Management by objectives

• Peter Drucker in 1954, in his book “the practice of management” proposed the approach

• MBO and self control suggested as basis of measuring the performance of managers

• Douglas McGregor , Edward Shelh, John Humble General Electric, USA all advocated the concept

• Called by various names viz. work planning and review, management by results, accountability management, performance results and individual development evaluation (PRIDE)

Management by objectives• MBO can be defined as a process whereby the

superior and subordinates managers of an oragnisation

jointly identify its common goals, define each individual's major areas

of responsibility in terms of results expected of him,

and use these measures as guides for operating the unit

and assessing the contribution of each of its members

Contd..

• A philosophy as well as a technique of management

• MBO philosophy assumptions : goal clarity, role clarity, periodic feedback, participation and performance improvement

• emphasis on converting overall objectives in to specific objectives for organizational unit and individual members

• a way to integrate and focus the efforts of all organization members on the goals of higher management and overall organizational strategy

• Managers help set objectives for those at levels higher than their own so that it gives them a better understanding of strategy of company and how their specific objectives relate to over all picture

• MBO works from bottom up as well as from the top down

Management by objectives

• Management By Objectives (MBO)– Specific performance goals are jointly determined by

employees and managers.– Progress toward accomplishing goals is periodically

reviewed.– Rewards are allocated on the basis of progress towards

the goals.– Key elements of MBO:

• Goal specificity, participative decision making, an explicit performance/evaluation period, feedback

Features:• Comprehensive management philosophy not

merely a tool of measuring performance, overall system of management

• Participative approach to managements : joint authorship and implementation

• Goal oriented approach: Focuses on goals at all levels

• Concentrates on KRAs • Integrated approach to management: integrates

goals at all levels• Uses initiative and creativity in decision making

Steps in a Typical MBO Program1. The organization’s overall objectives and strategies are

formulated in KRAs, goals are preliminary and tentative subject to modifications after a full range of verifiable objectives are evolved by the organization

2. Major objectives are allocated among divisional and departmental units.

3. Unit managers collaboratively set specific objectives for their units with their managers.

4. Specific objectives are collaboratively set with all department members.

5. Action plans, defining how objectives are to be achieved, are specified and agreed upon by managers and employees. Check points are established

6. The action plans are implemented.

7. Progress toward objectives is periodically reviewed, and feedback is provided.

8. Successful achievement of objectives is reinforced by performance-based rewards.

Benefits of MBO• Better and improved planning: plans for results rather for

work,explicit objectives, goal clarity,high commitment towards goals, realistic plans,

• Self control: • High productivity: focus on KRAs and important areas• Objective performance appraisal:• Executive development: greater opportunities to make

personal contribution, participative decision making• Motivation and morale: better interpersonal relations,

greater opportunities to make personal contribution, participative goal setting, two way communication, supportive role of managers

• Team work:better communication, reduced conflicts, integration of goals at various levels

Difficulties in implementing MBO

• Time consuming:• Participation problems: from both sides• Lack of preparation:• Non-quantifiable targets• Paperwork; news letters, instruction booklets, training

manuals, performance reports• Pressure oriented: forces changes in thinking • Undermining leadership: democratic leadership is not

desirable in all circumstances, employees not always rational

How to make MBO effective?

• Top management support:

• Orientation and Training of managers:

• Clarity of purposes:

• Encouragement of participants:

• Decentralization :

• Adequate time and resources:

• Timely feedback: