Management by Objectives What is MBO? Management by objectives (MBO) is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources. It aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees get strong input to identify their objectives, time lines for completion, etc. MBO includes ongoing tracking and feedback in the process to reach objectives. Objectives of MBO To measure and judge performance; To relate individual performance to organizational goals; To clarify both the job to be done and the expectations of accomplishment; To foster the increasing competence and growth of the subordinates; To enhance communications between superior and subordinates; To serve as a basis for judgments about salary and promotion; To stimulate the subordinates motivation and To serve as a device for organizational control and integration. Steps in a Typical MBO Program 1. The organization’s overall objectives and strategies are formulated. 2. Major objectives are allocated among divisional and departmental units. 3. Unit managers collaboratively set specific objectives for their units with their managers. 4. Specific objectives are collaboratively set with all department members. 5. Action plans, defining how objectives are to be achieved, are specified and agreed upon by managers and employees. 6. The action plans are implemented. 7. Progress toward objectives is periodically reviewed, and feedback is provided. 8. Successful achievement of objectives is reinforced by performancebased rewards. Advantages of MBO Improved Planning: MBO produces clear and measurable performance goals. A network of goals is created and appropriate action plans are formulated for goal achievement. There is effective matching of goals and resources. Clear goals and action plans generate concrete thinking and lead to result-oriented and forward planning. MBO forces managers to plan for results rather than plan for work. It ensures that goals of each department are consistent with the overall objectives of the organization. Team Work: MBO results in better communication between superior and subordinates which reduces conflict. The whole management team is actively involved in goal setting. There is integration of lower level goals with organizational goals. Different individuals are fused into a co-operative team. MBO clarifies the job assignment and responsibility of each individual. Advantages of MBO Objective Appraisal: MBO permits impartial appraisal because employee performance is evaluated against verifiable and mutually agreed criteria. The performance of every individual is evaluated in terms of the mutually agreed targets. Under MBO the superior does not evaluate the subordinate but his performance. MBO also allows employees to monitor and control their own performance. Such selfappraisal facilitates personal development. MBO helps to develop managers who have potential for growth. Motivation and Morale: MBO leads to better interpersonal relations through involvement and recognition of people at all levels. It provides greater opportunities to make personal contribution and to accept more responsibility. Participative goal setting and two-way communication improve the commitment and morale of employees. Superior managers assume a supportive role and subordinates are allowed to exercise self-direction and self-control. This results in innovation and creativity on the part of subordinate managers. Limitations of MBO Goal-setting Problems: Very often it is very difficult to set truly verifiable and measurable goals. Over-emphasis on quantifiable and easily measurable goals may result in neglect of crucial qualitative goals like job satisfaction. Similarly, over-emphasis on short-term goals may be at the cost of long-term goals. Goals once set may be followed rigidly leading to inflexibility in the organization. Time Consuming: MBO requires a great deal of time in setting measurable goals through consensus. In the initial stage several meetings may have to be held to bring confidence in subordinates. The formal periodic reviews and final appraisal sessions also consume a lot of time. Increased Paperwork: MBO results in a plethora of newsletters, instruction booklets, training manuals etc. Subordinates have to fill in forms and submit detailed reports on their performance. Limitations of MBO Participation Problem: MBO requires mutual goal-setting by the superior and the subordinate. In many cases, the goals are set by the superior because he has no time to discuss it with the subordinate or he is not willing to share power with the subordinate. In other cases, the subordinate may not be willing to set goals for himself because he is incompetent or he fears criticism from the superior. Inflexibility: MBO may introduce inflexibility in the organization. Once goals are set down, the superior may not like to modify them due to fear of resistance from the subordinates.