DEFINITION, NATURE AND PURPOSE OF PLANNING

DEFINITIONS OF PLANNING:

1 .According to Alford and Beatt,

"Planning is the thinking process, the organized foresight, the vision based on fact and
experience that is required for intelligent action."

2 .According to Koontz and O' Donnell,

"Planning is an intellectual process, conscious determination of course of action, the basing of
decision on purpose, facts and considered estimates."

NATURE / FEATURES OF PLANNING:

(1) Planning Focuses on Achieving Objectives:

Management begins with planning and planning begins with the determining of objectives. In the
absence of objectives no organisation can ever be thought about. With the determining of
objective, the way to achieve the objective is decided in the planning.
(2) Planning is Primary Function of Management:
Planning is the first important function of management. The other functions come after planning.
In the absence of planning no other function of management can be performed.
This is the base of other functions of management.
For example, a company plans to achieve a sales target of 112 lakhs a year. In order to achieve
this target the other functions of management, i.e., organizing, staffing, directing and controlling
comes into operation.
(3) Planning is Pervasive:
Planning concerns all managers .Since the job of planning is performed by the managers at
different levels working in the enterprise, it is appropriate to call it all-pervasive. Planning is an
important function of every manager; they may be a managing director of the organisation or a
foreman in a factory. The time spent by the higher-level managers in the process of planning is
comparatively more than the time spent by the middle-level and lower-level managers. is,
therefore, clear that all the managers working in an enterprise have to plan their activities. For
example, the decision to expand business is taken by the higher-level managers. The decision to
sell products is taken by the middle-level and lower-level managers.
(4) Planning is Continuous:
Planning is a continuous process for the following reasons:
(a) Plans are prepared for a particular period. Hence, there is need for a new plan after the expiry
of that period.
(b) In case of any discrepancy plans are to be revised.
(c) In case of rapid changes in the business environment plans are to be revised.

(5) Planning is Futuristic:

Planning decides the plan of action what is to be done, how is it to be done, when it to be done,
by whom is it to be done all these questions are related to future. Under planning, answers to
these questions are found out.
While an effort is made to find out these answers, the possibility of social, economic, technical
and changes in legal framework are kept in mind. Since planning is concerned with future
activities, it is called futuristic.
For example, a company is planning to market a new product. While doing so it shall have to
keep in mind the customs and the interests/tastes of the people and also the possibility of any
change in them.
(6) Planning Involves Decision Making:
Planning becomes a necessity when there are many alternatives to do a job. A planner chooses
the most appropriate alternative. Therefore, it can be asserted that planning is a process of
selecting the best and rejecting the inappropriate. It is, therefore, observed that planning involves
decision making.
For example, Mr. Anthony lives in a town where only commerce stream is taught in schools. His
daughter has passed matrix and wants to get admission in 10 + 1. It is evident that there is only
one option for her, i.e., commerce. She doesn’t have to think or plan anything. On the other hand,
if all the three faculties’ art, science & commerce were available in the schools, she would have
to definitely think and plan about the subject of study. It would have been be nothing but
decision making in this case.
(7) Planning is a Mental Exercise:
Planning is known as a mental exercise as it is related to thinking before doing something. A
planner has mainly to think about the following questions :(i) What to do? (ii) How to do it? (iii)
When to do it? (iv) Who is to do it?
(8) Plans are arranged in hierarchy:
PURPOSE OF PLANNING:
1. Every plan should be linked with some objectives. The planning done by managers is aimed at
achieving the organizational goals.
2. The planning helps people in concentrating their efforts on the most important jobs rather than
wasting time on the lesser important work.
3. The purpose of planning is also to minimize the cost of performance and eliminate
unproductive efforts.
4. It also helps the management in adopting and adjusting according to the changes that take
place in the environment.
5. Planning also provides a basis for teamwork as when the goals are properly defined
assignments can be fixed and all the members can start contributing in the achievement of these
objectives.
6. Planning gives a sense of direction and ensured that efforts are being put to useful purpose
instead of being wasted. Planning also facilitate control because without planning there will be
nothing to control.

