unit 2 session 1

8/4/2019 UNIT 2 Session 1

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MANAGEMENT

BY

OBJECTIVES


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What Is an Objective?

Objectives are goals, aims or purposes that

organisation wish over varying periods of time


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Management By Objectives (MBO)

A method whereby managersand employees define

objectives for every department,project, and person and use

them to monitor subsequentperformance.


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WHAT IS MBO ?

4

MBO is a system in which specific performance

objectives are jointly determined by subordinatesand their superiors, progress toward objectives isperiodically reviewed, and rewards are allocatedon the basis of this progress.

Is a systematic and organized approach that allows

management to focus on achievable goals andattain the best possible results from availableresources

Management By Objectives term was firstpopularized by Peter Drucker, in 1954 in his book

'The Practice of Management'.


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Core Concepts of MBO According to Drucker managers should "avoid

the activity trap", getting so involved in their dayto day activities that they forget their mainpurpose or objective. Instead of just a few topmangers , all managers should:

participate in the strategic planning process, inorder to improve the implementability of theplan, and

implement a range of performance systems,

designed to help the organization stay on theright track.


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Concepts

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MBO involves subordinate managers participationin planning and controlling activities. It is a fact

that more of their involvement will result in morecommitment, which will lead to more and betterresults.

One of the concepts of MBO was that instead of justfew top managers, all managers of the firm shouldparticipate in the strategic planning process, inorder to improve the implement ability of the plan.

Aims to increase individual and organizationaleffectiveness by aligning organizational goals and

subordinate objectives Clarifies and quantifies objectives to allow for

monitoring, evaluation, and feedback throughoutthe hierarchy of objectives


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IN SIMPLE WORDS,MBO IS

MBO emphasises the importanceof objectives as a tool to be used

by managers in fulfilling theirmanagerial roles (accomplishtheir tasks)

Divide problem into manageable,bite-size chunks


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Main Principle of MBO The principle behind Management by Objectives

(MBO) is to make sure that everybody within theorganization has a clear understanding of the aims,or objectives, of that organization

As a awareness of their own roles andresponsibilities in achieving those aims.

The complete MBO system is to get managers and

empowered employees acting to implement andachieve their plans, which automatically achievethose of the organization.


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Where to Use MBO

The MBO style is appropriate for knowledgebased enterprises when your staff is competent.

It is appropriate in situations where you wish to

build employees management and self-leadership skills and tap their creativity, tacitknowledge, and initiative.

Management by Objectives (MBO) is also used

by chief executives of multinational corporations(MNCs) for their country managers abroad.


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Setting Objectives In MBO systems, objectives are written down for each

level of the organization, and individuals are given specific

aims and targets. "The principle behind this is to ensure that people know

what the organization is trying to achieve, what their part ofthe organization must do to meet those aims, and how, asindividuals, they are expected to help. This presupposesthat organization's programs and methods have been fullyconsidered. If they have not, start by constructing teamobjectives and ask team members to share in the process.

"The one thing an MBO system should provide is focus",says Andy Grove who ardently practiced MBO at Intel. So,have your objectives precise and keep their number small.Most people disobey this rule, try to focus on everything,and end up with no focus at all.


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Setting Objectives For MBO to be effective, individual managers must understand the

specific objectives of their job and how those objectives fit in withthe overall company objectives set by the board of directors.

"A manager's job should be based on a task to be performed in

order to attain the company's objectives... the manager should bedirected and controlled by the objectives of performance ratherthan by his boss."

The review mechanism enables leaders to measure theperformance of their managers, especially in the key result areas:

marketing; innovation; human organization; financial resources;physical resources; productivity; social responsibility; and profitrequirements.


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OBJECTIVE SETTING

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MBO is often achieved using set targets.

