Management By Objectives (MBO)

What is ‘Management By Objectives – MBO’

Managers use management by objectives (MBO) to enhance the performance of their organizations. MBO is a management approach that tries to improve the performance of an organization by clearly identifying objectives that are accepted by both management and employees. In accordance with the notion, giving workers a voice in goal formulation and action planning should result in greater employee engagement and dedication, as well as greater alignment of organizational objectives across departments and levels. When management expert Peter Drucker published his book “The Practice of Management” in 1954, he defined the word for the first time.

Explaining ‘Management By Objectives – MBO’

Another essential component of management by objectives is the development and implementation of a management information system that measures actual performance and achievements in relation to the stated goals. According to MBO practitioners, the most significant advantages of MBO are that it increases employee motivation and commitment, as well as ensuring greater communication between management and staff. However, one frequently mentioned fault of MBO is that it overemphasizes the establishment of goals in order to achieve objectives, rather than developing a methodical strategy to achieve those goals.

Basic Principles

Peter Drucker articulated a number of fundamental ideas. The objectives are set in collaboration with the staff and are both demanding and attainable. Every day there is feedback, and the emphasis is on rewarding rather than punishing the participants. The importance of personal growth and development is stressed rather than the negative consequences of failure to meet the objectives.

Putting it Into Practice

When it comes to putting the management strategy into reality, MBO recommends that firms follow five phases. The first stage is to either establish or amend organizational objectives for the entire firm as part of the strategic planning process. This comprehensive picture should be taken from the mission and vision of the organization. Translation of company objectives into employee understanding is the next phase. To describe the notion, Drucker developed the acronym SMART (Specific, Measurable, Acceptable, Realistic, and Time-bound) as a shorthand.

Management By Objectives (MBO) FAQ

What is meant by MBO?

Modern business operations (MBO) is an administration technique with the purpose of increasing business performance by modifying goals and subordinate goals across the whole organization. Overall, MBO emphasizes the importance of focusing on results rather than the specific exercises in question.

What are MBO and MBE?

Organizational performance may be improved via the use of management by objectives (MBO), which is a methodical and well-organized technique. On the other hand, Management by Exception (MBE) is a 'policies by which management spends its effort to studying only those circumstances in which actual outcomes diverge dramatically from expected results,' according to the Harvard Business Review.

What are the three types of MBO objectives?

The three types of objectives used in MBO are 1. Improvement objectives, 2. Personal Development objectives, and 3. Maintenance objectives. For MBO to be considered a success, three things must happen: 1. Top Management Must Be Committed 2. It Must Be Applied Organization wide, and 3. Objectives Must 'Cascade.'

Why is management by objective important?

It is usual practice in MBO for employees to be given time away from their employment and the responsibilities that are required of them so that they may observe how their activities contribute to the achievement of the organization's objectives. Additionally, MBO places a high value on each representative's ability to achieve their personal objectives.

Does MBO have a downside?

When defining goals and objectives, employees may feel under pressure to get along with management, and as a result, these goals and objectives may be set at an unreasonably high level. This may have a negative impact on their morale, and they may grow sceptical of the concept that underpins MBO.

What are the benefits of MBO?

Advantages of MBO includes, 1. Improved Execution 2. Improves sense of Identification 3. Effective utilization of Human Resources 3. No Job Vagueness 4. Improved Correspondence 5. Enhances organizational Structure 6. Profession Advancement of the Employees.

What is the MBO process?

The 6 steps of the MBO process are: Define organizational goals. Define employees objectives. Continuous monitoring performance and progress. Performance evaluation. Providing feedback. Performance appraisal.

Further Reading

  • The use of MBO (management of objectives) method of attraction and evaluation of effectiveness of investments to the tourism and hospitality – [PDF]
  • Management by objectives–an effective tool for teamwork? – [PDF]
  • Management by objectives and the balanced scorecard: will Rome fall again? – [PDF]
  • Management by objectives: a case history – [PDF]
  • Management by objectives and corporate social responsibility disclosure – [PDF]
  • Attitudes towards management by objectives: An empirical investigation of self-efficacy and goal commitment – [PDF]
  • Management by objectives and Student Management in Universities and Colleges [J] – [PDF]
  • Management by values (MBV): a new philosophy for a new economic order – [PDF]