Principles of planning
1. Contribution to objectives: The plans are made for the purpose of achieving the
organizational goals. In this way, both the major as well as the derivative plans are made with a
view to contribute in the achievement of organizational goals. It can also be said that the process
of planning has to be used by the managers as a tool to achieve their goals.
2. Primacy of Planning: according to this principle, the process of planning is the primary
function of all the managers. The managers are required to plan all their actions and then they
should proceed with other functions. The other functions of the management should be organized
in such a way that the objectives decided by planning can be achieved.
3. Planning Premises: for the purpose of making the process of planning effective, there are
certain presumptions or premises that have to be made and the planning is undertaken on the
basis of these premises. Generally, it has been seen that the plans are not properly structured. The
reason behind such a situation is that the premises are not developed properly. Therefore, this
principle of planning requires that the situation should be analyzed properly by the managers that
may develop in the future.
4. Principle of Alternatives: the process of planning involves the development of several
alternatives and then the planners select the alternative that is most appropriate for achieving the
organizational goals. On the other hand, if different alternatives are not developed, it becomes
difficult for the planners to execute the process of planning properly.
5. Principle of timing: the plans have the capability of contributing significantly in the
achievements of the organizational goals if the plans are properly timed. Therefore the planning
premises as well as the policies are not much helpful if the plans are not properly timed.
6. Principle of flexibility: according to this principle, there should be flexibility in the plans.
This is very important because flexibility allows the plans to deal with the contingencies that
may develop later on. Therefore, the plans should be adjustable so that they can deal with the
changes that may develop after the plans have been formulated. However, there are certain
dangers associated with flexibility in plans. The managers should be aware of the fact that the
changes may also upset the commitments made earlier. Therefore the managers have to compare
the cost of making changes against the benefits provided by flexibility

Types of planning:
There are 4 types of plans

Strategic Plans

Strategic plans define the framework of the organization’s vision and how the organization
intends to make its vision a reality.
 It is the determination of the long-term objectives of an enterprise, the action plan to be
adopted and the resources to be mobilized to achieve these goals.
 Since it is planning the direction of the company’s progress, it is done by the top
management of an organization.
  It essentially focuses on planning for the coming years to take the organization from
where it stands today to where it intends to be.
 The strategic plan must be forward looking, effective and flexible, with a focus on
accommodating future growth.
 These plans provide the framework and direction for lower level planning.

Tactical Plans

Tactical plans describe the tactics that the managers plan to adopt to achieve the objectives set in
the strategic plan.
 Tactical plans span a short time frame (usually less than 3 years) and are usually
developed by middle level managers.
 It details specific means or action plans to implement the strategic plan by units within
each division.
 Tactical plans entail detailing resource and work allocation among the subunits within
each division.

Operational Plans

Operational plans are short-term (less than a year) plans developed to create specific action steps
that support the strategic and tactical plans.
 They are usually developed by the manager to fulfill his or her job responsibilities.
 They are developed by supervisors, team leaders, and facilitators to support tactical plans.
 They govern the day-to-day operations of an organization.
 Operational plans can be −
o Standing plans − Drawn to cover issues that managers face repeatedly, e.g.
policies, procedures, rules.
o Ongoing plans − Prepared for single or exceptional situations or problems and are
normally discarded or replaced after one use, e.g. programs, projects, and budgets.
4. Contingency Planning

The fourth and last type of planning phase is contingency planning which follows the strategic,
tactical and operational planning. Contingency planning refers to the alternative course of action
that is used to deal with situations that occur unexpectedly or when assumptions turn
[Link] create contingency plans to deal with a crisis or an unforeseen event that
has backfired on the company. These include possible scenarios or alternative course that is
taken if any events cause disruption to the planned course of action.
Comparison Table for Advantages and Disadvantages of Planning

