Management by Objectives

Management by Objectives


The concept of ‘Management by Objectives’ (MBO) was first given by Peter Drucker in 1954. It can be defined as a process whereby the employees and the superiors come together to identify common goals, the employees set their goals to be achieved, the standards to be taken as the criteria for measurement of their performance and contribution and deciding the course of action to be followed.

The essence of MBO is participative goal setting, choosing course of actions and decision making. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and the choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities.


The principle behind Management by Objectives (MBO) is to create empowered employees who have clarity of the roles and responsibilities expected from them, understand their objectives to be achieved and thus help in the achievement of organizational as well as personal goals.

Some of the important features and advantages of MBO are:

Clarity of goals – With MBO, came the concept of SMART goals i.e. goals that are:

  • Specific
  • Measurable
  • Achievable
  • Realistic, and
  • Time bound.

The goals thus set are clear, motivating and there is a linkage between organizational goals and performance targets of the employees.

The focus is on future rather than on past. Goals and standards are set for the performance for the future with periodic reviews and feedback.

Motivation – Involving employees in the whole process of goal setting and increasing employee empowerment increases employee job satisfaction and commitment.

Better communication and Coordination – Frequent reviews and interactions between superiors and subordinates helps to maintain harmonious relationships within the enterprise and also solve many problems faced during the period. 

The practical importance of objectives in management can best be seen by summarizing how successful managing by objectives works in practice.

The 6 steps of the MBO process are;

  1. Define organizational goals
  2. Define employees objectives
  3. Continuous monitoring performance and progress
  4. Performance evaluation
  5. Providing feedback
  6. Performance appraisal
  1. Define Organizational Goals

An organizational goal is the end-point toward which activities are aimed. It is the target or end that managers want to reach. Goals provide direction and serve as a reference point.Goals are the raisin deter of an organization. In other words,goals are the reason for the existence of an organization. If an organizations fails to achieve its goal, it can be said that it has failed in its objectives. Thus, goals are critical to organizational success and effectiveness. Organizations are purposive. They have specific goals to attain. In the process of attaining these goals,they mobilize various resources-human as well as non-human (financial,physical,technical,etc.) available to them. Organizational goals, in fact,provide an idea about the character, in tensions,activities, and behavior of an organization. The nature of goals differs from organization to organization. A business enterprises wants to make a profit or to increase its market share, or to attain higher ethical standards in the conduct of all its affairs.

Organizational goals are created in an attempt to achieve a desired state of profit and success. General organizational goals are found in the mission/vision statement of the company, but details of those goals are defined in the business plan.

  1. Define Employees Objectives

When attempt­ing to max­imise pro­duc­tiv­i­ty, improve per­for­mance and deliv­er busi­ness val­ue, the place to start is get­ting your employ­ees to set clear SMART objec­tives. Objec­tives serve as a way to keep employ­ees on course and work­ing toward an over­ar­ch­ing com­pa­ny goal. They pro­vide focus, direc­tion, set expec­ta­tions and also pro­vide moti­va­tion for your work­force. Employ­ees can only achieve and exceed expec­ta­tions when they know exact­ly what is expect­ed of them. What’s more, when employ­ees are con­fi­dent of what is expect­ed of them, they won’t waste busi­ness time or ener­gy wor­ry­ing — allow­ing them to make most of their time and skills.

We all get a sense of accom­plish­ment when we have com­plet­ed a task. This is why so many of us keep to-do lists and tick off activ­i­ties as they are achieved. It makes us feel organ­ised, pro­duc­tive and effi­cient. How­ev­er, stud­ies have shown this sense of accom­plish­ment is greater — and our per­for­mance is high­er — when we set our­selves par­tic­u­lar­ly chal­leng­ing goals. ​“Easy wins” sim­ply aren’t as effec­tive as a moti­va­tor. If the goals in ques­tion appear more dif­fi­cult, we put more effort into com­plet­ing them to stan­dard and on time. Encour­age employ­ees to chal­lenge them­selves when cre­at­ing their SMART goals. This can be an excit­ing way to get them to test their lim­its and to reach greater heights.

  1. 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;

      1. Identifying ineffective programs by comparing performance with pre-established objectives,
      2. Using zero-based budgeting,
      3. Applying MBO concepts for measuring individual and plans,
      4. Preparing long and short-range objectives and plans,
      5. Installing effective controls & benchmarking, and
      6. Designing a sound organizational structure with clear, responsibilities and decision-making authority at the appropriate level.


  1. Performance Evaluation

Under this MBO process performance review is made by the participation of the concerned managers.

  1. Providing Feedback

The important ingredients in an MBO program are continuous feedback on performance and goals that allow individuals to monitor and correct their own actions.

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

  1. Performance Appraisal

Performance appraisals are a regular review of employee performance within organizations. It is done at the last stage of the MBO process.