Management by objectives


What is management by objectives?

Management by Objectives (MBO) is a systematic and organised approach that allows a management team to focus on achievable goals and to attain the best possible results from available resources.

It aims to increase business performance by aligning goals and subordinate objectives across teams. Ideally, employees get strong input to identify their objectives, time lines for completion, etc. MBO includes ongoing monitoring and feedback in the process to reach objectives.

Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in his book 'The Practice of Management'. But Drucker himself decreased the significance of this management method in the 1990s, when he said: "It's just another tool. It is not the great cure for management inefficiency... Management by Objectives works if you know the objectives, 90% of the time you don't."

The principle behind MBO is to make sure that everyone within the organisation has a clear understanding of the vision and aims of the business, as well as awareness of their own roles and responsibilities in achieving those aims. The ideal MBO system involves managers and  empowered employees acting to implement and achieve their plans, which automatically achieve those of the organisation.

Managerial focus

MBO managers focus on the result, not the activity. They delegate tasks by agreeing goals with their team without dictating a detailed roadmap for implementation. MBO is about setting yourself objectives and then breaking these down into more specific goals or key results

When is MBO appropriate?

The MBO style is appropriate for knowledge-based companies when your staff have a high level of competency. It is appropriate in situations where you wish to build employees' management and self-leadership skills and tap into their entrepreneurial creativity, tacit knowledge and initiative.  

MBO is also used by chief executives of multinational corporations for their country managers abroad.

Advantages and disadvantages

Advantages

Disadvantages

MBO programmes continually emphasise what should be done in your company to achieve your business goals. The development of objectives can be time consuming, leaving both managers and employees less time in which to do their actual work.
 
MBO processes secures employee commitment to attain these goals. The written goals, communication of goals, and performance evaluation required in an MBO programme increase bureaucracy.
 

Setting objectives

For MBO to be effective, individual managers must understand the specific objectives of their job and how these fit in with the overall company objectives set by the board of directors.

The manager of a team should know not only the objectives of their team, but should also actively participate in setting these objectives and take responsibility for them.

All objectives should be SMART (Specific, Mesurable, Achievable, Realistic, Timely)

Individual responsability

MBO creates a link between senior managers' strategic thinking and the strategy which is implemented lower down the organisation. Responsibility for achieving objectives is passed from the organisation to its individual members. It is especially important for knowledge-based organisations where all members have to be able to control their own work by feeding their results back to their objectives.

MBO is achieved through self-discipline. Each individual employee manages themselves to ensure that they achieve their objectives and therefore the organisation's goals.

ACTION

Ask your team members to answer three questions:

1 - What should we hold you accountable for?

2 - What information do you need?

3 - What information do you owe the rest of us?

MBO strategy

  • All individuals within your company are assigned a special set of objectives that they try to reach during a given period. These objectives are mutually set and agreed upon by individuals and their managers
  • Performance reviews are conducted periodically to determine how close individuals are to achieving their objectives
  • Rewards are given to individuals on reaching milestones and on the basis of how close they come to reach their final goals

MBO action plan in six steps

  • Define your business objectives at board level
  • Analyse your management tasks and devise formal job specifications, which allocate responsibilities and decisions to your management team
  • Set performance standards
  • Agree and set specific objectives
  • Align individual targets with corporate objectives
  • Establish a feedback loop to monitor achievements against objectives