What is Management by Objectives (MBO)

Management by objectives (MBO), as the name suggests, is a method of enhancing the way in which the company goals and strategies are understood by the managers and the employees.

Research conducted at the Harvard School of Business states that over 95% of employees actively working in a company tend to stay unaware of the company’s goals, protocols and strategies.

This gap between the company’s work strategy and the employee’s understanding of it leads to a state of inefficient work output and lack of dedication. Management by Objective appears to be the best method to resolve this issue.

In this article, we will explore the meaning of MBO, the steps involved in processing MBO and its advantages.

What is MBO?

MBO stands for Management by Objectives.

MBO is also known as Management by Planning (MBP). The book ‘Practice of Management, published in 1954 was the first time when the term was introduced to the world by Peter F. Drucker and gained popularity over the years.

Management by objectives (MBO) is a strategy based model designed to enhance the overall productivity and performance of a company. In this method, the company defines a clear set of objectives that are addressed and adhered to by both the management and the employees.

How does MBO help an Organisation?

Management by Objective (MBO) assists managers in systematically updating, assessing and assigning tasks to their employees by considering the goals of both the individual and the company. Particular tasks are allocated to each employee and their work status and progress are monitored on a regular basis.

MBO is all about planning, constructing and executing a particular set of actions dedicated to certain goals. These actions are coordinated to the working teams with complete transparency to prevent confusion and errors. A time frame is assigned to each action plan and regular performance assessment infuses discipline and punctuality in the workspace.

Another benefit of MBO is that it serves as a base for contemplating bonuses, increments, appraisals, promotions or demotions.

Management by Objectives works on the principle of SMART. SMART is a mnemonic that stands for –

SMART objectives are:

S- Specific

M- Measurable

A- Achievable or Attainable

R- Relevant

T- Time-Bound or Time-limited

These are factors that must be kept in mind while formulating management objectives for a business venture. The SMART strategy will guide you in formulating a plan that aligns individual goals with the company goals.

Management by Objectives Process

MBO is an essential procedure for the benefit of an enterprise. In order to enjoy its advantages, it is important to implement it in a correct manner.

There are 5 major steps in the MBO process. These steps are-

Step 1: Setting organizational objectives

In the first step of MBO processing, Management by Objectives concentrates on either setting, revising or amending organizational objectives. The objectives being assessed require to be measurable and attainable. The most important factor to be considered is the relevance of the goal to the company’s ultimate mission.

Step 2: Setting individual objectives

The second step in MBO processing is to align the organizational objectives of the company with that of the employees. The SMART strategy will guide you through this step.

Step 3: Measuring performances

Step three is all about assessing the employees and giving them the liberty to plan their individual objectives. So far the administration did all work for them, now is the time to give them the control. This acquired ownership will give them a sense of responsibility, dedication and motivation to achieve their goals which will ultimately benefit the organization.

Step 4: Evaluating performance

In the fourth step, the emphasis is on regulating and monitoring the work progress of employees. It is aimed at ensuring that the mechanism is going smooth and the work output is on track with the formulated work structure and deadlines.

Step 5: Rewarding employees

The last step is the evaluation step. Here the managers need to prepare a list of their best-performing employees and reward them for their dedication and good work. They can also prepare a list of under-performing employees and give them constructive feedback and suggestions to improve their work. This brings in healthy competition in the workspace and motivates employees to give better work results.

How does the process of Management by Objectives work?

Management by Objectives (MBO) can be exercised in many ways. It is all about deriving specific goals and leading the company on the path of success. There are many renowned companies like Google, Puma and Apple, that use MBO to improve their work output and performance.

Management by Objectives is a functional strategy and does not interfere in the execution processes of the set goals. It is a result-oriented strategy and focuses mainly on the end result.

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The manager plays an important role in deducing the strategic objectives of the company. These goals are all based on an estimation of conceivable goals within a specific time frame. This highlights the role of a manager as an essential component in the successful implementation and output of MBO.

Advantages of Management By Objectives

Efficient Management

Management of a company is said to be efficient when the work output of their employees is higher than the capital and resources that are invested in the input. In the absence of proper management, this efficiency suffers a backlash.

Companies that work with MBO as a part of their strategic planning, witness better productivity as their employees have a better understanding of their goals and a better work structure to follow.

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Effective Planning

Planning is aimed at creating a framework that guides the company in initiating every important step towards strengthening and widening its business. Good planning automatically shows its impact on the overall performance of the enterprise.

With the help of MBO, planning becomes easy and presents a clearer picture of instructions, expectations and goals to both the company and the employees.

Goal Setting

Setting a clear set of goals allows the managers and employees to plan their action strategy around their primary objectives. This invokes a sense of awareness and allows the employees to make better decisions after measuring the work assigned to them and the time given to complete it.

The Management by Objectives strategic model allows goal setting with mutual involvement of both the management and the employees. It gives everyone a say in the process and allows them to get a clear picture of the company’s ultimate goal.

