Management by Objectives (MBO) is a process of agreeing upon objectives within an organization so that management and employees agree to the objectives and understand what they are in the organization.
The term "management by objectives" was first popularized by Peter Drucker in his 1954 book 'The Practice of Management '
Peter Drucker said
"It's just another tool. It is not the great cure for management inefficiency”...
According to Drucker managers should "avoid the activity trap"
The essence of MBO
Participative goal setting
Choosing course of actions and
An important part of the MBO It is the measurement and the comparison of the employee’s actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and the choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities.
Domains and levels Objectives can be set in all domains of activities production services sales R&D HR finance information systems Some objectives are collective, for a whole department or the whole company, others can be individualized
The MBO Process Motivation Better communication Clarity of goals NEXT TOPIC
Involving employees in the whole process
of goal setting and increasing employee
empowerment increases employee job
satisfaction and commitment.
Better communication and Coordination
Frequent reviews and interactions
between superiors and subordinates helps
to maintain harmonious relationships
within the enterprise and also solve many
problems faced during the period.
Clarity of goals
With MBO, came the concept of SMART goals i.e. goals that are:
First, companies need to set corporate objectives. Some goals are then set for the employees to meet those objectives. The employee performance is then measured through the performance cycle, and evaluated at the end. Finally, the employee is rewarded for his or her performance, and we repeat the cycle.
To elaborate on the comments I received in the last post, setting good objectives is very important; that’s at the core of MBOs. Depending on the level of sophistication of the MBO solution, some help with objective setting , but most solutions simply help out to manage them.
A big aspect of MBO solutions is the performance monitoring . Traditionally, that’s an activity performed at the end of a performance cycle. With an MBO solution, managers can usually record some feedback about how employees performed on a certain milestone at anytime. This way, the employee’s contribution is not forgotten when it’s time to evaluate them.
The performance evaluation is another big piece of MBO management. It is related to performance monitoring but records final observations. For example, during the performance monitoring phase, a manager could record that an employee performed a certain task well, handled another sitation very well, and attained a certain objective. The performance evaluation phase is when the manager will quantify and finalize how well an employee performed against his or her goals. That’s usually recorded in form of a numeric scale (1 to 10) or a percentage.
Input from spreadsheets traditionally ends with performance evaluation. However, MBO solution typically makes it easier to reward employees for their performance. Many solutions allow managers to assign a number of dollars, within a certain range, for each set of objectives.