Management by Objectives (MBO) is a systematic process for setting performance goals and monitoring results. It was first outlined by Peter Drucker in 1954 and involves employees participating in goal setting for their roles. The key principles of MBO are aligning individual, team and organizational goals and providing ongoing feedback to achieve objectives. MBO aims to increase motivation, communication and performance by clarifying expectations. However, it requires objectives be carefully set and monitored to avoid unintended outcomes.

1. MBO
Dr Nandita Mishra

2. • What is MBO?
• Management by objectives (MBO) is a
systematic and organized approach that
allows management to focus on
achievable goals and to attain the best
possible results from available resources.

3. • Management by Objectives (MBO) was
first outlined by Peter Drucker in 1954 in
his book 'The Practice of Management'. In
the 90s, Peter Drucker himself decreased
the significance of this organization
management method, when he said: "It's
just another tool. It is not the great cure for
management inefficiency... Management
by Objectives works if you know
the objectives, 90% of the time you don't."

4. • It aims to increase organizational
performance by aligning goals and
subordinate objectives throughout the
organization. Ideally, employees get
strong input to identify their objectives,
time lines for completion, etc. MBO
includes ongoing tracking and feedback
in the process to reach objectives.

5. • Core Concepts
• According to Drucker managers should "avoid
the activity trap", getting so involved in their day
to day activities that they forget their main
purpose or objective. Instead of just a few
top managers, all managers should:
• participate in the strategic planning process, in
order to improve the implementability of the
plan, and implement a range of performance
systems, designed to help the organization stay
on the right track.

6. • Managerial Focus
• MBO managers focus on the result, not the
activity. They delegate tasks by "negotiating a
contract of goals" with their subordinates without
dictating a detailed roadmap for implementation.
Management by Objectives (MBO) is about
setting yourself objectives and then breaking
these down into more specific goals or key
results

7. • Main Principle
• The principle behind Management by Objectives
(MBO) is to make sure that everybody within the
organization has a clear understanding of the
aims, or objectives, of that organization, as well
as awareness of their own roles and
responsibilities in achieving those aims. The
complete MBO system is to get managers and
empowered employees acting to implement
and achieve their plans, which automatically
achieve those of the organization.

8. • Where to Use MBO
• The MBO style is appropriate for
knowledge-based 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
entrepreneurial creativity,
tacit knowledge and initiative

9. • Inspiring Culture
• Management by Objectives (MBO) is also
used by chief executives of multinational
corporations (MNCs) for their country
managers abroad.

10. • Case in Point MBO in Action at Intel
• A Manager's Guide at Intel provides the
following directions.
• Start with a few well-chosen overriding
objectives.
• Set your subordinates objectives that fit in with
your overriding objectives.
• Allow your subordinates to set their own key
results to enable them to meet their objectives.

11. The Jazz of Innovation: 11 Practice T
• Setting Objectives
• For Management by Objectives (MBO) to be effective, individual
managers must understand the specific objectives of their job and
how those objectives fit in with the overall company objectives set
by the board of directors.
• The managers of the various units or sub-units, or sections of an
organization should know not only the objectives of their unit but
should also actively participate in setting these objectives and make
responsibility for them.
• The review mechanism enables leaders to measure the
performance of their managers, especially in the key result areas:
marketing; innovation; human organization; financial resources;
physical resources; productivity; social responsibility; and profit
requirements

12. • Balance between Management and Employee Empowerment
• The balance between management and employee empowerment has to be
struck, not by thinkers, but by practicing managers. Turning their aims into
successful actions, forces managers to master five basic operations:
• setting objectives,
• organizing the group,
• motivating and communicating,
• measuring performance, and
• developing people, including yourself.
• These Management by Objectives (MBO) operations are all compatible with
empowerment, if you follow the main principle of decentralization: telling
people what is to be done, but letting them achieve it their own way. To
make the principle work well, people need to be able to develop personally.
Further, different people have different hierarchy of needs and, thus, need
to be managed differently if they are to perform well and achieve their
potential

13. • Empowerment recognizes "the demise" of the command-
and-control system, but remains a term of power and
rank. A manager should view members of his or her
team much as a conductor regards the players in the
orchestra, as individuals whose particular skills
contribute to the success of the enterprise. While people
are still subordinates, the superior is increasingly
dependent on the subordinates for getting results in their
area of responsibility, where they have the requisite
knowledge. In turn, these subordinates depend on their
superior for direction and "above all, to define what the
'score' if for the entire organization, that is, what are
standards and values, performance and results."

14. • Individual Responsibility
• Management by Objectives (MBO) creates a link between
top manager's strategic thinking and the strategy's implementation
lower down. Responsibility for objectives is passed from the
organization to its individual members. It is especially important for
knowledge-based organizations where all members have to be able
to control their own work by feeding back from their results to their
objectives.
• Management by objectives is achieved through self-control, the tool
of effectiveness. Today the worker is a self-manager, whose
decisions are of decisive importance for results.
• In such an organization, management has to ask each employee
three questions:
• What should we hold you accountable for?
• What information do you need?
• What information do you owe the rest of us?

15. • Managing for Results
• The only place where meaningful management results
can be won is the outside world.
• Managing for results is expansion of Management by
Objectives (MBO) into the marketplace. It is the theory
and practice of how to produce results on the outside, in
the market and economy.
• To achieve results, you should develop a solid, sound,
customer-focused, and entrepreneurial strategy, aimed
at market leadership, based on innovation, and tightly
focused on decisive opportunities..

16. • Leadership-Management Synergy
• To maximize your long-term success you should
strive to be both a manager and a leader and to
synergize their functions. Merely possessing
management skills is no longer sufficient for
success as an executive in today's business
world. You need to understand the differences
between managing and leading and know how
to integrate the two roles to achieve
organizational success .

17. • 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. MBO also places importance
on fulfilling the personal goals of each
employee.

18. Some of the important features and advantages of MBO
are:
• Motivation – Involving employees in the whole process of
goal setting and increasing employee empowerment.
This 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 organization and also to solve many problems.
• Clarity of goals
• Subordinates have a higher commitment to objectives
they set themselves than those imposed on them by
another person.
• Managers can ensure that objectives of the subordinates
are linked to the organization's objectives.

19. • 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.

20. • Practice
• Objectives need quantifying and
monitoring. Reliable management
information systems are needed to
establish relevant objectives and monitor
their "reach ratio" in an objective way. Pay
incentives (bonuses) are often linked to
results in reaching the objectives

21. 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.

22. • 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.
• The use of MBO must be carefully aligned with the culture of the
organization. While MBO is not as fashionable as it was before the
'empowerment' fad, 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.
• 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.

23. • MBO has its detractors, notably among them W. Edwards Deming,
who argued that a lack of understanding of systems commonly
results in the misapplication of objectives. Additionally, Deming
stated that setting production targets will encourage resources to
meet those targets through whatever means necessary, which
usually results in poor quality.
• Point 7 of Deming's 14 Points encourages managers to abandon
objectives in favour of leadership because he felt that a leader with
an understanding of systems was more likely to guide workers to an
appropriate solution than the incentive of an objective. Deming also
pointed out that Drucker warned managers that a systemic view was
required and felt that Drucker's warning went largely unheeded by
the practitioners of MBO.