Advantages Disadvantages

Planning reduces uncertainty Planning is time-consuming process

Planning could lead to lack of reliable

Planning is focused on objectives
data

Planning facilitates control Planning could be a costly process

Planning encourages creativity and

Planning leads to rigidity
innovation

Planning anticipates problems and cope

Planning is resistance to change
with change
Principles of planning
1. Contribution to objectives: The plans are made for the purpose of achieving the
organizational goals. In this way, both the major as well as the derivative plans are made with a
view to contribute in the achievement of organizational goals. It can also be said that the process
of planning has to be used by the managers as a tool to achieve their goals.
2. Primacy of Planning: according to this principle, the process of planning is the primary
function of all the managers. The managers are required to plan all their actions and then they
should proceed with other functions. The other functions of the management should be organized
in such a way that the objectives decided by planning can be achieved.
3. Planning Premises: for the purpose of making the process of planning effective, there are
certain presumptions or premises that have to be made and the planning is undertaken on the
basis of these premises. Generally, it has been seen that the plans are not properly structured. The
reason behind such a situation is that the premises are not developed properly. Therefore, this
principle of planning requires that the situation should be analyzed properly by the managers that
may develop in the future.
4. Principle of Alternatives: the process of planning involves the development of several
alternatives and then the planners select the alternative that is most appropriate for achieving the
organizational goals. On the other hand, if different alternatives are not developed, it becomes
difficult for the planners to execute the process of planning properly.
5. Principle of timing: the plans have the capability of contributing significantly in the
achievements of the organizational goals if the plans are properly timed. Therefore the planning
premises as well as the policies are not much helpful if the plans are not properly timed.
6. Principle of flexibility: according to this principle, there should be flexibility in the plans.
This is very important because flexibility allows the plans to deal with the contingencies that
may develop later on. Therefore, the plans should be adjustable so that they can deal with the
changes that may develop after the plans have been formulated. However, there are certain
dangers associated with flexibility in plans. The managers should be aware of the fact that the
changes may also upset the commitments made earlier. Therefore the managers have to compare
the cost of making changes against the benefits provided by flexibility
7. Many other we discussed in class –
Principle of simplicity/ priority/Innovation/forecasting/follow-ups/accuracy/participation etc.

Limitations of Planning

The limitations of Planning are furnished below:

(1) Planning Leads to Rigidity
 The plans are rigid in nature and have to be complied with throughout the organisation.
 Such rigidity of plans may be internal as well as external.
 Internal rigidity relates to plans, policies, programs, rules, and methods, etc.
 External rigidity relates to political, industrial, technological, legal and economic
changes, etc.
 Example: A super speciality hospital has fine branches in a city. Whatever the top
management of the hospital decides the head of the branch of the hospital and their
subordinates have to follow. Though on occasions they know they could have done better
on their own but the plan laid out provides rigidity to their approach.
(2) Planning May Not Work in Dynamic Environment
 The environment in which a business survives is dynamic as it keeps on changing.
  It is difficult for an organisation to access future trends, the taste of customers, natural
calamity, competitors’ policies and effects of changes in the different components of the
environment.
 The organisation has to constantly adapt itself to changes because it is difficult to forecast
the future changes with absolute accuracy.
 The dynamic environment may sometimes lead to failure of plans.
 Example: Nestle, a very successful producer was very proactive in deciding strategies for
Maggi noodles. Maggi noodles were in a lot of demand but they were off the shelf due to
political and legal dimensions. This was due to the high content of lead in Maggi
noodles.
(3) Planning Reduces Creativity
 Planning is mostly done by the top management and other members
 like middle and lower levels of management have to follow these plans.
 They can’t deviate or change the plans made by their seniors.
 Under such circumstances, employees become orders following machines and don’t
involve creative thinking from their side.
 Such rigidity to comply with the laid plans kills the creativity of some talented persons.
 Example: The need for a branch of a renowned shoe manufacturing company sees a lot
of scope in customized shoes. The top management is not interested in this idea as the
company manufactures standardised shoes.
(4) Planning Involves Huge Cost
 Formulation of plans can be too much costly because there is a lot of time and money is
involved.
 Some costs are incidental in nature like- expenses on boardroom meetings, discussions
with professional experts and preliminary investigations to find out the feasibility of the
plan.
 Checking the accuracy of facts and scientific calculations may involve lots of time.
 Sometimes, cost incurred may not justify the benefits derived from the plans; it may
leave a harmful effect on the enterprise.
 Example: Companies like IBM spend a lot of research. Many world-class levels give their
advice to this company and change their fee. However, without so much of painstaking
such a huge company won’t be able to sustain itself. So planning in case of IBM becomes
necessary.
(5) Planning is a Time-consuming Process
 Planning is a very lengthy process as it consumes a lot of time for collection, analysis,
and interpretation of data.
 Due to such a lengthy process, sometimes decisions get delayed, opportunities are lost
and there is not much time left for the implementation of plans.
 Example: Health is wealth Ltd. plans to organise 25 health checkup camps on the World
Health Day and send a requisition to the top management but management could send its
approval just a day before and the sales manager could organise only 5 camps and thus
huge opportunity is lost. Here the implementation was delayed.
(6) Planning Does Not Guarantee Success
 The success of an enterprise is possible only when plans are properly drawn up and
implemented.
 Plans become meaningless if it is not translated into action.
 Managers have a tendency to rely on previously tried and tested successful plans.
 It is not necessary that a successful plan in the past will bring success in the future also as
every business organisation survives in a dynamic and uncertain environment.
  Plans must be implemented in the light of changing environment otherwise it may lead to
failure of the business.
 Example: In a paint manufacturing company, the top management very meticulously
chalked out a great plan. The whole company worked out on the plan in a much focused
manner. However, with the entrance of a competitor with better paint quality the whole
plan failed. The reason for the failure was the dynamic conditions which were not in
control of the organisation.

