Management by Objectives (MBO)
Process that involves the regular monitoring of objectives and is employee-centric focused on employees' efforts toward the organization's best interests.
Management by Objective, abbreviated as MBO, requires managers of an organization to dedicate objectives to achieve in the future and encourages managers to monitor organizational goals by constantly asking what needs to be done to achieve them.
This technique allows the management department of an organization to focus on the key, achievable organizational objectives and work towards attaining the best outcomes using the available resources at a particular time.
Peter Drucker first utilized the term in 1954. Several management theorists, such as John Humble and Douglas McGregor, developed MBO further as a management approach.
Managers are regularly faced with the challenge of producing results, yet in modern times, a manager must produce them during an era of advanced technological change. Managers are required to optimize this accelerated change to produce company results.
Both managers and the managed organizations must expect a change in the future and set strict, achievable goals—future-oriented objectives to implement a change to increase control of their internal and external environment.
The most important tool a manager can use to set goals to designate forward-looking goals is the workforce and people. The manager must engrave a sense of commitment, willingness, and a strong desire to contribute toward the long-term organizational goals.
Managers also must control and coordinate the workers' efforts toward accomplishing goals and objectives and help their subordinates capitalize on their skills and knowledge to make more significant contributions.
Managers have used several approaches to increase the production and contribution of employees in the organization.
- Using commitment and work ethic through economic pressure, motivation, and incentives.
- Increasing production by inspiring and mentoring employees to understand how to do their job responsibilities efficiently.
- Generating a sense of well-being in employees by maximizing comfort produces a willingness to contribute to the betterment of the organization.
MBO is a system designed for supervisory managers where a manager and they're subordinate organize a meeting to set specific goals that must be accomplished within a specified time frame and for which the employee is held responsible.
All organizations exist for a defined reason; that purpose is what the top management sets as common goals and objectives for the whole company.
In organizations that do not use the MBO approach, most planning and setting objectives are to achieve these common organizational goals directed down the hierarchy.
Company objectives are passed down from one management level to another, and subordinates are told their tasks and given their assigned responsibility to be completed and reported to the management team.
In the MBO approach, the subordinate and manager combinedly develop a group of particular goals, achievement measures, and time frames where the subordinate dedicates themself to goal accomplishment.
The subordinate is accordingly held responsible for goal achievement. Several evaluation meetings and progress reviews are conducted, but the subordinate is judged based on achieved results by the end of the period.
The reward for goal achievement can be in the form of a promotion or a salary raise. Otherwise, the subordinate can be transferred to another training scheme or be made redundant from the organization.
MBO is a formal system that involves schedule revisions and evaluation techniques, with particular formats where measures and goals are presented for discussion and review. MBO takes traditional goal setting and meetings of appraisal at regular intervals.
The type of work an organization specializes in impacts worker participation in the subordinate's goal formulation. Depending upon the scope, a worker is given more autonomy; in others, the employee must complete the designated and assigned task.
Why is MBO so important, and what are its features?
There is a need for Management by Objectives at a company for multiple reasons. The first reason is that it helps workers understand their duties and responsibilities at the company and thus provides them with a clear understanding of the designated expectations.
The MBO approach causes more employee satisfaction and prevents a mismatch of jobs or job duplication, mitigating confusion and bureaucracy.
Employees contribute to the goal and objective achievement of the company where every employee has their job, leading to feelings of loyalty, belongingness, social security, and commitment and causing higher motivation levels.
Employees remain loyal to the company for a more extended period and contribute better since they enjoy the organizational environment and consider work a passion rather than a burden.
MBO ensures communication in the workplace is effective and understandable, producing a positive workplace ambiance. In addition, the organization's hierarchical structure is well-defined and transparent, so all positions and reporting authorities are precise.
Management by Objectives designates a benchmark for all employees and individuals by setting targets for every employee where tasks are listed accordingly.
The three key features of the Management by Objectives approach are goal orientation, participation, and achieving critical results.
MBO emphasizes determining individual goals in alignment with organizational goals, where the responsibilities are defined within various executive functions and help integrate the company with its parts and environment.
It seeks to achieve a harmonious balance between the long-term and the company's survival with personal executive objectives. Therefore, all the individual and corporate goals must be well-defined and integrated.
There is also a high degree of workforce and labor participation in setting goals and creating a performance appraisal. It provides the opportunity or chance to affect decisions and, thus, clarify job relationships with subordinates and colleagues.
It also facilitates employees' morale, motivation, and outcomes in clarifying roles and tasks. Decision-making based on participation is a requirement of MBO and mandates all employees to contribute their best efforts to achieve objectives.
MBO's emphasis is on improving performance in the sections that are critically important for the company as a whole. Therefore, MBO guarantees that attention is placed on areas of priority that affect organizational growth and performance using KRAs.
Advantages and Disadvantages
There are several advantages and drawbacks of the MBO approach, such as:
- Increased commitment and subordinate contribution
- Improved control and coordination
- Better ability to provide subordinates with the help
Drawbacks include:
- Misuse of the MBO approach
- Lack of managerial and interpersonal skills
- Viewing MBO as a holistic system
The first advantage of MBO is that it allows subordinates to feel the objectives they focus on would integrate them with the goal formulation process. It depicts a stronger organizational fit by letting subordinate objectives fit into the overall image.
