Management by Objectives (MBO) is a process where managers and employees jointly set objectives, understand their roles, and monitor performance against goals. The goals should be specific, measurable, achievable, relevant and time-bound. Involving employees in setting goals increases motivation, communication, and commitment to meeting objectives. However, MBO works best when contexts like resources and leadership support are also considered, and objectives are discussed not just set, to avoid potential limitations like a focus only on short-term targets.

1. Management By Objective
• Management by Objectives (MBO) is a
process of defining Objectives within an
organization so
that Management and Employees agree
to the objectives and understand what
they need to do in the organization.
• The term "management by objectives" was
first popularized by ’Peter Drucker’ in his
1954 book 'The Practice of Management'

2. Management By Objective
• The essence of MBO is participative goal
setting, choosing course of actions and
decision making. An important part of the
MBO 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
choosing the course of action to be
followed by them, they are more likely to
fulfill their responsibilities.

3. Management By Objective
• According to George S. Odiorne, the
system of management by objectives can
be described as a process whereby the
superior and subordinate managers of an
organization jointly identify its common
goals, define each individual's major areas
of responsibility in terms of the results
expected of him, and use these measures
as guides for operating the unit and
assessing the contribution of each of its
members

4. Unique features and advantages of the MBO
process
• The basic principle behind Management
by Objectives (MBO) is for employees to
have a clear understanding of the roles
and responsibilities expected of them.
They can then understand how their
activities relate to the achievement of the
organization's goal. MBO also places
importance on fulfilling the personal goals
of each employee.

5. Unique features and advantages of the MBO
process
• Some of the important features and advantages of
MBO are:
• 1. Motivation – Involving employees in the whole
process of goal setting and increasing employee
empowerment. This increases employee job
satisfaction and commitment.
• 2. Better communication and Coordination –
Frequent reviews and interactions between
superiors and subordinates helps to maintain
harmonious relationships within the organization
and also to solve many problems.

6. Unique features and advantages of the MBO
process
• 3. Clarity of goals
• 4. Subordinates tend to have a higher
commitment to objectives they set for
themselves than those imposed on
them by another person.
• 5. Managers can ensure that
objectives of the subordinates are
linked to the organization's objectives

7. M B O - Domains and levels
• Objectives can be set in all domains
of activities (production, marketing,
services, sales, R&D, human
resources, finance, information
systems etc.).
• Some objectives are collective, for a
whole department or the whole
company, others can be
individualized.

8. M B O - Practice
• Objectives need quantifying and
monitoring. Reliable ’M I S’ are needed to
establish relevant objectives and monitor
their "reach ratio" in an objective way.
• Pay, Allowances and Performance linked
Rewards (bonuses) are often linked to
results in reaching the objectives.
• Marketing Staff is normally Motivated to
MBO practice as their results are
Rewarded linked to their performance.

9. M B O - Limitations
• There are several limitations to the assumptive base
underlying the impact of managing by objectives,
including:
• 1. It over-emphasizes the setting of goals over the
working of a plan as a driver of outcomes.
• 2. It underemphasizes the importance of the
environment or context in which the goals are set. That
context includes everything from the availability and
quality of resources, to relative buy-in by leadership and
stake-holders. As an example of the influence of
management buy-in as a contextual influencer, in a 1991
comprehensive review of thirty years of research on the
impact of Management by Objectives, Robert Rodgers
and John Hunter concluded that companies whose
CEOs demonstrated high commitment to MBO showed,
on average, a 56% gain in productivity. Companies with
CEOs who showed low commitment only saw a 6% gain
in productivity.

10. M B O - Limitations
• 3. Companies evaluated their employees by
comparing them with the "ideal" employee. Trait
appraisal only looks at what employees should
be, not at what they should do.
• When this approach is not properly set, agreed
and managed by organizations, self-centered
employees might be prone to distort results,
falsely representing achievement of targets that
were set in a short-term, narrow fashion. In this
case, managing by objectives would be
counterproductive.

11. M B O - Limitations
• The use of MBO must be carefully aligned
with the culture of the organization. While
MBO is not as fashionable as it was
before, it still has its place in management
today. The key difference is that rather
than 'set' objectives from a cascade
process, objectives are discussed and
agreed upon. Employees are often
involved in this process, which can be
advantageous.

12. M B O – Overcoming Limitations
• A saying around MBO -- "What gets
measured gets done", ‘Why measure
performance? Different purposes require
different measures’ -- is perhaps the most
famous aphorism of performance
measurement; therefore, to avoid potential
problems SMART and SMARTER
objectives need to be agreed upon in the
true sense rather than set.

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