What is Management by Objectives (MBO) 

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.