Conclusion

If an enterprise implements the Management by Objectives (MBO) strategy in an effective manner, they can transform the working of their company considerably. MBOs allow companies to generate ideas, experiment and solve tricky problems. MBO has the power to boost the performance of companies and enhance their productivity by working on the basic understanding of their goal and their entire mechanism.

What is Performance Management System ?

Introduction

The principle of the butterfly effect states that the slightest movement of the wings of a butterfly can cause a huge impact on the universe.

This is somewhat how every single department of a company altogether contributes to its success and growth. In order to maintain the smooth functioning of the enterprise, it is important to ensure that every aspect is treated with care and importance.

Performance Management is one such aspect that requires attention. The performance of an employee can change the fate of the enterprise and either lead it towards prosperity or cause its downfall.

In this article, we will discuss the meaning and importance of a Performance Management System for an organisation.

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What is Performance Management ?

Performance management is a process of assessment and communication between a supervisor and an employee. This process occurs throughout the year with the aims of accomplishing the strategies and goals of the organization. This assessment and communication between the supervisor and the employee include numerous processes like analysing expectations, establishing goals, recognizing advantages, giving feedback, and reviewing outcomes.

What is a Performance Management System?

The most convenient way of understanding a Performance Management System is to look at it as a mechanism. From tracking employee performance to regulating their consistency and streamlining their talent for the best possible outputs, Performance Management ensures.

It allows the corporation to secure an effective and active work structure towards attaining the business goals of the organisation. Successful businesses attain a boon from having employees aligned with the corporate goals in a proper and planned manner.

The performance management system is the standardized method to assess the performance and work execution of employees. It is a procedure through which the company aligns their mission, goals and objectives with the resources that are available to them.

Importance of Performance Management Tools

Performance management tools increase the pace of performance management processes and assist companies in delivering adequate, systematic and useful examinations of the employee.

Performance management tools offer numerous benefits to an organization. Some of these benefits are :

Enabling continual performance administration
Offering 360-degree performance surveys
Improving the regularity of feedback and assessments
Ensuring bias-free and error-free performance appraisals
Making it susceptible to monitor employee performance
Identifying requirements for training and skill development
Automating performance inquiry reports

Features of Performance Management System

Past Performance Details

Performance Management System allows the supervisors and the employees to view their past performance records with their achievements, imperfections and accomplishments in it. It gives them an overview of their past work outcomes and gives them a better picture to assess their objectives and plan their activities accordingly.

Promotes a clear goal orientation

It encompasses organization, department and employee shared goals and objectives. These goals and objectives are aligned with their work structure and available resources. It streamlines all this information and provides better clarity about the expected outcomes and probable changes in the work structure for better output

Reduces Knowledge Gap

This system is also instrumental in identifying the competency, skills and knowledge gap in the employee, their team and the company as a whole. It further allows the company to come up with provisions of training, mentoring and proper guidance to brush their skills and enhance their work efficiency and output.

It also optimizes the results incurred by these provisions through a channel and takes note of grievances and conflicts that evolve amongst the employees or departments.

Feedback Mechanisms

A promising performance management tool provides characteristics and evaluation factors for 360-degree feedback on an employee’s performance. It also provides a well-framed report which can be accessed by the employee and the manager anytime in the present or future.

Ratings and scores

A performance management system allows you to rate your team’s performance. It also authorizes the business to customize evaluation factors to fit in with the company’s objectives and their prevailing performance marking procedure.

Development plans

An employee performance management system entitles employees and managers to document their expectations with respect to their future goals and growth potential in the company. It also addresses their requirements in terms of training and skill development.

Benefits

Better consistency

A performance management system offers better consistency across all performance management processes. By monitoring employee performance, the manager can make sure that common metrics are being used to evaluate all employees.

Objectively recognize outstanding performers and training necessities

A straightforward performance management system allows the manager to detect which employee is performing better and what kind of training and skill development can enhance their performance. It also detects training gaps and works towards its improvement.

Examination of training efficacy

With a good performance management system, it becomes easy to assess the impact and outcomes of training courses.

Boosted motivation of employees

Employees develop a better sense of engagement when they are aware of the care and concern the company holds for them. Consistent feedback helps them perform better and work on their shortcomings.

Better employee retention

Employees tend to leave their jobs when they feel unappreciated or their work goes unnoticed. With performance management, the objectives of a company are aligned with the individual goals of an employee and provides them with better assessment and feedback of their work.

Time saving

A performance management system makes the process of evaluation easy and hassle-free. It does not include any paperwork and allows easy filling, processing and sharing of data.

Conclusion

A Performance Management System aims at continuously regulating and assessing the performance criteria of the employees and aligning their abilities to achieve the goals and objectives of a company. It is an important procedure for monitoring employee dedication towards their work and also promotes an active disciplined environment in the work space.

What is Performance Appraisal?

Introduction to Performance Appraisal

A performance appraisal is a way to track the work and performance of an employee to align their ability with good results and prosperity for the company.

Every enterprise is greatly dependent on its employees for its success and credibility in the market. It is therefore essential to ensure that all their work is running smoothly and they are dedicated to a goal-oriented work discourse.

What is a Performance Appraisal?