External Limitations:
Natural Calamities
Changes in Govt Policies
Strategies of Competitors
Technological Changes
Changes in Fashion, Taste etc

Concept and Nature of Objectives

The terms objective and goal indicate an end result to be sought and accomplished. Goals and
objectives both have value orientations and indicate desired conditions considered necessary to
improve the overall performance of the organisation.

Definition of Objectives
Three widely quoted definitions on objectives are given below :-
 Objectives are goals established to guide the efforts of the company and each of its
components.
 An organization goal is a desired state of affairs which the organization attempts to
realize.
 Objectives indicate the ‘end point of a management programme’.

Characteristics of organization Objectives

Just like any other management function, objectives have certain basic features. Generally
speaking, enterprise objective are visible and understood by all. When objectives are defined and
set, it is hard to plead ignorance, forgetfulness and misunderstanding.
Apart from these simple descriptions, enterprise objectives have the following features :
 Objective Form a Hierarchy
 Objective Form a Network
 Multiplicity of Objectives
 Long and Short-Range Objectives
1. Objective Form a Hierarchy
In many organizations objectives are structured in a hierarchy of importance. The hierarchy of
objective is a graded series in which organization’s goals are supported by each succeeding
managerial level down to the level of the individual. The objectives of each unit contribute to the
objective of the next higher unit.
The hierarchy or objectives in an organization is described through means-ends chain. The ends
means-ends chain helps us to see how board goals are translated into operational objectives.
In the organization the relationship between means and ends in hierarchical goals established at
one level require certain means for their accomplishment.
2. Objective Form a Network
Objective interlock in a network fashion. They are inter-related and inter-dependent. The concept
of network of objective implies that once objective are established for every department and
every individual in an organization.
If the various objective in an organization do not support on another, people may pursue goals
that may be good for their own function but may pursue goals that may be good for their own
function but may be detrimental to the company as a whole.
3. Multiplicity of Objectives
Organization pursue multifarious objective. At every level in the hierarchy, goals are likely to be
[Link] objective can be broken down into a group of objective for the product,
advertising, research, promotion managers.
The advertising manager goals include: designing product messages carefully, create a favorable
image of the product in the market, etc. similar goals can be set for other marketing managers. It
turns out that there are several goals involved. This may be due to the fact that the enterprise has
to meet internal as well as external challenges effectively.
Internal problems may hover around profitability, survival, growth and so on. External problems
may be posed by government, society, stockholders, customers etc. Such assignment of priorities
helps to keep a perspective, especially when there are many goals for one position.
4. Long and Short-Range Objectives
Organizational objective are usually related to time. Long-range objective extending over five or
more years are the ultimate or dream objective for the organization. They are abstractions of the
entire hierarchy of objective of the organization.
Short-range objective (one year goals) and medium-range objective (two to four year period
goals), reflect immediate, attainable goals. The short-range and medium-range objective are the
means for achieving long term goals and the long term goals supply a frame work reinforce each
other in such a way that the total result is greater than the sum of the effects taken individually.

