Management By Objectives (MBO)

Definition: Management By Objectives (MBO) is a participative approach whereby the management and the employees collaboratively frame the short-term and long-term business objectives with a deadline, by actively centralizing the key result areas (KRA). Also, every individual in support of the management determines his/her targets, tasks, roles, responsibilities, obligations and accountability.

MBO so sets a performance benchmark for every individual. While practising strategic human resource management, to make this strategy a success, teamwork is crucial for all the members. Also, the SMART objectives techniques should be taken into consideration for extraordinary results.

Content: Management By Objectives (MBO)

SMART Objectives

What should a business objective look like? The organization should encompass mnemonic SMART’s five imperative qualities. These are states as follows:

SMART-Objectives
  • S-Specific: The objective should represent the key areas of focus;
  • M-Measurable: The objectives so framed should be assessable or quantifiable;
  • A-Achievable: These goals should be practically possible to attain;
  • R-Relevant: The objectives should be decided by keeping in mind its impact on the overall organizational health;
  • T-Time Bound: All the objectives should come with a deadline or period within which it has to be accomplished.

Elements of MBO

Management by objectives incorporates different components which focus on transforming the whole corporate system.

Let us now throw light upon these MBO fundamentals:

Elements of MBO

Values: The organization’s beliefs, ideology, perception and ethics frame its values. These values stand firm to build the foundation of an enterprise and therefore tends to be an imperative aspect of MBO.

Growth Objectives: Management by objectives focus on the company’s progress that is well-planned through long-term objectives. Even the employee’s progress relies upon the successful attainment of these long-term corporate goals.

Job-Related Objectives: The workers should be aware of their contribution to the organizational goals. Therefore, the management explains the employees their role in fulfilling these objectives.

Behavioural Parameters: Another important aspect of management by objectives is setting the code of conduct for the employees. This involves the study of member’s behaviour, attitude, perception and response in different circumstances.

Tasks and Projects: Now comes the functional part, where the employees are made familiar with their job description in an elaborative manner. They are introduced to their duties, roles and responsibilities while being on a certain job position.

Targets: MBO clearly states the organizational vision or aim in front of the members, so that there remains no scope for confusion or dilemma. Moreover, it ensures that all the employees work in the same direction.

Performance Appraisal: Employee growth and an appraisal are considered to be an inevitable part of MBO, whereby, the performance is considered as a key indicator of an individual’s contribution to the organizational development.

Characteristics of Management By Objectives (MBO)

How does MBO differ from other strategic management techniques? The features of management by objectives answers this question:

Characteristics of MBO
  • Dynamic: MBO suits every kind of business and not for profit organizations, irrespective of their size and industry.
  • Focus on KRAs: The objectives are set around the key result areas or from where the management expects maximum output.
  • Organizational Objectives: The team analyzes the business goal of the enterprise and so chalk out the objectives leading towards its accomplishment.
  • Simplicity: The MBO process is so elementary that even a novice can understand it. Its six steps process (explained further) even streamlines its implementation.
  • Resource Optimization: Management by objectives better employs the most valuable resource i.e., the human resource, by channelizing their time and efforts towards goal attainment.
  • Mutual Participation: While enforcing management by objectives, the management works in collaboration with the employees.
  • Practical: It is a realistic approach, which can be seemingly applied to multiple business functions or activities.
  • Separate Accountability: Every team member is responsible for their part of task completion, also it makes them individually accountable for the same.
  • Systems Approach: MBO provides a purposeful direction to the efforts and energy of the whole organizational system including its people, resources and the business environment.
  • Periodic Review: The pre-determined standards facilitate constant review of the performance by the managers along with self-assessment by the employees.

Example of MBO

Simply stating in a garment manufacturing unit, MBO varies from department to department and person to person.

For the production team, it can be a reduction of waste by 3%. While for the sales team it can be acquiring a conversion rate of 50%.

However, for the marketing team, it may be to double the website traffic. And for the human resource team, it can be reducing the employee turnover rate to 3%.

Management By Objectives (MBO) Model

Peter Drucker, a popular management guru, first unfolded the concept of Management By Objectives (MBO) in his book ‘The Practice of Management’ published in the year 1954.

He explained how the business operations can be simplified by adopting a collaborative approach where the management join hands with their employees to determine the business goals.

