Management by Objectives (MBO) is a performance management process where management and employees jointly set goals, define responsibilities, and assess contributions. While it encourages employee involvement and can lead to higher productivity, critics argue it overemphasizes goal setting, potentially neglecting contextual factors and the quality of work. Additionally, detractors highlight that MBO may lead to micromanagement and diminish managerial roles to mere evaluators rather than leaders.

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MBO
An important part of MBO is the measurement and comparison of an
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]
According to George S. Odiorne the system of management
by objectives can be described as a process whereby the superior and
subordinate jointly identify common goals, define each individual's major areas
of responsibility in terms of the results expected of him or her, and use these
measures as guides for operating the unit and assessing the contribution of
each of its members.
MBO relies on the premise that people tend to perform better when they are
known about what is expected from them and when they can associate
their personal goals with that of the objectives of the organization. In
addition to this, it also proposes that people have interest in establishing goals
and comparing the performance against the set target.
Process of Management by Objectives
Goal Setting: First and foremost, the long term goals of the organization
are defined, such as its startegic intent, vision, mission and goals. Once
these are formulated, the management then decides specific objectives to
be attained within the given time frame.
Action Plan: Action plan refers to the way through which the objectives are
achieved. It provides direction regarding how the objectives can be
achieved, as in what is to be done, what steps are to be followed, etc.
Performance Appraisal: Last but not the least, at this stage, a comparison
is made between actual and predermined standards. These objectives acts
as a basis for reviewing the progress.
MBO, is directed towards raising the performance level of the organization
by conspiciosly identifying the measurable goals and end results, which are
agreed to the management as well as employees of the organization.
Thereafter, the employees participate in formulating the action plan and
strategy for the attainment of the goals.
Limitations
MBO has its detractors and attention notably among them W. Edwards Deming,
who argued that a lack of understanding of systems commonly results in the

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misapplication of objectives.[¹⁵]
Additionally, Deming stated that setting
production targets will encourage workers to meet those targets through
whatever means necessary, which usually results in poor quality.[¹⁶]
Point 7 of Deming's key principles 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[¹⁷]
and felt that Drucker's warning
went largely unheeded by the practitioners of MBO.
There are limitations in the underlying assumptions about the impact of
management by objectives[Zⁱªⁱºⁿ ⁿ``a`a]
:
1.It over-emphasizes the setting of goals over the working of a plan as a driver
of outcomes.
2.It under-emphasizes 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.[Zⁱªⁱºⁿ ⁿ``a`a]
Benefits of Management by Objectives
It facilitates the employees to understand their tasks and duties in a better
way.
It is helpful in designing Key Result Area (KRA) for each employee,
according to their interest, specialization, experience and competency.
It eliminates overalpping and confusions in the tasks and duties.
Every employee contributes towards the achievement of the objectives by
successfully completing the tasks and duties assigned to them by the
superior.
It creates an open communication enviornment in the organization.
In a nutshell, Management by objectives is nothing but a process wherein the
goals, plans and control system of the organization are defined by the
management and employees jointly.
Critics
Management by Objectives was meant to move management's focus from
supervision to measurement. This was intended to free management to focus

3. on more important tasks. It's a lot easier to measure an employee's results with
a handful of quantitative measures than to supervise them day in and day out.
Employees were happy to have more freedom to deliver their targets as they
saw fit. It's no fun having a manager watch your every move.
It became increasingly common for hands-on managers to be accused of
micromanagement.
Employee objectives had to be measurable. Anything that wasn't easy to put
into a number wasn't targeted or evaluated.
Managers were no longer valued for qualifies such as judgment and creativity.
The manager became just another bean counter.
Managers began to lose their status as leaders.