Meaning of Objectives:
Objectives are the ends for the achievement of which managerial activities are directed. Effective
management is possible only through the setting up of objectives and all managerial efforts
should be directed to achieve these objectives. Objectives constitute the purpose, the attainment
of which is necessary for the business. An organization can grow in an orderly way if well
defined goals have been set. Objectives are a pre-requisite for planning. No planning is possible
without setting up of objectives.
Objectives are not only helpful in planning but also in other managerial functions like
organizing, directing and controlling. Clear cut objectives help in proper decision-making and in
achieving better results. The objectives of the organization should be supported by sub-
objectives. The objectives have hierarchy and a network. The organizations and managers may
have multiple goals and at times they may be incompatible and may lead to conflicts within the
organization and within the groups too.
Personal interests may have to be subordinated to organizational goals. The words objectives and
goals are generally used interchangeably and various authors and practitioners have not made
any distinction between the two, so these words will be used for the same meaning here.
Mc. Farland defines objectives, “Objectives are the goals, aims, or purposes that organizations
wish to achieve over varying periods of time.”
Mc. Farland suggests that objectives are the goals which an organization wants to achieve
whereas Terry describes objectives as the parameters within which an organization has to work
and make efforts to achieve them.
Features of Objectives:
1. Every organization has objectives rather it is started to achieve certain objectives. All the
members of an organization channelize their energies to achieve the stated goals.
2. The objectives of a business organization may be broad as well specific. These may be set for
the whole organization or different segments of it. The objectives may be for long term or short
periods. The overall objectives of the organization are supported by the sub objectives. For
example, the objective of earning a certain percentage of profit in a particular year will be
achievable only if objectives of manufacturing, marketing, finance departments support it.
3. Objectives have hierarchy. At organizational level broad objectives are fixed by the top level
management. The broad objectives are specified at departmental level and then they are derived
for different sections. Various objectives at different levels try to achieve organizational
objectives.
4. An organization tries to fulfill the needs and aspirations of society. The organizational
objectives should have social sanctions since these are social units. The aspirations of society
should be reflected from the business objectives.
5. Business objectives may change as per the environmental changes or change in social needs.
The present objectives may have to be changed as per the new situations. The objective of
earning profits has of late been associated with the social responsibility of business. Similarly,
new objectives may be added or old objectives may be modified or changed.
6. All organizational objectives are inter-related. The achievement of main objectives will
require the achievement of subordinate objectives also. The non- achievement of small
objectives will also mean the non- achievement of main objective. So all the objectives are inter-
related and they cannot be taken up independently.
7. Another important characteristic of objectives is their multiplicity. There may be a number of
objectives for which a concern may strive to achieve at the same time. The major objectives may
also be more. At every hierarchical level too, the objectives may be many. Different areas of
business have their own objectives. Management should try to achieve all the objectives
efficiently and effectively.
8. The objectives should be based on practical situations. They should also take into account the
philosophy and thinking of the management. The objectives should be realistic so that they may
be converted into actual performance. Unrealistic objectives do more harm than good because
they discourage the employees rather than encouraging them.

