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Management by Objectives (MBO)

management, management by objectives, business, administration, planning, directing, controlling, leading, staffing

This system must not be looked at as ‘just another management technique’ and given little consideration. It can be considered to be an approach to practical management. In essence it embraces a clear cut strategic plan and its translation into departmental and personal goals, which are reviewed when results are obtained.

Although a great deal has been written on MBO since Drucker’s first references in practices of management in 1954, less than 10 per cent of firms in a recent survey regard its effect as ‘very successful’; some applications, though, have been successful.

MBO systems vary greatly. Some are used for the organization as a whole; others are prepared for sub units of an organization. Methods and approaches used by managers differ greatly. In the US the emphasis appears to be more on human needs and motivation and increasing subordinates’ participation in setting objectives while in the UK, MBO is used mainly for corporate strategy and planning.

Effective planning using the approach of MBO depends upon every manager having very clearly defined objectives for his function in the company. These objectives must also be part of the contribution to other objectives of the company. If objectives are set which do not require any assistance from managers, there is much less chance of them being affected. Peter Drucker goes a stage further by suggesting that managers at every level should participate in devising objectives for the next higher level of management. The important thing is to ensure that the individual’s objectives are related to the common goal.

Douglas McGregor stresses the value of MBO, especially the aspect of performance appraisal. McGregor’s approach suggests that we look at two sets of assumptions about individuals and their reaction to work. Theory X assumes that people work to survive and need therefore a strict, authoritarian approach to dealing with subordinates. Theory Y assumes people do not dislike work, and derive satisfaction from it. The manager’s task under the assumptions of theory Y is to help subordinates to achieve their fullest capabilities and not to control them. It is these assumptions which are the basis of the MBO system.
The stages in management by objectives are:
•the desired results (objectives) set by management are clarified and defined;
•performance standards are set, which must of course not conflict with the main objectives of the business;
•the organization structure must be provided, within which the manager has the maximum freedom and flexibility to perform;
•control information must be supplied at suitable times so the manager can take corrective action quickly;
•appraisal of performance identifies areas where a manager needs help and provision with guidance;
•employees are motivated by relating results achieved to rewards and promotion opportunities.

Others points to note are that each functional objective and target is tied to the overall objectives. It may mean reorganization is needed as quite often many organization schemes are either very elementary and leave out vital functions, or so complicated that they are very difficult to understand.

Another important point is that new techniques are no better than the people who use them and proper attention must therefore be given to the training and development of management at all levels. Also, advanced methods of performance appraisal are needed to identify areas where managers need help and guidance.

Participation in the setting of objectives can vary widely. Subordinates may only be involved by being present when being told what management has decided. Or, they may set the objectives and decide the methods by which they are to be achieved. In practice, methods adopted lie between these two extremes and the greater the participation of both managers and subordinates in the setting of objectives, the more likely they are to be achieved.

To implement an effective MBO program, it needs complete support throughout the organization as well as time and effort. It can be a highly motivating exercise as it enables both managers and subordinates to see their role more clearly.

Research has shown that participation of employees will lead to greater employee acceptance of performance goals and management decisions and improvements in communication and understanding, among both managers and their subordinates.

Advantages of MBO
•The need to clarify objectives is stressed and suggestions for improvement are obtained fro all management levels;
•All managers have a clear idea of the important areas of their work and of the standards required;
•The performance of staff can be assumed and their needs for improvement highlighted;
•Greater participation may improve morale and communication;
•Managers have to plan to achieve results, which are a means of achieving growth and profits;
•It makes individuals more aware of organizational goals.

Disadvantages of MBO
•It takes a few years to be effective;
•Too much paperwork and difficulty in measuring key operations;
•Achieving objectives may be at the expense of organizational goals, e.g. cost reduction programs achieved by deferring maintenance. Sacrificing everything to meet goals may lead to poor managerial judgment;
•Some companies tend always to raise targets’ if these are to high, staff become frustrated.
•Appraisals are sometimes made on personality traits rather than on performance.
•Some companies have geared their salary administration to appraisal by results (easy targets may be set to allow a promotion);
•It is not easy to set measurable objectives for staff groups who only exist to help the ‘line’ achieve its ends;
•Review and counseling of managers may be ineffective;
•Some employees do not want to be held responsible and goals forced upon them may lead to ill-feeling;
•Some of those giving appraisals may not be properly trained, may not be motivated to make the system work and may tend to treat it in a mechanical manner.
Published: 2007-04-14
Author: Martin Hahn

About the author or the publisher
Martin Hahn PhD has received his education and degrees in Europe in organizational/industrial sociology. He grew up in South-East Asia and moved to Europe to get his tertiary education and gain experience in the fields of scientific research, radio journalism, and management consulting.

After living in Europe for 12 years, he moved to South-East again and has worked for the last 12 years as a management consultant, university lecturer, corporate trainer, and international school administrator

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