MANAGEMENT BY OBJECTIVE

Introduction
The main goal of management is to accomplish desired objectives. Management by
Objectives or MBO is a technique which helps a manager to achieve his objectives
in an efficient manner. MBO insists that a manager be very clear about his
objectives before he starts a task. If a manager is not sure about his destination, he
is unlikely to arrive, and in all probability he may not even know whether he is on
the right road or not, or if he has arrived or not. MBO is as old as management
itself. In fact, management has to be always with and by objectives.

Philosophy of MBO
The philosophy of MBO includes:
(i) Is proactive rather than reactive management
(ii) Is result-oriented, emphasizing accomplishment
(iii) Focus on change to improve individual and organisational effectiveness.

Concept of MBO
Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in
his book ‘The Practice of Management’. It is a systematic and organised approach
that allows management to focus on achievable goals and to attain the best possible
results from available resources.

MBO aims to increase organisational performance by aligning goals and

subordinate objectives throughout the organisation. Management by Objectives
(MBO) is about setting yourself objectives and then breaking these down into more
specific goals or key results. 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.

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:
1. participate in the strategic planning process, in order to improve the
implementability of the plan, and
2. implement a range of performance systems, designed to help the organisation
stay on the right track.

Setting Objectives
In Management by Objectives (MBO) systems, objectives are written down for
each level of the organisation, and individuals are given specific aims and targets.
“The principle behind this is to ensure that people know what the organisation is
trying to achieve, what their part of the organisation must do to meet those aims,
and how, as individuals, they are expected to help.
This presupposes that organisation’s programs and methods have been fully
considered. If they have not, start by constructing team objectives and ask team
members to share in the process.”

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 organizational objectives set by the board of directors.

Characteristics of Management by Objectives

Management by Objectives has following characteristics.
1. MBO emphasises participation in setting goals that are tangible, verifiable and
measurable.
2. MBO focuses attention on what must be accomplished (goals) rather than how it
is to be accomplished (methods).
3. MBO, by concentrating on key result areas translates the abstract philosophy of
management into concrete phraseology. The technique can be put to general use
(non-specialist technique).
4. MBO is a systematic and rational technique that allows management to attain
maximum results from available resources by focusing on achievable goals. It
allows the subordinate with plenty of room to make creative decisions by himself.
Phases or Process of MBO
The phases or process of MBO consists of the following steps, as shown in the
figure.
Define
organizational goals

Performance Defining employee

Appraisal Objectives
(Rewards/ punishment)

Continuous monitoring
Providing Of performance
Feedback And progress

Performance
Evaluation/ reviews

Fig.1: The MBO Process/Phases

Defining the Goal

Any MBO programme must start with an absolute support of top management. It
must be consistent with the philosophy of the management. The long-term goals of
the organisation must be outlined initially, like: What is the basic purpose of the
organisation?
What business are we in and why? What are the long-term prospects in other
areas? After these long-term goals are established, management must be concerned
with determining specific objectives to be achieved within a given time capsule.
Goal setting is a powerful way of motivating people. Goals provide clear idea of
what we are trying to achieve. Goals allow us to measure our progress. We are able
to plan what we need to do to achieve these goals through people, time, resources
etc. Keeping all this in mind companies should set SMART goals. S - Specific, M -
Measurable, A - Achievable, R - Realistic and T - Time-based.

Action Plan
The action plan is the means by which an objective is achieved. The action plan
gives direction and ensures unity of purpose to organisational activities. It will
state in detail, exactly what is to be done, how the subordinate will proceed, what
steps will be taken, and what activities will be engaged in as the subordinate
progresses. It provides a specific answer to the question: ‘What is to be done?’
Questions like who is responsible for each activity, what resources are needed,
what the time requirements are would also be answered.

There are two ways of developing specific action plans: They may be developed by
both manager and subordinate or by the subordinate alone. To ensure success, the
superior must be willing to sit with each subordinate and review the action plan,
once it has been developed. The periodic review process helps the superior to
monitor progress towards goal achievement. It helps in finding out better and more
efficient methods of accomplishing goals, in finding out the feasibility of
implementing the earlier goals uncovering barriers to accomplishment etc. If the
subordinate does not appear to be on the right course, the performance objective
can be modified or the subordinate can be redirected into more productive
behaviours.
The emphasis in periodic review sessions should be on checking the progress
toward goal achievement. If the performance is not satisfactory, the superior must
try to isolate the causes of lack of progress without criticising the subordinate and
indicate specific steps, as to how to proceed in future so as to achieve the goals.
The emphasis should be on improving performance rather than degrading
subordinates.

Final Review
This is the last phase of the MBO programme. In this step, the actual results are
measured against predetermined standards. Mutually agreed-on objectives provide
basis for reviewing the progress. While appraising the performance of
subordinates, the manager should sit with his subordinates and find out the
problems encountered while accomplishing the goals. The subordinate, as in the
periodic sessions, should not be criticised for failure to make sufficient progress;
the atmosphere should not be hostile or threatening. A give-and-take atmosphere
should prevail and the appraisal should be based on mutual trust and confidence
between managers and subordinates. In actual practice, this type of give-and-take
session is extremely difficult to achieve and rarely reaches its potential value,
unless managers are gifted with necessary interpersonal skills. Often, appraisal
takes place for the purpose of determining rewards and punishments; judging the
 personal worth of subordinates and not the job performance. As a result, appraisal
sessions become awkward and uncomfortable to the participants and intensify the
pressure on subordinates while giving them a limited choice of objectives.
Appraisals can be really useful, if the person being evaluated knows and accepts in
advance the grounds upon which he is being appraised.