MBO introduced the SMART method for checkingthe validity of the objectives which should be

SMART Specific

Measurable,

Agreed / Achievable

Realistic, and Result Oriented Time-Specific or Time related


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Sspecific

Mmeasurable

A achievable

R result oriented

T time-related

WORK HAVE

S

U

C

C

E

S

S

In an MBO, good goals are SMART goals:


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GUIDELINES FOR SETTING OBJECTIVES:

SMART Criteria - Specific, Measurable,

Achievable, Relevant, Time-Specific

Clear and Realistic

Results oriented

Established before the fact

Verifiable

Agreed both by managers and the associatesWritten

Consistent with focus


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COMMON ERRORS TO AVOID WHEN

DEVELOPING OBJECTIVES:

Too many objectives

Too complex objectivesToo high or too low standards

Too long or too short time period

Objectives that are not measurableObjectives for which the cost is too

high


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MBO; PLAN VIEW

Vision


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MBO; CROSS SECTION

Vision

Mission

Tactical

Plans

Managementby

Objectives

OperationalPlans

StandingPlans

Single-UsePlans

Top

Managers

Middle

Managers

First-LevelManagers


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Single-use Plans are developed to achieve

objectives that are not likely to be repeated in the

future. Single-use plans include both programs

and projects.

Standing Plans are used to provide guidance for

tasks performed repeatedly within theorganization. The primary standing plans are

organizational policies, rules, and procedures.

Operational Plans are used to identify specificresults to be accomplished within a given short

term time period. Contain detailed information

used in the lower levels in an organization.


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Peter Drucker also stated that:For the business to succeed, the

managers and employees must worktowards a common goal

Managers must identify and agreetargets for achievement withsubordinates

Managers must negotiate the support

needed to achieve the targets withsubordinatesEvaluate the objectives over time

FEATURES OF MBO


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MBO AIM

Short and long-term planning

Optymalization of organization structure Better work and collaboration quality

Appraisal based on objective results

BONUSES


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MBO PRINCIPLES

1.Cascading of organizational goals andobjectives

2.Specific objectives for each team member

3.Participative decision making

4.Explicit time period

5.Performance evaluation & feedback


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CASCADING OF OBJECTIVES


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IS MBO SUITABLE FOR EVERYBUSINESS?

MBO could be suitable for a medium tolarge business, using a democraticapproach to management and

operating in a stable marketThe overriding issues therefore are

size of the business, the leadership

style it uses and the rate of change inthe market it operates.


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HOW MBO WORKS

Jointly identify common goals.

Define major areas of responsibility

in terms of results expected.Use measurements as guides for

operating and assessingcontributions of members.


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UNDERLYING PURPOSESOF MBO

1. Clarify organizations goals andplans at all levels.

2. Gain better motivation andparticipation from organizationsmembers.


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MBO; FRAMEWORK CONCEPT

Jointly plan

Setting

objectives Settingstandards Choosingactions

Individually act

Performing

tasks(subordinate) Providingsupport(supervisor)

Jointly control

Reviewing

results Discussingimplications Renewing MBOcycle

Supervisor

Subordinate

and


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PHASES OF MBO

1. Top management team studiessystem.

2. Team sets up methods of

measuring performance.3. Goal-setting sessions are held at

all levels of organization.


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Essential Steps for MBO Set Goals

The most difficult step.

Develop Action Plan For both workgroups and individuals.

Review Progress/ Take corrective action Periodic during the year.

Appraise Overall Performance. Review Annual Goals.


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STEPS FOR MBO

Appraise

Performance

Corporate Strategic goals

Departmental goals

Individual goals

STEP 1: SET GOALS

STEP 4: APPRAISEOVERALL PERFORMANCE

Action PlansCourse of actionFor both workgroupsand individuals

Review Progress

&

Take Corrective Action

STEP 2: DEVELOP PLANS

STEP 3: REVIEW PROGRESS

How are we doing?

Do we need to restate our goals?


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ESSENTIAL STEPS FOR MBO

Set Goals (The most difficult

step) What are we trying to

accomplish? Develop Action Plans

What do we need to do to get

there? Groups and individuals

Review Progress How are we doing?

Periodically (How Often?) Does plan need to be tweaked?

Appraise Performance Rewards?


