work.
Priorities and conditions are constantly changing in an organization, which is why periodic reviews are necessary. In addition to annual appraisals, managers and employees should revisit individual as well as team objectives. They should modify the objectives and respective approaches if and when necessary. By helping employees identify areas of excellence and improvement, individuals gauge what’s required to do better. Therefore, MBO helps in self-improvement and career advancement.
Collaborative work through collective mechanisms can induce behavioral change. The process of management by objectives combines different areas of performance and benefits an organization in the following ways.
It helps employees understand their roles and responsibilities better and gives clarity about what needs to be done
There is participation in goal-setting and decision-making from all levels in various departments
There is more room for conversation and discussion, which further enhances relationships between managers and their teams
Improved communication leads to increased collaboration and cooperation, improving interpersonal relationships
Managers shoulder the responsibility of aligning personal goals with the overall organizational objectives
Objectives can be set up individually for each department such are marketing, financial planning and product management
Traits of MBO can be applied across various industries as long as objectives are carefully planned, established and monitored
The management by objectives process can boost individual performance as it provides employees with a greater sense of identification. In addition to increasing morale and job satisfaction, there is greater productivity. When the management invests in upskilling or reskilling employees and broadens the knowledge base, there are new opportunities for career growth. For example, performance evaluation provides individuals with feedback that helps them identify the exact areas of self-improvement. And it goes without saying better performance leads to more profit.
While there are several advantages of using the MBO technique, it also has its limitations. Consider these challenges if you plan to integrate MBO into your operations.
More emphasis is placed on goal-setting than actual outcomes or course of action
It doesn’t consider the environment where goals are set; for example, stakeholders may affect the process differently
Managers and team leaders prioritize what an ideal employee should look like and evaluate their team based on (possibly unrealistic) expectations
There is increased unhealthy competition among employees as there is too much importance placed on end goals
It’s a systematic process that’s time-consuming and difficult to keep up
Despite its limitations, the management by objectives process helps to drive business goals and create a symbiotic relationship between managers and employees. As a manager, if you want to integrate MBO into your organization, you need to understand how your team functions and their expectations.
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