Figure 2 illustrates the specifications of Management by Objectives as presented

by Drucker (2006).

Supervisor

Jointly Control
Jointly plan Individually act
 Review results
and  Set objectives  Perform task  Discuss
 Set standards (Subordinate) Implementations
 Provide support  Review MBO cycle
 Choose actions
(supervisor)

Subordinate

Fig 1: Management by Objectives

Source: Drucker, P. (2006) Management by Objectives the S.M.A.R.T Approach.

MBO is achieved using set targets. MBO introduces the ‘SMART Methods’ for
checking the validity of the objectives, which should be ‘S.M.A.R.T’.
To put it briefly, do not manage by objectives; manage by ‘Smart’ goals or ‘Smart’
objectives. S.M.A.R.T is an acronym that refers to the qualities of a well-written
goal, influential and effective goal that shapes behaviour. S.M.A.R.T means
objectives should be:
Specific: Specific objectives are set by the organization’s top
management
Measurable: All objectives are observable or measurable
Achievable: Objectives do not surpass the scope of the employee’s or
department’s abilities
Realistic: Objectives do not exceed reasonable work expectations and or
knowledge base.
Time-related: Time constraints are set for achieving each objective and re-
evaluated periodically.
All these could lead to task effectiveness and goal attainment. It is also used in the
control and direction of many projects.

Benefits of Management by Objectives

MBO is hailed as the greatest innovation in years. Advocates argue that “it is the
successor to Taylor’s ‘mental revolution’-a new way of thinking about, and
engaging in, collective effort”. It is claimed that when an organisation is managed
by objectives, it becomes performance-oriented, it grows, develops and becomes
socially useful in many ways:
1. Clear goals: MBO produces clear and measurable performance goals. Goals are
set in an atmosphere of participation, mutual trust and confidence.
2. Better planning: MBO programmes sharpen the planning process. Specific goals
are products of concrete thinking.
3. Facilitates control: MBO helps in developing controls. A clear set of verifiable
goals provides an outstanding guarantee for exercising better control.
4. Objective appraisal: MBO provides a basis for evaluating a person’s
performance since goals are jointly set by superior and subordinates.
5. Motivational force: Both appraiser and appraisee are committed to the same
objective. It forces managers to think of result oriented planning rather than
planning for activities or work.
6. Better morale: MBO encourages commitment rather than rote compliance. It is
at functional in terms of what top management demands and developmental in
terms of people at work.
7. Result-oriented philosophy: MBO is a result-oriented, practical and rational
management philosophy.

Limitations
Management by Objectives MBO is not a panacea, a cure for all organisational
problems. Quite often, many organizations look at MBO as an instant solution to
their problems. They fail to recognise that MBO demands careful planning and
implementation to be successful.
Some of the problems preventing MBO from achieving its best results may be
catalogued thus:

1. Pressure-oriented: MBO may prove to be self-defeating in the long run since it is

tied with a reward-punishment psychology. It is a clear violation of the integrity of
subordinate’s personality. MBO programmes sometimes, discriminate against
superior performers. It tries to indiscriminately force improvement on all
employees and at times, may penalize the very people who are most productive in
the organisation.

2. Time consuming: MBO demands a great deal of time to carefully set objectives,
at all levels of the organisation. Initially to instill confidence in subordinates in the
‘new system’, superiors may have to hold many meetings. The formal, periodic
progress and final review sessions also consume time.
3. Increases paperwork: MBO programmes introduce a tidal wave of newsletters,
instruction booklets, training manuals, questionnaires, performance data, reports
into the organisation. To stay abreast of what is going on in the organisation,
managers may demand regular reports and data in writing, resulting in ‘gruelling
exercise in filling out forms’. It has created one more ‘paper mill’. According to
Howell, MBO’s effectiveness is inversely related to the number of MBO forms.

4. Goal-setting problems: MBO works effectively when important measurable

objectives are jointly agreed upon. It works less, when: (i) Verifiable goals are
difficult to set. (ii) Goals tend to take precedence over the people who use it. MBO
focuses on end results and it may foster an attitude, that any action is acceptable as
long as it helps to achieve the goals. Consequently, unwise decisions are made that
would ultimately harm the organisation.

5. Organisational problems: MBO is not a palliative for all organisational ills. It is

not for everybody. MBO creates more problems than it solves when:
(a) There might be a failure to teach the philosophy to all participants. Too often
MBO is introduced across the organisation with little explanation, training or help.
(b) There might be failure to limit objectives. Too many objectives obscure
priorities and create a sense of fear and panic among subordinates.
(c) It is inconsistent with management philosophies. Instead of planning and
deciding things for others, they are advised to invite subordinates and plan for
work in an atmosphere of participation, much to their dislike.