As the name suggests, a performance appraisal is a regular assessment of an employee’s work performance and their dedication towards the company which is reflected through their work. Performance appraisals can be conducted as per the decision of the admins of the company. Usually, they are conducted at a regulated time interval annually, semi-annually or quarterly.

A performance appraisal is also termed as an annual review, performance review or evaluation. It’s basic is to evaluate the employee’s skill set, their accomplishments in the company and their growth chart.

It allows the admin to evaluate their employees and make reasonable decisions on the rate of pay increase, bonuses, promotions, demotions, deductions and terminations. It allows the employee to have a transparent understanding of their work and role status both in terms of their pay and position in the company.

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Types of Performance Appraisal

There are many different types of performance appraisals. However, implementing and practising these are entirely based on the discretion of the company and its protocols.

Here are some of the different types of performance appraisals –

Top-down performance appraisal

The supervisors evaluate the work and performance of their employees independently. But the employee being evaluated exercises no input in the process.

Self-assessment performance appraisal

The individual being evaluated is allowed to assess and rate their own performance and conduct with respect to their job.

Peer assessment performance appraisal

The employee is evaluated by their team and rated according to their feedback.

360-degree feedback assessment performance appraisal

This is a very comprehensive inspection and includes reviews from the employee, their team and their manager. Some companies also include client feedback in their assessment program.

Negotiated performance appraisal

This is a modern approach to performance appraisals that aims at moderating the hostile examinations by allowing the subject to demonstrate their stance first. It tends to be effective while resolving ideal differences between associates and managers.

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Shortcomings of Performance Appraisal

Dissatisfaction with the appraisal process

There can be a prominent difference between the performance of an individual and the work structure of the entire organisation. This difference can be a core factor of the employees’ contribution not being reflected in the overall performance of the company. If the evaluation process does not take this difference into account, it can be unjust for the employee and lead to unfair appraisals. Employee dissatisfaction with the appraisal process is a significant shortcoming of performance appraisals.

Unethical and false practices

Mistrust in the case of appraisal assessment and grant can cause problems between the associates and managers. It can also cause situations where the employees tailor their behaviour and outlook only to please their employer. There are some labour experts who also believe that the use of performance appraisals has dropped the quality of merit- and performance-based compensation.

It can also lead to the adoption of unfair goals that further demoralise the workers, exploit them and force them to engage in immoral pursuits.

Admin Bias

Performance appraisals can also cause irrational evaluations where the employees are judged on the basis of their likability and relationships with the manager instead of their talent. This might result in the manager giving good evaluation and appraisal to an under performing staff instead of a deserving one. Irresponsible and unprofessional managers can introduce many biases in the appraisal process and add to unreasonable factors of evaluation.

Subjective approach

Performance appraisals that work adequately in one industry or job structure may not be useful in another. This subjectivity often goes unaddressed while considering appraisals.

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Benefits of Performance Appraisal for an Organization

Employee inspections can make a huge difference in the performance of an organization. They provide insight into how employees are participating and contributing to the organizations.

Some of the benefits of performance appraisal in an organisation are –

It Identifies points where the management can enhance their work situations and boost productivity and work quality of their company.
It helps them address behavioural issues of the employees before they become a major issue and affect the productivity of their department.
It encourages employees to contribute to the company by acknowledging their skills and utilising them effectively.
It supports employees by encouraging aptitude, skill and career growth.
It improves strategic decision-making in circumstances that require dismissals, progression planning, or filling open roles.

Benefits of Performance Appraisal for an Employee

Performance appraisals are directed to deliver encouraging results for the employees and address their contributions to the company. The understandings developed from evaluating and examining an employee’s performance can help the organization in:

Recognising and appreciating the accomplishments and assistance provided by the employee.
Comprehending the circumstances, factors and chances for granting promotion and compensations.
Identifying and supporting the necessity for extra training and skill development to promote career development
Determining particular sectors where employee skills can be enriched.
Motivating employees and assisting them in getting involved and interested in career development.
Opening up conversations about the long-term objectives and opportunities of employees.

The Performance Appraisal process:

The examination process is usually facilitated by Human Resources, who assist managers and supervisors in inducting individual appraisals within their departments.

Here are some of the factors that must be looked upon while planning an appraisal process :

An assessment method should be established.
Required competencies and job exin expectations to be drafted for each employee.
Individual appraisals on employee performance need to be conducted.
A one on one interview must be scheduled between the manager and employee to discuss the review.
Future goals of an employee should be consulted with the admin.

Conclusion

Performance appraisals are instrumental in the creation of additional training and development sessions both for the managers and the employees. They allow them to reflect on the shortcomings of their work and further act on them to improve.

Juntrax Solutions will soon release a Performance Management module that will give a user-friendly and simplified outlook for managing employee performance and utilising their full potential. It will provide a holistic career plan to align employee talent with company goals.

Performance Appraisal enables the organization to intricately assess the productivity and dedication of an employee. It also creates a regulatory and disciplined environment for the employees to function efficiently and fulfil all their responsibility.

Crafted by Aditi Srivastava

Optimised by Ayush Shukla