Management By Objectives (MBO) is a comprehensive managerial system that integrates many key managerial activities in a systematic manner and is consciously directed towards the effective and efficient achievement of organizational and individual objectives. It is a philosophy of management that encourages mutual goal setting between superiors and subordinates.
How MBO works
Although there are a number of variations, MBO generally consists of these steps: setting organizational objectives, setting individual objectives and appraising according to results.
These steps involve:
• The manager will explain the rationale and methodology of MBO to subordinates to enhance its acceptance.
• Top management determines the overall objectives of the organization and for each department.
• From each unit, a key manager will be identified who, together with top management, will design a unit improvement plan. This sets out the units’ objectives and how these will be achieved.
• A personal job improvement plan will also be developed with each unit manager. This links the unit objectives and the manager’s personal objectives.
• The unit managers then meets subordinates to explain to them what is expected in their departments. Both parties come up with individual objectives for the coming period which is usually a year or less. These individual objectives must be linked to those of the department. An action plan is developed to see how these objectives will be achieved.
• Intermediate reviews are done manager to see if the subordinate is working effectively towards the set objective. Areas of deviation are identified and set right.
• At the end of the set period, a final review is conducted and corrective measures are taken. If an employee has met his target he is rewarded.
To ensure the success of an MBO programme in any organization, top management must ensure:
• Consistency between units, individual and corporate objectives.
• The right climate and culture to ensure that the organization is committed.
• Focus on critical areas of improvement.
• Assign responsibility to specific managers to enhance control.
• Avoid duplication of control work.
• Have an efficient MIS. (Management Information System).
• Provide managers with flexibility and freedom.
• Provide training.
• Provide adequate time and resources.
Merits of MBO
a. It facilitates control.
b. It encourages a results oriented culture.
c. With MBO organizational goals are clearer and verifiable.
d. MBO leads to carefully coordinated planning. Since it is participatory in nature.
e. Better objectives are formulated.
f. It leads to improved performance and better motivation.
g. MBO leads to enhanced manager development.
h. MBO improves commitment and delegation.
i. MBO improves communication.
Demerits of MBO
a. MBO lays too much emphasis on short-term goals.
b. It lays too much emphasis on quantitative goals as opposed to qualitative ones e.g. product appeal.
c. It is very time consuming and increases paper work.
d. MBO is also very rigid (the environment of management usually is very dynamic.
e. It assumes managers have the right skills and attitude towards MBO.
f. MBO is resented subordinates who do not wish to participate in the goal setting process.
g. It is pressure oriented.
h. MBO assumes there will be no conflicts in the objectives of the organization and those of individuals. Even when there are conflicts, MBO assumes they can easily be solved.