Management By Objective (MBO) | It's Features, Process & Advantages

Criteria and Conditions to make sense of MBO, Features of MBO, Steps of MBO, Advantages of MBO

Management By Objective (MBO)

The term management by objective (MBO) was first outlined by Peter Drucker in his 1954 book and then developed by George Odiorne, his student. Management by objective is a management system in which the objectives of an organization are agreed upon so that management and employees understand a common way forward. It is an performance management approach in which a balance is sought between the objectives of employees and the objectives of an organization. It aims to serve as a basic for;

1. Greater efficiency through systematic procedures, 
2. Greater employee motivation and commitment through participation in the planning process, 
3. Planning for results instead of planning just for work. 

The objectives must meet five criteria, they must be; 

• Arranged in order of their importance, 
• Expressed quantitatively, wherever possible, 
• Realistic, 
• Consistent with the organization’s policies, and 
• Compatible with one another.

Peter Drucker sets a number of conditions that must be met to make sense of management by objective (MBO) and they are as follows; 

• Objectives are determined with the employees; 
• Objectives are formulated at both quantitative and qualitative levels; 
• Objectives must be challenging and motivating; 
• Daily feedback on the state of affairs at the level of coaching and development instead of static management reports; 
• Rewards for achieving the intended objectives is a requirement; 
• The basic principle is growth and development not punishments 

Features of Management by Objectives (MBO) 

Some of the features of management by objectives that makes more crystal clear about it are as follows; 

1. It is a collaborative goal setting process 
2. It is a technique and philosophy of management 
3. Objectives are settled for all levels of the organization. 
4. It helps to direct towards the effective and efficient accomplishment of organizational objectives within specific time period 
5. Helps employee for the commitment of organizational objectives as personal objectives 
6. Periodic performance evaluation with focus on result 
7. Provides guidelines for appropriate systems and procedures 
8. Provision of feedback to employees for self control purpose 
9. Rewards are linked to goal achievement 

Steps/Process of Management by Objective 

1) Setting organizational purpose and objectives 

The first step of MBO is to determine or revise the organizational objectives. If an organization has not formulated these yet, it does not make sense to carry out the next steps. 

2) Cascade objectives down to employees 

In order to make organizational objectives organization-wide, it is important that these are translated to employee level. To support the mission, the organization needs to set clear goals and objectives, which then need to cascade down from one organizational level to the next until they reach to everyone. 

3) Setting subordinates objectives 

The starting point is to have each employee participate in the determining of personal objectives that are in line with the objectives of the organization. This works best when the objectives of the organization are discussed and shared throughout all levels of the organization so that everyone will understand why certain things are expected of them. Through a participative process, every person in the organization will set his or her own goals, which support the overall objectives of the team, department, and the objectives of the organization. 

4) Monitor Progress 

Managers have to create a monitoring system that signals when things are off track. This monitoring system has to be timely enough so that issues can be dealt with before they threaten goal achievement. 

5) Evaluate and Reward Performance 

A comprehensive evaluation system is essential for better involvement of MBO. Employees are evaluate and rewarded for their achievements in relation to the set goals and objectives. This also includes accurate feedback. 

Advantages of Management by Objectives 

1) Motivation 

It stimulates the subordinate’s motivation and increases job satisfaction and commitment. 

2) Better communication and coordination 

Frequent reviews and interactions between superiors and subordinates help to maintain harmonious relationships within the organization and also to solve many problems. 

3) Improves management 

MBO forces managers to think about planning for results, rather than merely planning work or activities. In order to make objectives realistic, MBO also requires that managers think of the way they will accomplish results and the resources and assistance they will require. 

4) Clarity of goals 

Collaborative goal setting helps to clarify goals of subordinates. 

5) Encourage personal commitment 

Participation in organizational decision making helps subordinate’s encouragement for personal commitment. 

6) Link to organization’s objectives 

Managers can ensure that objectives of the subordinates are linked to the organization’s objectives. 

7) Develops effective control 

When each and every employee knows what to achieve, control becomes very easy and automatic. 

8) Improves productivity 

It helps in improving productivity as the management team concentrates on the important tasks of reducing costs.