This document discusses management by objectives (MBO) performance appraisal. MBO involves setting clear strategic and departmental goals that are then used to review individual performance results. While MBO has been widely discussed since the 1950s, surveys find that less than 10% of firms regard their MBO system as very successful. MBO implementation varies between organizations in terms of whether objectives are set for the whole organization or sub-units, and how manager and subordinate participation is approached. Effective MBO requires managers to have clearly defined objectives that contribute to overall company goals, and for subordinates to help set objectives at higher management levels.

1. Management by objectives performance appraisal
This system must not be looked at as 'just another management technique' and given
little consideration. It can be considered to be an approach to practical management.
In essence it embraces a clear cut strategic plan and its translation into departmental
and personal goals, which are reviewed when results are obtained.
Although a great deal has been written on MBO since Drucker's first references in
practices of management in 1954, less than 10 per cent of firms in a recent survey
regard its effect as 'very successful'; some applications, though, have been successful.
MBO systems vary greatly. Some are used for the organization as a whole; others are
prepared for sub units of an organization. Methods and approaches used by managers
differ greatly. In the US the emphasis appears to be more on human needs and
motivation and increasing subordinates' participation in setting objectives while in the
UK, MBO is used mainly for corporate strategy and planning.
Effective planning using the approach of MBO depends upon every manager having
very clearly defined objectives for his function in the company. These objectives must
also be part of the contribution to other objectives of the company. If objectives are
set which do not require any assistance from managers, there is much less chance of
them being affected. Peter Drucker goes a stage further by suggesting that managers
at every level should participate in devising objectives for the next higher level of
management. The important thing is to ensure that the individual's objectives are
related to the common goal.
Douglas McGregor stresses the value of MBO, especially the aspect of performance
appraisal. McGregor's approach suggests that we look at two sets of assumptions
about individuals and their reaction to work. Theory X assumes that people work to
survive and need therefore a strict, authoritarian approach to dealing with
subordinates. Theory Y assumes people do not dislike work, and derive satisfaction
from it. The manager's task under the assumptions of theory Y is to help subordinates
to achieve their fullest capabilities and not to control them. It is these assumptions
which are the basis of the MBO system.
The stages in management by objectives are:
• The desired results (objectives) set by management are clarified and defined;
• Performance standards are set, which must of course not conflict with the main
objectives of the business;
• The organization structure must be provided, within which the manager has the
maximum freedom and flexibility to perform;
• Control information must be supplied at suitable times so the manager can take
corrective action quickly;
• Appraisal of performance identifies areas where a manager needs help and provision
with guidance;
• Employees are motivated by relating results achieved to rewards and promotion
opportunities.

2. Others points to note are that each functional objective and target is tied to the overall
objectives. It may mean reorganization is needed as quite often many organization
schemes are either very elementary and leave out vital functions, or so complicated
that they are very difficult to understand.
Another important point is that new techniques are no better than the people who use
them and proper attention must therefore be given to the training and development of
management at all levels. Also, advanced methods of performance appraisal are
needed to identify areas where managers need help and guidance.
Participation in the setting of objectives can vary widely. Subordinates may only be
involved by being present when being told what management has decided. Or, they
may set the objectives and decide the methods by which they are to be achieved. In
practice, methods adopted lie between these two extremes and the greater the
participation of both managers and subordinates in the setting of objectives, the more
likely they are to be achieved.
To implement an effective MBO program, it needs complete support throughout the
organization as well as time and effort. It can be a highly motivating exercise as it
enables both managers and subordinates to see their role more clearly.
Research has shown that participation of employees will lead to greater employee
acceptance of performance goals and management decisions and improvements in
communication and understanding, among both managers and their subordinates.
Advantages of MBO
• The need to clarify objectives is stressed and suggestions for improvement are
obtained fro all management levels;
• All managers have a clear idea of the important areas of their work and of the
standards required;
• The performance of staff can be assumed and their needs for improvement
highlighted;
• Greater participation may improve morale and communication;
• Managers have to plan to achieve results, which are a means of achieving growth
and profits;
• It makes individuals more aware of organizational goals.
Disadvantages of MBO
• It takes a few years to be effective;
• Too much paperwork and difficulty in measuring key operations;
• Achieving objectives may be at the expense of organizational goals, e.g. cost
reduction programs achieved by deferring maintenance. Sacrificing everything to
meet goals may lead to poor managerial judgment;
• Some companies tend always to raise targets' if these are to high, staff become
frustrated.
• Appraisals are sometimes made on personality traits rather than on performance.
• Some companies have geared their salary administration to appraisal by results (easy
targets may be set to allow a promotion);
• It is not easy to set measurable objectives for staff groups who only exist to help the
'line' achieve its ends;

3. • Review and counseling of managers may be ineffective;
• Some employees do not want to be held responsible and goals forced upon them
may lead to ill-feeling;
• Some of those giving appraisals may not be properly trained, may not be motivated
to make the system work and may tend to treat it in a mechanical manner.
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