Management By Objectives

(MBO)
Submitted by
Jayalakshmi Rajan
Mcom Taxation
Concept
Objectives
Features
Process
Advantages
Limitations
 Introduction
• Introduced by Peter Druker, 1954
• Usually been designed and used with business &industries.
• A process whereby superiors & subordinates jointly identify the
common objectives to make best use of organisational resources.
 MBO- Concept
• MBO is also known as Management By Results.
• It is a new concept in the management field.
• It is both a philosophy and a technique of management.
• It is a process by which the management intends to achieve the
best results through the active participation of all workers.
• Superiors and subordinates jointly determine the common
objectives.
• They also set the results to be achieved by the subordinates
through their active participation.
• Actual results achieved are measured against the original target.
 Objectives of MBO
MBO is intended primarily:
• To measure and judge performance;
• To relate individual performance to organisational goals;
• To clarify both the job to be done and the expectation of
accomplishment;
• To foster the competence and growth of subordinates;
• To enhance communication between superiors and subordinates;
• To serve as a basis for judgements about salary and promotion;
• To stimulate the motivation of the subordinates ;
• To serve as a device for organisational control and integration.
 Features of MBO
1. Goal Orientation
MBO focuses on the determination of unit and individual goals in line
with the organizational goals. These goals define responsibilities of
different parts of the organisation and help to integrate the organisation
with its parts and with its environment.

2. Participation
The MBO process is characterized by a high degree of participation of
the concerned people in goal setting and performance appraisal. Such
participation provides the opportunity to influence decisions and clarify
job relationships with superiors, subordinates and peers.
3. Key Result Areas
The emphasis in MBO is on performance improvement in the areas
which are of critical importance to the organisation as a whole. By
identification of key result areas (KRAs), MBO ensures that due
attention is given to the priority areas which have significant impact on
performance and growth of the organisation.

4. Systems Approach
MBO is a systems approach of managing an organisation. It attempts to
integrate the individual with the organisation and the organisation with
its environment. It seeks to ensure the accomplishment of both personal
and enterprise goals by creating goal congruence.
5. Optimization of Resources
The ultimate aim of MBO is to secure the optimum utilization of
physical and human resources of the organisation. MBO sets an
evaluative mechanism through which the contribution of each individual
can be measured.

6. Simplicity and Dynamism

MBO is a non-specialist technique and it can be used by all types of
managers. At the same time it is capable of being adopted by both
business and social welfare organizations. MBO applies to every
manager, whatever his function and level, and to any organisation, large
or small.
7. Operational
MBO is an operational process which helps to translate concepts into
practice. MBO is made operational through periodic reviews of
performance which are future-oriented and which involve self-control.

8. Multiple Accountability
Under MBO, accountability for results is not centralized at particular
points. Rather every member of the organisation is accountable for
accomplishing the goals set for him.

9. Comprehensive
MBO is a 'total approach'. It attaches equal importance to the economic
and human dimensions of an organisation.
Benefits of MBO
1. Better utilisation of resources
In MBO, there is optimum utilisation of physical, financial and human
resources for achieving the objectives.

2. Development of personnel
MBO helps to train and develop the subordinate managers. It improves
their skills in planning, decision making, controlling, directing,
leadership, etc. So these managers are ready for promotion to higher
posts.

3. Makes planning effective

In MBO, the objectives are very clear. So, feasible plans can be made for
achieving these objectives. Therefore, MBO makes planning effective.
4. Better team work
The superior and subordinate managers work together for fixing
objectives and monitoring the performance. This overall improves their
relationship, and they work as a team.

5. Concentration on key result areas

In MBO, objectives are fixed for the Key Result Areas (KRAs). All the
plans are made for the KRAs. Therefore, wasteful activities are avoided.

6. Objective evaluation
In MBO, the objectives are tangible and measurable. The actual
performance of the subordinate can be accurately compared with the
objectives. So, an objective evaluation is possible without any favour to
anyone.
7. Result oriented
MBO is a result oriented. It gives more importance to the result i.e.
achieving of objectives. It gives less importance to activities and
methods. In fact, MBO is also called Management By Results.

8. Sound organisational structure

In MBO system, the organisational structure is very sound. This is
because it is periodically reviewed, and necessary changes are made to
suit the needs of the company.
Process of MBO
1. Define Organizational Goals
Goals are critical issues to organizational effectiveness, and they serve a
number of purposes. Organizations can also have several different kinds
of goals, all of which must be appropriately managed.

2. Define Employees Objectives

After making sure that employees’ managers have informed of pertinent
general objectives, strategies and planning premises, the manager can
then proceed to work with employees in setting their objectives.
3. Continuous Monitoring Performance and Progress
MBO process is not only essential for making line managers in business
organizations more effective but also equally important for monitoring
the performance and progress of employees.

For monitoring performance and progress the followings are required;

• Identifying ineffective programs by comparing performance with pre-
established objectives,
• Applying MBO concepts for measuring individual and plans,
• Preparing long and short-range objectives and plans,
• Installing effective controls, and
• Designing a sound organizational structure with clear, responsibilities
and decision-making authority at the appropriate level.
4. Performance Evaluation
Under this MBO process performance review are made by the
participation of the concerned managers.

5. Providing Feedback
This continuous feedback is supplemented by periodic formal appraisal
meetings which superiors and subordinates can review progress toward
goals, which lead to further feedback.

6. Performance Appraisal
Performance appraisals are a regular review of employee performance
within organizations. It is done at the last stage of the MBO process.
Limitations of MBO
1. Time-consuming
Management by Objectives is incredibly effective, but it can take up an
inordinate amount of time. The process of setting objectives is not
something that tends to happen quickly.

2. Reward-punishment approach
Management by Objectives can create a situation where a great deal of
pressure is put on employees. Since the process means constantly
reaching goals, employees that fall behind the timeline are subject to
penalty, while those who do well are rewarded.

3. Increases paper-work
It’s not just the training manuals, newsletter, and instruction booklets that
pile on the paper, it’s also the inordinate amount of progress paperwork
and reports that employees are expected to submit that adds to the
weight.
4. Creates organizational problems
Too many organizations fall into the trap of believing that Management
by Objectives is the cure for all that ails. They fail to see that there are a
definite set of problems that can come with it.

5. Management by Objectives develops conflicting objectives

The goals and objectives of each individual within the organization may
not mesh with that of other employees, which is particularly true when
there are multiple departments. Each department will have their own
ideas of success, which they may feel is different from the rest, all of
which creates conflict.

6. Problem of co-ordination
A number of problems can pop up when it comes time to coordinate the
company objectives across multiple departments. Since each department
has their own goal ideas, they may set unrealistic goals in order to
undermine others.
7. Management by Objectives lacks durability
When MBO is first introduced, it tends to generate a lot of excitement.
That can fizzle out over time as the method starts to become tired. It’s
such a simple process, but also one that doesn’t really leave space for
new opportunities.

8.Problems related to goal setting

MBO works best when everyone is on the same page and find the goals
set to be mutually agreeable. That can all fall apart when the goals are
considered to be too rigid or when they are particularly difficult to set.

9. Lack of appreciation
It may be that executives fail to fill in all the details of the company
objectives to management. It can also hit a snag if management do not
delegate properly or motivate accordingly.