Classification of Objectives:
1. Primary Objectives:
These are the objectives for which a company has been started. Every business aims to earn more
and more profits out of its working. Primary objectives are related to the company and not to
individuals. Earning of profits out of providing goods and services to the customers is the
primary objective of a company. The goods and services are provided as per the requirements of
customers. Earning profits through customer satisfaction helps in earning goodwill and regular
clientele. The production of goods and services as per determined targets will be achieved
through individual goals of employees in the organization.
2. Secondary Objectives:
These objectives help in achieving primary objectives. The targets are identified and efforts are
made to increase efficiency and economy in the performance of work. The goals dealing with
analysis, advice and interpretation provide support to goals directed by primary objectives.
Secondary objectives, like primary objectives, are impersonal in nature. The primary goal of
earning profits through providing goods and services will be achieved if there is a plan to add
new products in the market at regular intervals. The goal of adding new products will be a
secondary goal which will help in achieving the primary objective.
3. Individual Objectives:
These are the goals which individual members in an organization try to achieve on daily, weekly,
monthly or yearly basis. These objectives are achievable as subordinate to primary and
secondary goals. Most of the individual objects are economic, psychological or non-financial
rewards which an individual tries to achieve by using resources of time, skill and effort. An
individual tries to satisfy his needs and desires by working in an organization. In order to
motivate individuals for raising their performance, organizations offer varied incentives.
4. Social Objectives:
These are the goals of an organization towards society. These include the obligations required by
the community, government agencies etc. These also include goals intended to further social,
physical and cultural improvement of the society. Social obligations of business has become
essential these days. Business has to produce goods and services by taking into consideration
health requirements of people. There are expectations that business should also spent a part of its
profits for the welfare of community.

Hierarchy of Objectives:
Objectives form a hierarchy ranging from the broad aim to specific individual objectives. At the
top of it the main goals of the organization are set. The organization has to see its responsibilities
towards society and then towards herself. The organization is required to contribute to the
welfare of society by providing good quality products at reasonable cost. The main purpose of
the business is to provide a specific level of services or a proper type of goods. The overall
objectives of the organization are specified at the top level management.
The objectives of the key areas are also determined at the higher level management. The next in
hierarchy comes the objectives of divisions and departments and units and these are decided at
middle level management comprising Vice-president or functional managers. The objectives of
individuals are decided at the bottom of the hierarchy. The junior level management sets
performance standards of individuals.
The hierarchy of objectives is shown in the diagram:

Top Down and Bottom up Approach:

There is some controversy whether the objectives should be fixed at top down or bottom up. In
the top down approach upper level managers set objectives for the subordinates while in the
bottom up approach subordinates initiate the setting of objectives of their positions and present
them to their superiors. The proponents of the top down approach are of the view that overall
objectives of the organization should be set at Chief Executive Officer level of top level of
management. It will provide a proper synchronization of objectives of different areas and
individuals.
On the other hand the supporters of bottom up approach argue that top management needs to
have information from lower levels in the form of objectives. Since subordinates fix their own
goals they will be motivated and committed to their performance. It may not be advisable to rely
entirely on one approach. Both the approaches should be used wisely for better results. In a
practical situation such decisions are linked to factors such as the size of the organization, the
organization culture, leadership style of the executive and the urgency of the plan.

Importance of objectives
All organizations exist to achieve certain goals. To make these goals effective and efficient
objectives are important. Objectives have the following importance:-
1. Direction:
Objectives provide needed guidelines for the organisation. Once objectives are framed all
activities are directed towards achieving such objectives. Wren says, “Without seeing the target,
a manager would be like a blindfolded archer – expending useless effort and creating havoc”.
2. Legitimacy:
Objectives help the organisation to have legal existence and to continue its operations. This legal
status improves the image of the organisation among the customers and competitors.
3. Coordination:
Common objectives of an organisation triggers the efforts of managers at lower level and their
subordinates to focus their efforts towards achieving the common goal. McGregor viewed that
“In selling effective goals managers help members at all levels of the organisation to understand
how they can best active their own goals by directing their behaviour towards the goals of the
organisation”.
4. They form standards:
Objectives form standards for the organizations. They become measuring points of the
achievements or failures of organizations.
5. They arc motivators:
People at all level are motivated to achieve die goals set through objectives. They kindle the
enthusiasm and spirits of employees at all levels.

What Are Goals and Objectives?

