What is Management By Objectives (MBO)?
Management by objectives (MBO) is a strategic business model designed to improve the performance of an organization. It is a strategy with clearly defined objectives which is agreed by both the management and the employees.
MBO helps managers to systemically update and delegate tasks to employees with mutual understanding and keeping the goals aligned with the organizational mission. A definite set of task is set for each employee and also their work is monitored. The strategy is quite simple. It to plan, design, and execute objectives with transparency and complete it at a definite time frame.
A critical part of MBO is also to check employee performance through monitoring the performance. It is also widely practiced as an employee appraisal method for promotion and also giving other monetary and non-monetary bonuses.
The term 'Management By Objectives' was first termed by management guru Peter Drucker in his 1954 book, The Practice of Management.
MBO follows the mnemonic S.M.A.R.T while setting objectives. ‘SMART’ objectives are-
- Specific - Target a specific area for improvement.
- Measurable- Quantify or suggest an indicator of progress.
- Assignable - Specify who will do it.
- Realistic - State what results can realistically be achieved, given available resources.
- Time-bound - Specify when the result(s) can be achieved.
Steps in MBO (Also called MBO Process Cycle)
In the first step, MBO emphasizes on goals that are measurable, tangible and achievable keeping the organizational mission in mind.
The second step is to set and align these objectives with the employees.
In the third step, the employees are allowed plan their own objectives.
In the fourth step, the progress of the employees is monitored.
The fifth step is to evaluate and reward employees. Honest feedback is given and also new strategies for goals not achieved are established.
Nature of MBO
It is a functional approach, giving importance to the goal-setting process. It is a systematic approach to set goals and helps every individual department to set their own goals.
But MBO doesn’t interfere in the process of implementation of those goals. It gives every member the freedom to complete their tasks on their own. This promotes creativity and innovation in the organization and helps them generate ideas, solve problems and contribute to organizational goals with diversified inputs. This helps employees to keep themselves motivated and committed to the process.
MBO is a result-oriented strategy. Therefore, the outcomes are easily monitored and help the organization to understand if their goals are achieved.
Advantages of Management By Objectives
The management is efficient when the team’s output is higher than the input and resources they put into it. It is directly related the employee productivity or how much time they take to meet their goals and objectives. Often productivity gets dwindled when there is no proper structure aligned to fulfill organizational goals.
Organizations that follow MBO are more productive at their jobs and their efficiency increases. Employees are more clear about their goals which help them plan and have a very clear structure to follow. One of the clear reasons for this is the systematic plan which is adopted by every member of the organization to complete the assigned tasks.
The purpose of planning is to develop a blueprint for growing a business. The better the planning is, the easier it is for management to take action. Effective planning requires an attitude of never being satisfied with the organization’s current performance.
Planning becomes quite easier with MBO. Since employees are clear about the organizational objectives, therefore, they can develop a systematic approach and plan to achieve those. With this business strategy, the planning process becomes relatively easier.
Transparency of Organizational Roles:
With MBO members of the organization becomes aware of the roles others are playing. It helps subordinates to report to their managers and also understand it better since the work assigned is mutually decided. Also since all the members work towards the main organization goal, MBO gives an edge to understand it and follow transparency in the process.
In an organization, we often see employees gradually lose their job satisfaction and their sense of commitment. The reason behind this though has diverse reasons but one of the major factors is lack of direction, lack of transparency and miscommunication between the superior and subordinates. This strategic model bridges that gap and creates a positive and open work environment.
Since everyone is assigned goals to reach the target, therefore, it gives employees a sense of commitment. The fact that their work is designed and monitored for the greater purpose reinforces the commitment in them. It also helps in employee motivation as employees are included in the goal-setting process and give them the extra push to complete the tasks.
We are aware of the fact that how important goal-setting is for any organization. It directs management and gives a road-map to follow. And it is better when everyone in the organization is aware of the process or included to give their perspectives and idea on the same. This also helps the employees to understand their roles and tasks better.
With MBO Strategic Model, goal-setting is done with mutual participation of the management and the organization. Objectives are more likely to be fulfilled by the employees as they actively participate in the goal-setting process and also choose the actions to achieve those.