What Is Management by Objectives (MBO)?

Management by Objectives (MBO) is a strategic strategy for improving an organisation's performance. It is a process in which the organisation's goals are set and communicated to its members by management to achieve each target.

Monitoring and evaluating each employee's performance and progress against the defined targets is crucial in the MBO approach. In addition, employees are more likely to fulfil their commitments if they are involved in formulating goals and deciding on a plan of action.

Management by Objectives' Process Steps

1. Establish organisational objectives.

Setting targets is not only crucial to the success of any business; it also serves several functions. First, goals must be set with the participation of numerous types of managers. The supervisors' objectives are provisional, based on an interpretation and judgement of what the organisation can and should achieve in a specific time frame.

2. Establish staff goals.

Once the employees have been educated on the overall objectives, strategy, and techniques to be implemented, the managers can begin working with their subordinates to set their personal objectives. This will be a one-on-one meeting in which the subordinates will inform the managers about their targets and which goals they can achieve within a specific time frame, and with what resources. They can then give some preliminary ideas about which goals the organisation or department might be able to achieve.

3. Performance and progress are constantly monitored.

Though management by objectives is vital for boosting managers' effectiveness, it is also necessary to measure each person's performance and advancement in the firm.

4. Evaluation of performance

The performance evaluation is carried out within the MBO framework with the cooperation of the relevant managers.

5. Giving feedback

The most crucial phase in the management by objectives strategy is continual feedback on results and objectives, which allows employees to track and modify their activities. Continuous feedback is supplemented by frequent formal evaluation meetings in which superiors and subordinates can review progress toward targets, resulting in further feedback.

6. Performance evaluation

Within MBO firms, performance reviews are a periodic review of employees' success.

Advantages of MBO

• Employees appreciate their on-the-job tasks and responsibilities when managers manage by objectives.

• Key Result Areas (KRAs) are established for each employee based on their interests, educational qualifications, and specialism.

• The MBO strategy typically leads to improved teamwork and communication.

• It ensures that staff understand what is expected of them. The supervisors create goals for each team member, and each employee is given a list of specific assignments.

• Each employee is given a set of objectives. As a result, each person feels indispensable to the firm and develops a sense of loyalty to it.

• Managers assist in ensuring that subordinates' goals are connected to the organisation's objectives.

Disadvantages of MBO

• Management by objectives frequently ignores the business's existing ethos and working conditions.

• Goals and objectives are given more attention. Managers constantly exert pressure on staff to achieve their goals while overlooking the usage of MBO for involvement, willingness to contribute, and management growth.

• Managers may overemphasise target setting as a successful producer compared to operational concerns.

• The MBO approach downplays the importance of the context in which goals are set. The context includes resource availability and efficiency to leadership and stakeholder buy-in.

• Finally, many managers regard management by objectives as a complete method that, if implemented, can handle all management issues. Overdependence may put challenges on the MBO system that it is unprepared to address, undermining any potentially positive effects on the problems it is designed to address.

Management by Objectives (MBO) is a method used by managers to control their staff by implementing tangible goals that both the individual and the business intend to reach in the near future and work to achieve.

Source: CFI