Definition: Management by Objectives (MBO) or otherwise called as Management by Results (MBR) is management philosophy which was first propounded by Peter F. Drucker in the year 1954, in his book “Practice of Management”.
Management by objectives is a planning and controlling system, in which the superior and subordinates work together in order to define business objectives and establish targets that are to be achieved by the subordinates, and also determine each individual’s key area of responsibility as regards the results expected. Further, these measures are considered as yardstick to run the unit and also assess the contribution of each individual.
Assumption of Management by Objectives
MBO relies on the premise that people tend to perform better when they are known about what is expected from them and when they can associate their personal goals with that of the objectives of the organization. In addition to this, it also proposes that people have interest in establishing goals and comparing the performance against the set target.
Process of Management by Objectives
- Goal Setting: First and foremost, the long term goals of the organization are defined, such as its startegic intent, vision, mission and goals. Once these are formulated, the management then decides specific objectives to be attained within the given time frame.
- Action Plan: Action plan refers to the way through which the objectives are achieved. It provides direction regarding how the objectives can be achieved, as in what is to be done, what steps are to be followed, etc.
- Performance Appraisal: Last but not the least, at this stage, a comparison is made between actual and predermined standards. These objectives acts as a basis for reviewing the progress.
MBO, is directed towards raising the performance level of the organization by conspiciosly identifying the measurable goals and end results, which are agreed to the management as well as employees of the organization. Thereafter, the employees participate in formulating the action plan and strategy for the attainment of the goals.
Benefits of Management by Objectives
- It facilitates the employees to understand their tasks and duties in a better way.
- It is helpful in designing Key Result Area (KRA) for each employee, according to their interest, specialization, experience and competency.
- It eliminates overalpping and confusions in the tasks and duties.
- Every employee contributes towards the achievement of the objectives by successfully completing the tasks and duties assigned to them by the superior.
- It creates an open communication enviornment in the organization.
In a nutshell, Management by objectives is nothing but a process wherein the goals, plans and control system of the organization are defined by the management and employees jointly.