Goals and objectives provide the foundation for measurement. Goals are outcome statements that
define what an organization is trying to accomplish, both programmatically and organizationally.
Goals are usually a collection of related programs, a reflection of major actions of the
organization, and provide rallying points for managers. For example, Wal-Mart might state a
financial goal of growing its revenues 20% per year or have a goal of growing the international
parts of its empire. Try to think of each goal as a large umbrella with several spokes coming out
from the center. The umbrella itself is a goal.
In contrast to goals, objectives are very precise, time-based, measurable actions that support the
completion of a goal. Objectives typically must (1) be related directly to the goal; (2) be clear,
concise, and understandable; (3) be stated in terms of results; (4) begin with an action verb; (5)
specify a date for accomplishment; and (6) be measurable. Apply our umbrella analogy and think
of each spoke as an objective. Going back to the Wal-Mart example, and in support of the
company’s 20% revenue growth goal, one objective might be to “open 20 new stores in the next
six months.” Without specific objectives, the general goal could not be accomplished—just as an
umbrella cannot be put up or down without the spokes. Importantly, goals and objectives become
less useful when they are unrealistic or ignored. For instance, if your university has set goals and
objectives related to class sizes but is unable to ever achieve them, then their effectiveness as a
management tool is significantly decreased.
Measures are the actual metrics used to gauge performance on objectives. For instance,
the objective of improved financial performance can be measured using a number metrics,
ranging from improvement in total sales, profitability, efficiencies, or stock price. You have
probably heard the saying, “what gets measured, gets done.” Measurement is critical to today’s
organizations. It is a fundamental requirement and an integral part of strategic planning and of
principles of management more generally. Without measurement, you cannot tell where you
have been, where you are now, or if you are heading in the direction you are intending to go.
While such statements may sound obvious, the way that most organizations have set and
managed goals and objectives has generally not kept up with this commonsense view.

What is Management By Objectives (MBO)?

Management by objectives (MBO) is a strategic business model designed to improve the
performance of an organization. It is a strategy with clearly defined objectives that are agreed
upon by both the management and the employees.
MBO helps managers systemically update and delegate tasks to employees with mutual
understanding and keeping the goals aligned with the organizational mission. A definite set of
functions is set for each employee, and also their work is monitored. The strategy is quite simple.
It is to plan, design, and execute objectives with transparency and complete it at a definite time
frame.
A critical part of MBO is also to check employee performance through monitoring the
performance. It is also widely practiced as an employee appraisal method for promotion and
other monetary and non-monetary bonuses.
The term 'Management By Objectives' was first termed by management guru Peter Drucker in
his 1954 book, The Practice of Management.
MBO follows the mnemonic S.M.A.R.T while setting objectives. ‘SMART’ objectives are-
 Specific - Target a specific area for improvement.
 Measurable- Quantify or suggest an indicator of progress.
 Assignable - Specify who will do it.
 Realistic - State what results can realistically be achieved, given available resources.
 Time-bound - Specify when the result(s) can be achieved.

Steps in MBO (Also called MBO Process Cycle)

1. In the first step, MBO emphasizes measurable, tangible, and achievable goals, keeping
the organizational mission in mind.
2. The second step is to set and align these objectives with the employees.
3. In the third step, the employees are allowed to plan their objectives.
4. In the fourth step, the progress of the employees is monitored.
5. The fifth step is to evaluate and reward employees. Honest feedback is given, and also
new strategies for goals not achieved are established.
Nature of MBO
It is a functional approach, giving importance to the goal-setting process. It is a systematic
approach to set goals and helps every individual department to develop its purposes.
But MBO doesn't interfere in the process of implementation of those goals. It gives every
member the freedom to complete their tasks on their own. This promotes creativity and
innovation in the organization and helps them generate ideas, solve problems and contribute to
organizational goals with diversified inputs. This allows employees to keep themselves
motivated and committed to the process.
MBO is a result-oriented strategy. Therefore, the outcomes are easily monitored and help the
organization to understand if their goals are achieved.

