MANAGEMENT BY OBJECTIVES
OBJECTIVE SETTING
In an MBO, good goals are SMART goals:
S specific
S
U
M measurable
C
A achievable
WORK HAVE C
R result oriented (realistic) E
T time-related S
S
WHAT IS MBO ?
Peter Drucker, (1954, “The Practice of Management”)
• Is a systematic and organized approach that
allows management to focus on achievable
goals and attain the best possible results from
available resources
• Aims to increase individual and organizational
effectiveness by aligning organizational goals
and subordinate objectives
• Clarifies and quantifies objectives to allow for
monitoring, evaluation, and feedback
throughout the hierarchy of objectives
IN SIMPLE WORDS,
MBO IS…
• MBO emphasises the
importance of objectives
as a tool to be used by
managers in fulfilling their
managerial roles
(accomplish their tasks)
• Divide problem into
manageable, “bite-size”
chunks
Vision
Vision
Top
Managers
Mission
Middle Tactical Management
by
Managers Plans Objectives
First-Level Operational Standing Single-Use
Managers Plans Plans Plans
Single-use Plans are developed to achieve
objectives that are not likely to be repeated in the
future. Single-use plans include both programs
and projects.
Standing Plans are used to provide guidance for
tasks performed repeatedly within the
organization. The primary standing plans are
organizational policies, rules, and procedures.
Operational Plans are used to identifies specific
results to be accomplished within a given short
term time period. Contain detailed information
used in the lower levels in an organization.
FEATURES OF MBO
Peter Drucker also stated that:
For the business to succeed, the
managers and employees must
work towards a common goal
Managers must identify and
agree targets for achievement
with subordinates
Managers must negotiate the
support needed to achieve the
targets with subordinates
Evaluate the objectives over
time
MBO PRINCIPLES
1. Cascading of organizational goals and
objectives
2. Specific objectives for each team member
3. Participative decision making
4. Explicit time period
5. Performance evaluation & feedback
ADVANTAGES OF MBO
Improves employee motivation
Improves communication in the
organisation
Flags up and highlights training
needs required to achieve
objectives
Improves overall performance and
efficiency
Attainment of goals can lead to the
satisfaction of Maslow’s higher
order needs
DISADVANTAGES OF MBO
May demotivate staff if targets are too high
and unrealistic, also if imposed rather than
agreed
Requires the cooperation of all employees to
succeed
Can be bureaucratic and time consuming
(meetings, feedback)
Can encourage short-term rather a more
focused long-term growth
Objectives may go out of date and can restrict
staff initiative and creativity
Setting targets for certain specialised
employees may be difficult
IS MBO SUITABLE FOR EVERY
BUSINESS?
MBO could be suitable for a
medium to large business, using a
democratic approach to
management and operating in a
stable market
The overriding issues therefore
are size of the business, the
leadership style it uses and the
rate of change in the market it
operates.
HOW MBO WORKS
Jointly identify common goals.
Define major areas of
responsibility in terms of results
expected.
Use measurements as guides for
operating and assessing
contributions of members.
UNDERLYING PURPOSES OF MBO
1. Clarify organization’s goals
and plans at all levels.
2. Gain better motivation and
participation from
organization’s members.
Supervisor
Jointly plan Individually act Jointly control
• Setting • Performing • Reviewing
and objectives tasks results
• Setting (subordinate) • Discussing
standards • Providing implications
• Choosing support • Renewing MBO
actions (supervisor) cycle
Subordinate
PHASES OF MBO
1. Top management team
studies system.
2. Team sets up methods of
measuring performance.
3. Goal-setting sessions are held
at all levels of organization.
STEPS FOR MBO
STEP 1: SET STEP 2: DEVELOP
GOALS
•Corporate Strategic PLANS
goals Action Plans
•Departmental goals
•Individual goals
Review Progress
&
Take Corrective Action
Appraise
Performance STEP 3: REVIEW
PROGRESS
STEP 4: APPRAISE
OVERALL
PERFORMANCE
ESSENTIAL STEPS FOR MBO
Set Goals (The most difficult step)
What are we trying to accomplish?
Develop Action Plans
“What do we need to do to get
there?”
Groups and individuals
Review Progress
“How are we doing?”
Periodically (How Often?)
Does plan need to be tweaked?
Appraise Performance
Rewards?
SOURCES OF MBO FAILURES
1. Lack of top management commitment and
follow through on MBO.
2. Employees’ negative beliefs about
management’s sincerity in its efforts to
include them in the decision-making
process.