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Six MBO Stages

Define corporate objectives at board level

Analyze management tasks and devise formal jobspecifications, which allocate responsibilities anddecisions to individual managers

Set performance standards

Agree and set specific objectives

Align individual targets with corporate objectives

Establish a management information system tomonitor achievements against objectives


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The Five-Step MBO Process


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e.g. HOW TO SET CORPORATEOBJECTIVES

Mission statement

Corporate objectives

Departmental

objectives

Individuals and team

targets

To become the leading supplierof computers in London

To increase sales in Londonby 10% in the next 5 years

e.g. (marketing department) toachieve a 10% share of thecomputer market in London

within the next 5 yearse.g. to design questionnairesas part of market research


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SOURCES OF MBO FAILURES

1. Lack of top management commitment andfollow through on MBO.

2. Employees negative beliefs about

managements sincerity in its efforts toinclude them in the decision-making

process.


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Improves employee motivation

Improves communication in the organisation Flags up and highlights training needs required

to achieve objectives Improves overall performance and efficiency

Attainment of goals can lead to the satisfaction ofMaslows higher order needs MBO programs continually emphasize what

should be done in an organization to achieveorganizational goals.

A basis for promotion and compensation Better managerial planning and use of employee MBO process secures employee commitment to

attaining organizational goals.

ADVANTAGES OF MBO


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The employee has knowledge of the

managers goals, priorities anddeadline

He has a greater understanding of

where he stands with the manager inrelation to relative progress

There is a basis for better evaluation

than personalityIt stimulates higher individual

performance and morale

ADVANTAGES OF MBO


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DISADVANTAGES OF MBO

May demotivate staff if targets are too high and unrealistic,also if imposed rather than agreed

Requires the cooperation of all employees to succeed The development of objectives can be time consuming,

leaving both managers and employees less time in whichto do their actual work.

The elaborate written goals, careful communication of

goals, and detailed performance evaluation required in anMBO program increase the volume of paperwork in anorganization.

Can be bureaucratic and time consuming (meetings,feedback)

Can encourage short-term rather a more focused long-

term growth Objectives may go out of date and can restrict staff

initiative and creativity Setting targets for certain specialised employees may be

difficult

S G S O O


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DISADVANTAGES OF MBO

Difficulty in setting agreed, harmonized goals

Danger of inflexibility Individual over collective effort

It underemphasizes the importance of the environment inwhich the goals are set

It did not address the importance of successfullyresponding to obstacles and constraints as essential toreaching the goal


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MAKING MBO PROCESS EFFECTIVE

If MBO is to be successful, it must start atthe top of the organization

Employees must be educated about whatMBO is and what their role in it will be.

Managers must implement MBO in a way thatis consistent with overall organizational goals.


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Managers tell their subordinates what

organizational and unit goals and plans top

management has established.

Managers meet with their subordinates on a

one-to-one basis to arrive at a set of goals foreach subordinate that both develop and to

which both are committed.

Goals are refined to be as verifiable as possibleand achievable within a specified period of time.


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Goals must be written and very clearly stated.

Managers must play the role of counselors in

the goal-setting and planning meeting.

The meeting should specify the resources thatthe subordinate will need

Conducting periodic reviews

The employee is rewarded on goal attainment.

MASLOWS NEEDS THEORY


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We each have a hierarchy of needs that ranges

from "lower" to "higher." As lower needs are

fulfilled there is a tendency for other, higher

needs to emerge. Daniels,

2004

Maslows theory maintains that a person does

not feel a higher need until the needs of thecurrent level have been satisfied. Maslow's basic

needs are as follows:



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EsteemNeeds

Self-

Actualization

Safety

Social Needs(Love & Belonging)


Basic Human Needs(Physiological)

Food, Air, Water,

Clothing

Protection, Stability, Pain

Avoidance, Routine/Order

Affection, Acceptance,Inclusion

Self-Respect, Self-Esteem,

Respected by Others

Achieve full potential,

Fulfillment

unit 2 session 1

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