Advantages of Management By Objectives

1. Efficient Management
The management is efficient when the team's output is higher than the input and resources they
put into it. It is directly related the employee productivity or how much time they take to meet
their goals and objectives. Often productivity gets dwindled when there is no proper structure
aligned to fulfill organizational goals.
Organizations that follow MBO are more productive at their jobs, and their efficiency increases.
Employees are more explicit about their goals which helps them plan and have a prominent
structure to follow. One of the precise reasons for this is the systematic plan adopted by every
member of the organization to complete the assigned tasks.
Organizations that follow MBO are more productive at their jobs and their efficiency increases.
Employees are more clear about their goals which help them plan and have a very clear structure
to follow. One of the clear reasons for this is the systematic plan which is adopted by every
member of the organization to complete the assigned tasks.
2. Effective Planning
The purpose of planning is to develop a blueprint for growing a business. The better the planning
is, the easier it is for management to take action. Effective planning requires an attitude of never
being satisfied with the organization's current performance.
Planning becomes relatively more straightforward with MBO. Since employees are clear about
the organizational objectives, they can develop a systematic approach and plan to achieve them.
With this business strategy, the planning process becomes relatively more straightforward.
3. Transparency
Communication is the central pillar of any organization to sustain and thrive. The
communication process becomes more active between the management and the employees with
this management technique. The continuous flow of two-way communication brings more
opportunities and clarity in ambiguous roles by defining clear objectives for every team member.
With MBO, members of the organization become aware of the roles others are playing. It helps
subordinates report to their managers and understand it better since their assigned work is
mutually decided. Also, since all the members work towards the main organization goal, MBO
gives an edge to understand it and follow transparency in the process.
4. Reinforces Commitment
In an organization, we often see employees gradually lose their job satisfaction and their sense
of commitment. The reason behind this, though, has diverse reasons. Still, one of the significant
factors is lack of direction, transparency, and miscommunication between the superior and
subordinates. This strategic model bridges that gap and creates a positive and open work
environment.
MBO reinforces the involvement of every member by allowing them to plan and achieving their
company goals.
Also, since everyone is assigned goals to reach the target, it gives employees a sense of
commitment. The fact that their work is designed and monitored for the greater purpose
reinforces the responsibility in them. It also helps employee motivation as employees are
included in the goal-setting process and give them the extra push to complete the tasks.
5. Goal Setting
We are aware of the fact that how important goal-setting is for any organization. It directs
management and gives a roadmap to follow. And it is better when everyone in the organization is
aware of the process or included to share their perspectives and ideas. This also helps the
employees to understand their roles and tasks better.
With MBO Strategic Model, goal-setting is done with mutual participation of the management
and the organization. Objectives are more likely to be fulfilled by the employees. They actively
participate in the goal-setting process and choose the actions to achieve those. It gives everyone
in the team a clear goal and perspective to keep the boat floating.
6. Accountability
MBO gives accountability to everyone in the room by creating a structure that defines goals and
boosts performance. Management is a tricky affair, and one needs to be accountable to get the
work done. Even the best of teams often cannot reach their full potential due to the
management's loopholes or inability to delegate tasks and monitor effectively. With this
management technique, the team members should consider participatory behavior that
encourages team morale and overall productivity of the organization.
7. Efficient Utilization of Human Resources
If you do not know how to utilize your human resources, you might do more harm to your
business than imagine. Having the best teams is not enough. The world is growing more
imaginative. The digital transformations are not only bringing us tremendous opportunities but
also competition. So how do you sustain in a hugely competitive market? One sure trick here is
to utilize your resources to their fullest potential. And you can also only do that by delegating
tasks to individuals who suit best the given role. With MBO, employees and managers
collaborate on assigning roles and setting goals. Thoughtful matching of talents to jobs fosters
success and utilizes human resources to maximum effect.
8. Minimizes Ambiguity
There is no role ambiguity since everyone is clear about their job roles. Confusion of job roles or
managing multiple tasks by specific individuals creates an imbalance in the overall management
structure. It also impacts performance and encourages a toxic work culture. Many employees feel
discouraged by not being able to understand the workflow or what is expected of them. With
MBO, the collaboration between the manager and the employees clears the air. It leaves room for
everyone to thrive and understand their job roles effectively.