What is Management by Objectives (MBO)?

What is Management by Objectives?

Management by objectives is a system for improving employee performance where management and employees jointly create objectives.

According to the theory, having employees offer input on goals and action plans is a way to encourage higher performance and commitment. The idea was first outlined by Peter Drucker in his 1954 book, The Practice of Management.

Drucker pointed out that employees often lose sight of their objectives because of an “activity trap”. When we get too involved in our current activities, we forget the original purpose. With MBO we jointly agree on common identified goals, which helps to eliminate the activity trap and keep us focused and aligned to our goals.

How does MBO work?

MBO is a results-driven strategic approach to goal setting. The process begins by defining specific objectives through shared discussion, then collaboratively deciding on how to achieve them in sequence. This would allow managers to pace work accordingly and create a more productive environment. As a result, employees see their own accomplishments as they complete each objective reinforcing a sense of achievement.

Ideally, employees will fulfill their responsibilities because they have personally been involved with the goal-setting process as well as brainstorming with management on how to reach them. Meeting objectives is later graded with group input and often incentivized.

Why does MBO work?

MBO’s success can be attributed to several important features. The first one is the equal participation of both managers and subordinates. This model cannot function properly unless both parties are aware of their roles and participation. Secondly, MBO emphasizes a joint goal-setting and joint decision-making feature. Superiors bring their knowledge and experience to the table, while subordinates help determine the speed and capacity in which goals can be reached.

Lastly, the MBO model ranks high on support levels. Because of its dynamic, managers and employees are forced into effective communication resulting in stronger relationships and positive work environments.

What are five steps in the management by objectives process?

There are several steps to the MBO process:

1. Identify organizational goals - Goals must be realistic and achievable, which helps to guarantee your best results.
2. Define employee objectives - Translate organizational goals to employees. The purpose is to make sure each employee is aware of the objectives and willing to participate in the process.
3. Monitor progress - Here, management needs to provide proper resources and support so employees can follow through with their action plans. Making the progress measurable is key. If you can show that objectives are being met, your employee will likely experience personal growth and be further motivated.
4. Performance evaluation and feedback - MBO traditionally uses positive recognition.
5. Reward Performance - After a performance evaluation, your employee should be rewarded for high performance.

Management by Objectives Advantages and Disadvantages

Management by objectives has a variety of benefits. The most obvious one is the amount of employee participation and engagement. Increased participation creates a positive work environment as employees feel the direct impact of their mutual work effort. This leads to more motivated employees and a higher level of job satisfaction. Another benefit of MBO is it develops stronger communication skills.

The model requires a substantial amount of input and feedback which helps everyone to improve their exchange of ideas. Better communication equals better relationships and clearer direction. Lastly, and probably the best pro to consider, MBO is easily applicable to any organization at all. It is not difficult to implement, no matter the type of industry or size. It can truly suit the needs of most organizations without incurring major costs.

Criticisms however do exist. The most criticized issue of Management by Objectives is its short-sightedness. Some believe MBO has the tendency to consume an entire organization’s resources solely towards achieving goals, overlooking other important needs.

This produces the mentality of achieving goals “at all costs” where employees are tempted to focus only on the finish line without considering the quality of their work. If the employee is a manager, this stifles leadership as well. Efforts become polarized as employees begin to focus only on their own set of objectives instead of the bigger picture. Another criticism is the joint approach doesn’t work well when challenges concerning incompatible needs arise.

Some would say it is too time consuming and difficult to sustain over time. The most interesting criticism might be that MBO misses the human point. Because it is organization-centric, questions regarding the managers’ personal objectives, needs, and relevance are many times left unanswered.

Reviewing the Management by Objectives

Management by Objectives is now a popular and widely used management theory. I believe its appeal to conduct business in a positive, productive work environment would catch anyone’s attention. Decisions don’t feel top-down and each member of the organization contributes equally. The synergetic approach does not lack in benefits and implementing this system is straightforward and clear.

Ultimately, keep in mind that MBO leaves behind a demand to meet both organizational and individual purposes, which can easily become problematic without proper leadership.