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.
UNIQUE FEATURES AND ADVANTAGES OF MBO
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:
- 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;
- Define organizational goals
- Define employees objectives
- Continuous monitoring performance and progress
- Performance evaluation
- Providing feedback
- Performance appraisal
- 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.
- 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.
- 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;
- Identifying ineffective programs by comparing performance with pre-established objectives,
- Using zero-based budgeting,
- Applying MBO concepts for measuring individual and plans,
- Preparing long and short-range objectives and plans,
- Installing effective controls & benchmarking, and
- Designing a sound organizational structure with clear, responsibilities and decision-making authority at the appropriate level.
- Performance Evaluation
Under this MBO process performance review is made by the participation of the concerned managers.
- 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.
- Performance Appraisal
Performance appraisals are a regular review of employee performance within organizations. It is done at the last stage of the MBO process.