Management by Objectives

What is Management by Objectives?

MBO definition (Management by Objectives) refers to the unique management practice that is followed to improve the company’s annual performance based on certain objectives. These goals are planned by the employees and management.

This theory suggests that allowing your employees to participate in the goal-setting process will help build their motivation and align their goals with the organizational objectives. The term was coined by Peter Drucker in 1954.

Pros and Cons of MBO

The main purpose of using the MBO practice is to discover the difference between the actual performance of the company and the objectives set by the employees. Those who have embraced this strategy have said that MBO helped them improve communication between employees and management. It also improves their commitment to the company. The drawback of this strategy is that it focuses on setting the long-term business objectives to achieve the organization goals instead of following a systematic plan.

W.Edwards Demming wasn’t in favor of this management strategy. He believed that setting the goals to achieve a particular target can encourage employees to follow any means to achieve the goal. For example, if you have set the production target, there is a chance the employees might use the shortcuts to reach the goals. While that might help them accomplish the given task, it can affect the quality of the end product.

Principles of MBO

Pete Drucker mentioned quite a few crucial principles of MBO that can help organizations follow this strategy without ruining the quality of the work. You need to set forth the goals for the company with the help of your staff. These objectives must be a bit challenging, but feasible. The management has to give feedback to the employees every day after comparing their performances with the goals. This strategy focuses more on the rewards and positivity than penalties for the failures.

Not only does it help companies achieve their final objectives, but management by objectives is used for the personal development of the employee. Most people believe that the success of this management strategy depends completely on the support the employees get from the higher authorities. Working towards these objectives isn’t only the employees’ responsibility. It is rather a teamwork.

The MBO practice starts with setting the objectives. You could either revise your existing firm’s goals or set forth new plans with the help of employees. Your plans must align with the company’s mission and vision. These goals must be measurable, feasible, and challenging. As mentioned above, management by objectives focuses on the employee’s participation and individual growth.

Once the management has shared the organizational goals with the employees, they have to encourage each employee to set their individual objectives. This step helps improve employee’s commitment towards the company. They tend to work harder to achieve long-term objectives. The management reviews the performance of the employees and compares it with the actual goals to determine how well they are doing. They also give regular feedback to employees.