What Is Management by Objectives (MBO)?
Management by Objectives (MBO) is a strategic model that enhances organizational performance by defining objectives agreed upon by management and employees. This approach involves employee participation in goal setting and action plans to foster commitment and align objectives across the organization.
Key Takeaways:
- Management by Objectives (MBO) involves managers and employees agreeing on performance goals and creating plans to achieve them.
- It aims to align objectives organization-wide, enhance employee commitment, and boost participation.
- The process includes defining objectives, sharing them with employees, encouraging participation, monitoring progress, and evaluating performance.
- Critics argue that MBO may lead employees to prioritize goal achievement over company interests.
Katie Kerpel / Investopedia
Understanding Management by Objectives (MBO)
Management by Objectives (also known as Management by Planning) involves establishing a Management Information System (MIS) to compare actual performance with defined objectives. MBO enhances employee motivation, commitment, and communication between management and employees.
However, critics argue that MBO’s emphasis on goal setting may prioritize objectives over systematic planning, possibly leading to shortcuts compromising quality.
Principles set by Peter Drucker in his book on MBO include challenging yet achievable objectives, daily feedback, focus on rewards, and emphasis on personal growth.
MBO is a tool rather than a panacea. Success relies on top management support, clear objectives, and trained implementers.
Management by Objectives (MBO) in 5 Steps
Organizational implementation of MBO involves five essential steps:
- Determine or revise company-wide objectives aligned with mission and vision.
- Translate these objectives into SMART goals (Specific, Measurable, Acceptable, Realistic, Time-bound).
- Encourage employee participation in setting individual objectives.
- Monitor progress based on measurable objectives.
- Evaluate and reward employee achievements.
The term “Management by Objectives (MBO)” was coined by Peter F. Drucker in his book.
Advantages and Disadvantages of Management by Objectives (MBO)
MBO presents various advantages and disadvantages.
Advantages
- Employees receive tailored goals enhancing pride and output.
- Enhances communication and employee motivation.
- Facilitates successful goal-setting for the organization.
Disadvantages
- May neglect company culture and work ethics.
- Increases pressure on employees to meet time-bound goals.
- May incentivize shortcuts compromising work quality.
- Not universally applicable to all management areas.
What is the goal of Management by Objectives (MBO)?
Management by Objectives (MBO) sets quantifiable standards for measuring company and employee performance, enabling managers to identify areas for improvement and efficiency.
What is an example of MBO?
A company can set goals, such as increasing customer satisfaction by 10% and reducing call times by one minute in a call center. Employees work towards achieving these objectives, monitored, and rewarded for their progress.
What are some drawbacks of using MBO?
Limiting focus on goals may neglect other vital aspects like corporate culture and work ethic in a company.
What is the difference between MBO and Management by Exception (MBE)?
Management by Exception focuses on addressing deviations from objectives, intervening only when standards are not met.
The Bottom Line
MBO promotes employee engagement in goal-setting, fostering commitment and performance. However, addressing its drawbacks, customizing plans, and ensuring universal commitment are crucial for successful implementation.
Awareness of MBO limitations, tailoring to organizational needs, and securing full commitment are vital for effective use.