Management by objectives (MBO) is a strategic management model that aims to improve the performance of an organization by clearly defining objectives that are agreed to by both management and employees. According to the theory, having a say in goal setting and action plans encourages participation and commitment among employees, as well as aligning objectives across the organization.
Management by objectives (also known as management by planning) is the establishment of a management information system (MIS) to compare actual performance and achievements with the defined objectives. Practitioners claim that the major benefits of MBO are that it improves employee motivation and commitment and allows for better communication between management and employees. However, a cited weakness of MBO is that it unduly emphasizes the setting of goals to attain objectives, rather than working on a systematic plan to do so. Critics of MBO, such as W. Edwards Deming, argue that setting particular goals like production targets leads workers to meet those targets by any means necessary, including shortcuts that result in poor quality.
In his book that coined the term, Peter Drucker set forth several principles for MBO. Objectives are laid out with the help of employees and are meant to be challenging but achievable. Employees receive daily feedback, and the focus is on rewards rather than punishment. Personal growth and development are emphasized, rather than negativity for failing to reach objectives.
MBO is not a cure-all but a tool to be utilized. It gives organizations a process, with many practitioners claiming that the success of MBO is dependent on the support from top management, clearly outlined objectives, and trained managers who can implement it. MBO outlines five steps that organizations should use to put the management technique into practice.
The term “management by objectives (MBO)” was first used by Peter F. Drucker in his 1954 book titled The Practice of Management. MBO comes with many advantages and disadvantages.
Management by objectives (MBO) uses a set of quantifiable or objective standards against which to measure the performance of a company and its employees. By comparing actual productivity to a given set of standards, managers can identify problem areas and improve efficiency. Both management and workers know and agree to these standards and their objectives.
A company can set various goals with its employees. In the case of a call center, an MBO could be to increase customer satisfaction, say, by 10%, while reducing call times by one minute. The onus is now on finding ways to achieve this goal. Once that’s decided on, it’s important to get employees on board and then monitor their progress, provide feedback, and reward those who do a good job.
As MBO is entirely focused on goals and targets, it often ignores other parts of a company, such as the corporate culture, worker conduct, a healthy work ethos, environmental issues, and areas for involvement and contribution to the community and social good.
In management by exception (MBE), management only addresses instances where objectives or standards are transgressed. Thus, workers are left alone until and unless proficiency is not met. As a theory, MBO makes a lot of sense: Help employees to get involved in setting company goals and they are more likely to share management’s objectives, work harder, and deliver. However, there’s also a good reason why MBO is widely criticized. Like most things that look good on paper, it doesn’t always work in practice. The key is to be aware of its drawbacks, customize the plan according to your organization, and make sure that everyone is fully on board and that the objectives are clear and reasonable before commencing. |