What is Management by Objectives (MBO)?
Management by Objectives (MBO) is a strategic management model designed to improve business performance by clearly defining objectives that are mutually agreed upon by management and employees. This participative approach fosters employee engagement and alignment of goals across all levels of the organization.
Key Takeaways
- Strategic Goal Setting: MBO involves a mutual agreement between managers and employees on specific goals, followed by a tailored action plan to achieve them.
- Enhanced Participation: By involving employees in the goal-setting process, MBO increases their commitment and boosts overall morale.
- Structured Process: MBO outlines five key steps: Define objectives, share them with employees, foster employee input, monitor progress, and finally, evaluate performance and reward achievements.
- Challenges: Critics argue that the intense focus on goal achievement can lead to unhealthy shortcuts, potentially harming the organization in the long run.
Understanding Management by Objectives (MBO)
Also known as management by planning, MBO includes setting up a Management Information System (MIS) to compare actual performance against predefined objectives. This approach significantly enhances employee motivation and communication. Challenges include an overemphasis on goals over systematic planning. Renowned critiques, such as W. Edwards Deming, have pointed out that strict targets can sometimes encourage undesirable shortcuts.
MBO’s principles were developed by Peter Drucker, suggesting that goals should be both challenging and achievable, focusing on rewards rather than punishments, and emphasizing personal growth over failure deterrents.
How to Implement Management by Objectives (MBO) in 5 Steps
- Define Organizational Objectives: Establish broad objectives derived from the company’s mission and vision.
- Translate Objectives to Employees: Use the SMART criteria (Specific, Measurable, Acceptable, Realistic, Time-bound) to communicate goals effectively.
- Stimulate Employee Participation: Encourage employees to set their personal objectives aligning with the overall company goals, fostering empowerment and motivation.
- Monitor Progress: Make sure to measure objectives to track the performance and ensure alignment with set targets.
- Evaluate and Reward: Provide honest feedback and reward accomplishments, reinforcing motivation and commitment.
Advantages and Disadvantages of Management by Objectives (MBO)
Advantages
- Enhanced Employee Engagement: Employees feel valued and take pride in their work, increasing morale and productivity.
- Importance and Empowerment: Tailoring goals helps employees feel important and empowered, tying their success to organizational progress.
- Improved Communication: Facilitates better dialogue between management and staff.
- Aligned Objectives: Helps in creating focused goals that drive the organization’s success.
Disadvantages
- Possible Neglect of Other Areas: Over emphasis on goals can overlook vital aspects such as company culture and employee well-being.
- Increased Stress: Employees may feel undue pressure to meet predefined targets within specified timeframes.
- Quality Risks: Focused targets can prompt unnecessary shortcuts, compromising the quality of work.
- Management Over-reliance: Sole reliance on MBO can be detrimental especially for areas that fall outside this framework.
Common Questions about MBO
What is the goal of MBO?
MBO aims to establish a set of quantifiable standards for measuring performance, allowing managers to diagnose issues and improve efficiency through a consensual agreement between management and workers.
What is an example of MBO?
Consider a call center aiming to boost customer satisfaction by 10% while cutting down on call times by one minute. This goal, agreed upon with employees, leads to formulated strategies, continuous progress monitoring, feedback, and rewarding successful outcomes.
The Bottom Line
MBO provides a theoretical framework that makes sense: Employee engagement in setting company goals generally drives efficiency and shared objectives. However, it isn’t without shortcomings. Awareness and adjustment to its limitations and ensuring clarity and buy-in can make MBO an instrumental strategic tool.
Related Terms: strategic management, management information system, PDCA cycle, SMART objectives.
References
- Printing Color and Process Control Blog (Bruce Leigh Myers). “A Critical Look at Management by Objectives (MBO)”.
- Ronald G. Greenwood, via JSTOR. “Management by Objectives: As Developed by Peter Drucker, Assisted by Harold Smiddy”. The Academy of Management Review, Volume 6, No. 2, 1981, Pages 225–230.
- Temple University, Fox School of Business, Management Information Systems. “There’s a S.M.A.R.T. Way to Write Management’s Goals and Objectives”.
- Harvard Business Review. “Management by Whose Objectives?”