It also creates a sense of vitality and livelihood in the organization's environment where the energy made as an employee seeks goal achievement where there is an economic and psychological risk for commitment.
Another advantage of MBO is that there is a clearer image of how all parts are integrated, and having subordinates that generate more control and coordinate their tasks are more aware of what helps goal achievement or goal hindrance where managers can observe results.
Moreover, there is a more remarkable ability to aid subordinates and develop by becoming more able to witness strengths and weaknesses regarding a particular objective. Using a management approach also aids the employees and managers in focusing on the future.
There is better management of MBO results. It involves setting goals for every activity and person and ensuring those results are obtained. It also facilitates managers in planning for results instead of just planning work and activities.
Management by Objectives also allows role structure organization since authority is given based on task requirements. There is no objective fixation without delegation, and the position is constructed upon the critical results of those occupying them.
The main benefit is that employees are more encouraged to commit to achieving their goals. As a result, all employees in the company have clearly defined goals of their own will.
People in the company can discuss their ideas with the managers, come up with the pros and cons of all given suggestions and thus participate in goal-setting. This will lead to more honesty and higher commitment, fostering employee enthusiasm.
It must be ensured that an MBO approach focuses the managers' attention on organizational results and subordinate outcomes and fixes organizational member commitment toward achieving goals.
It must also help them think of the company's future needs and objective setting to meet them. The Management by Objectives approach can also provide the manager with an enhanced tool using people, a critical asset.
The drawback of Management by Objectives is that it can be misused. For example, the manager may use the system to induce pressure upon the subordinate to generate positive outcomes that are ignored by the contribution, desire, commitment, and management development aspects.
Managers with good intentions may misuse MBO due to a lack of interpersonal skills or knowledge about human needs to keep appraisal sessions from becoming important.
Managers also view MBO as a complete system that eliminates all management issues. But instead, it causes the MBO system that is incomplete in managing an overload of management problems.
There is also a focus on objectives only in the short term since managers set goals for a year or less. There is also a possibility that both short and long-term objectives may not be compatible due to short and long-term objectives.
There is also a threat of inflexibility since the objectives require modification and strictness regarding the objectives.
MBO Process
It contains several steps, including:
- Defining organizational goals.
- Defining employee objectives.
- Monitoring performance and progress continuously.
- Performance evaluation.
- Providing Feedback.
- Performance appraisal.
1. Defining Organizational Goals
Goals are important challenges for organizational effectiveness, and they serve various purposes. However, organizations can also have multiple goals, which must be managed carefully.
Several many kinds of managers need to be involved in goal-setting. The goals set by higher authority are based on a perceived judgment as to what can and should be accomplished by the organization within a particular period.
2. Defining Employee's Objectives
After ensuring that employees' managers are informed about the general objectives and strategies, the manager can work with employees in an objective setting.
The manager questions which goals the employees believe they can accomplish in a particular period and with what resources.
3. Monitoring Performance and Progress Continuously
The MBO process is essential for enhancing managerial effectiveness in the organization and is equally vital for monitoring employee performance and progress.
For monitoring the continuous performance and progress of employees, the following is mandated:
- Identifying programs that are ineffective by comparing both the performance with established objectives.
- Applying Management by Objectives concepts for measuring plans.
- Preparing short and long-term plans and objectives.
- Building a well-designed hierarchical structure with precise tasks, roles, responsibilities, and decision-making authority.
4. Performance Evaluation
Under the MBO process, a performance appraisal review under the key managers.
5. Providing Feedback
An MBO process requires continuous Feedback on performance and goals that allow people to monitor and correct their actions.
The constant Feedback is supported by regular appraisal meetings where managers and subordinates review the goal progress leading to more Feedback.
6. Performance Appraisal
Performance appraisals include a revision of employee performance within a business organization. This is the last stage of the MBO process.
Summary
A Management by Objectives approach, or an MBO, is when the managers of a company sit down with their employees and both parties combinedly define organizational objectives, giving the subordinates a clear understanding of their tasks, role, and job.
MBO is a constant process that involves the regular monitoring of objectives and is employee-centric, focused on employees' efforts toward the organization's best interests.
Although the MBO tool does not resolve all the managerial issues, it does provide an opportunity for developing an organizational culture built on optimism, positive results, and a cohesive work environment to facilitate the organization's success moving forward.
MBO aids managers in seeing more clearly how all the pieces fit together, and subordinates with more control over and responsibility for task coordination are more aware of what contributes to goal achievement or serves as a barrier to completion.
Management by Objectives has a flaw in that it can be abused. For example, the manager may use the system to pressure the subordinate to produce favorable results while ignoring the subordinate's willingness to contribute, commitment, and management development.
Since managers only set goals for a year or less, there is a focus solely on short-term objectives.
Additionally, due to short- and long-term aims, it is possible that they will not be compatible with one another. Since the objectives need to be modified, there is also the risk of rigidity and focus on the goals.
Researched and Authored by Haniya
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