MBO Process

While understanding the management by objectives model, we cannot overlook the contribution of this six steps process, as discussed below:

MBO Process
  1. Define Organizational Goal: The first step is to frame the corporate objectives (both for short and long-terms) keeping in mind the organization’s vision.
  2. Specify Employees Objectives: Next, is to identify the individual needs or objectives, their idea of accomplishing corporate goals and their capabilities for the same.
  3. Monitor Progress: The superiors have to keep a track of the employee performance along with the obstacles they face while task accomplishment.
  4. Performance Evaluation: Then, constant analysis of the identified hurdles is done to chalk out the solutions or make the required changes.
  5. Give Feedback: Now, comes the phase where the employees are made familiar with their shortcomings and advised with the necessary amendments to ensure progress.
  6. Performance Appraisal: Lastly, there is a constant assessment of the employees’ actions to ensure that everything falls in place and the required improvements can be made.

Advantages of MBO

MBO is a progressive strategy adopted by many business organizations today.

These benefits do not only limit to the organizations, but also to the management and the employees individually.

Advantages of MBO

To the Organization

Management by objectives triggers the overall transformation of organizational well-being. Some of its evident benefits are mentioned below:

  • Higher Degree of Commitment: Since the objectives are planned mutually by the management and the employees, the organization experiences a more sincere contribution from the workforce.
  • Superior Management: The organization experiences efficient management since the employees are highly motivated and committed towards the realization of organizational aim.
  • Better Control: Due to an increased level of self-discipline acquired due to MBO practice, there is less need for continuous command, indeed the employees are more dedicated to their job.
  • Relevant Planning: MBO helps the management and the employees to discuss the organizational goals on practical grounds. Thus, more achievable plans come out from these discussions.
  • Role Clarity: There is immense transparency of employee roles within the organization when management by objectives brings to practice. Each person works in a systematic and synchronized manner.

To the Management

Management plays a key role in running a business entity. Therefore, we must discuss the following pros of MBO to the managers:

  • Motivated Workforce: Being an active team member and contributing their ideas during an MBO practice, the morale of the employees automatically peaks high, since they feel valued.
  • Excellent Leadership: The management can establish an environment of democratic leadership whereby, each team member is given an equal chance to speak irrespective of their position in the organization.
  • Performance Evaluation: While MBO sets performance standards for every team member, keeping a track of the individual’s work becomes effortless for the management.
  • Team Building: MBO paves way for the employees and the management to come together and function as a team for actualizing a common goal i.e., the organizational aim.
  • Cordial Management-Employee Relations: Without any sugar-coating efforts, the superiors can smoothen their bond with their subordinates only by genuinely following the management by objectives method.

To the Employees

MBO is a continuous improvement process, if executed well, it can act as a milestone for career pathing of the employees. Stated below are some of its related advantages:

  • Job Satisfaction: The present-day workers don’t just seek a good package, instead of recognition at the workplace is a major concern for them. Thus, management by objectives is a means of deriving job satisfaction for the employees.
  • Boosts Morale and Confidence: When the employees get a stage to present their views and ideas among their coworkers, it fulfils their need for recognition. All this result in a higher level of commitment and confidence for the organization.
  • Brings Out Innovative Abilities: Management by objectives is a participative approach that lets every team member to brainstorm and contribute with exceptional ideas, adding to their creative thinking and innovative abilities.
  • Successful Goal Attainment: MBO helps the employees to maintain clarity of their roles, tasks, obligations and responsibilities, thus supporting them in goal accomplishment, not only organizational but also individual objectives.
  • Triggers Self-Discipline: When the employees have the blueprint of what to achieve, they tend to show a higher degree of self-discipline and dedication towards their job responsibilities.

Limitations of MBO

While MBO is a powerful technique, however, some internal organizational hurdles make it unpleasant resulting in a feeble outcome.

Let us acquaint you with some of these drawbacks:

Limitations of MBO
  • Time Consuming: Since each team member may have a different perspective, it may take a lot of time to reach meaningful conclusions.
  • Unrealistic Goal: Sometimes, the team is over-enthusiastic and aims much higher than what is practically possible to realize.
  • Prone to Favouritism: When it comes to promotion, appraisal or rewards, the management becomes biased at times and ignore the efforts of the real performers.
  • Poor Coordination or Teamwork: In MBO, everyone is assigned with their part of responsibilities or roles with a time frame for completion. This reduces their scope for coordination with others in the group.
  • Resistance from Employees: Because the performers would be rewarded; however, the non-performers would be penalized for the same, MBO is not always positively accepted by the employees.
  • Inadequate Supervision: When MBO is taken into consideration, the managers and superiors assume that the employees would be self-disciplined, providing excessive liberty to them.

Conclusion

Management By Objectives (MBO) is a collaborative step taken by the management to decide the corporate goals in the joint efforts of the employees. It helps the organization to set more realistic and relevant goals in the short and long run.

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