Understanding Management by Objectives (MBO) Goals, Steps, Pros and cons

MBO, or Management by Objectives, is one of the most widely used approaches that brings management in focus related to the improvement of organizational performance through explicit and measurable objectives. This strategic approach includes all collaborative processes between the managers and employees to create individual objectives that are linked to the organizational objectives. The concept of MBO was first described by Peter Drucker in the 1950s and has since been widely implemented across businesses globally to drive productivity, efficiency, and employee engagement.

MBO is much more than an enabling device of performance management; it inculcates collaboration and responsibility at the workplace. As employees go through the process of setting goals, MBO ascertains that they don’t only know what they need to do but are also challenged to work toward the achievement of organizational objectives. Furthermore, due monitoring and feedback are provided by the system, so, therefore, continuous improvement and optimization in performance.

This approach is based on the ideology that clear objectives and results can be the best directives for decision-making, thus making the overall organizational success go better. While MBO carries many advantages with it, its implementation should follow some structured approach. All objectives established with the support of MBO serve as a source of long-term benefits of employees also to the organization, due to a correct strategy, proper follow-ups and proper evaluation of all results are involved factors.

Key Aspects of MBO:

• Clear Goal Setting:MBO involves a specified goal which is properly quantified.
• Employee Involvement:The employees together with the manager establish goals and function for the achievement.
• Regular Evaluation:There is regular monitoring and feedback of performance.

What is Management by Objectives (MBO)?

Management by Objectives is a strategic model of management that focuses on defining specific, clear objectives for individuals, teams, and organizations. The setting of such objectives is made through cooperation between employees and their supervisors so that they are working together toward common results. Goals in MBO are established with measurable results, and periodic reviews of performance assess how much is being accomplished toward reaching these goals.

 

 

Core Elements of MBO

1. Goal Clarity/Clear Objective: The employees should be clear about what they work towards. The targets should be clearly defined, specific, measurable, achievable, relevant, and time-bound (SMART)
2. Participation:the employees have to be more participant-oriented while devising their structure of goals. In this way, they shall develop a motivation and drive in themselves to achieve those.
3. Performance Evaluation:MBO involves periodical reviews and appraisals of the performance of the employee. They are informed of what they are lacking, to get them back on track or to help them.
4. Reward System:Rewards in terms of achieving or above set goals that motivates and encourages.

Key Components of MBO

• Setting Objectives:MBO begins with specific, measurable objectives for people and teams. These must be in concert with the organizational vision and strategic plan.
• Participation and Collaboration:In this way, managers and employees come together to set objectives. This helps in developing an ownership and sense of responsibility that motivates people.
• Performance Monitoring:The managers observe the employees’ performance in respect of achieving set objectives. This is by follow-up and performance appraisals.
• Feedback and Adjustments:Following immediately after performance appraisal, the managers provide their subordinate with feedback and suggestions on changing to meet set goals if not met. A plan is then changed.
• Rewards and Recognition:The employees are rewarded once they have reached the desired targets. Favourable behaviours are encouraged and reinforced for the future targets.

Goals of MBO

The final purpose of MBO is to make the organization better at performance through a framework of well-defined, measurable objectives for accomplishment. The MBO strategy aligns the individual goals of the employees with the greater business strategy to achieve a harmonious approach toward company success. Some of the explicit objectives of MBO include:

1. Enhanced Performance

MBO increases performance because it creates suitable and achievable objectives. Once the employees understand what they should do and how results are measured, they apply their effort in the most important work. This clearness leads to an efficient use of resources, more productivity, and better quality of results in work. Daily, regular monitoring of performance would recognize what improvement is needed, and thus the performance is kept continually optimized.

2. Alignment of Organizational and Personal Goals

MBO links the personal objectives of the organization to the strategic intent of an organization. Workers efforts, therefore will translate to the organizational aim as it strives toward accomplishing the company purposes. This linking will make for a one-pointed effort and will avoid conflicting efforts because workers work with one aim and purpose and this may give a cohesive workforce.

3. Improved Communication and Collaboration

MBO helps to enhance communication between the managers and employees. Continues discussion which involves the expectations as well as the performance instils transparency between the two parties. Additional, MBO creates teamwork by cooperation since when people try for the same reasons their circumstances will strengthen bonds forming a team work.

4. Employee Motivation and Satisfaction

Involving employees in the goal-setting process and linking performance to rewards motivates. When employees feel ownership over their objectives and can easily see direct rewards for accomplishing them, they tend to be more committed and involved. Achieving objectives also increases job satisfaction and morale, thus helping boost employee retention and enhance work culture.

Steps in Implementing MBO

A package of such important steps in the cycle of MBO implementation makes sure of its successful performance. Here are the subsequent stages in the cycle of MBO:

1. Define Organizational Goals

The first step to enacting MBO requires determining long-term goals and objectives of the organisation. Those goals express a company’s strategic direction thus giving clear direction on which the management team could focus..

• Example: Increase market share by 15% within 12 months.

2. Set Individual Goals

After organizational goals have been set, the managers meet with the employees to come up with specific individual goals that align with the greater organizational goals. The goals must be SMART- Specific, Measurable, Achievable, Relevant, and Time-bound so that it is precise and focused.

• Example: Increase the rate of sale growth by 10 percent within the geographic zone provided during the next quarter.

3. Develop Action Plans

At this stage, workers and their supervisors work out action plans that are delineated with specific steps the employees will be called on to take so that they can achieve each of their objectives. Their action plans must include due dates and the resources and the resource available.

• Example: Develop the creative campaign to launch the product by end of first quarter

4. Monitor Progress

After every action plan has been in place, one needs to monitor regularly to catch on progress. For instance it could be checking on their performance weekly or monthly with regards to the performance they are making on the workers based on the set goal.

• Example: he monthly sales review meeting to monitor the progress in achieving the target of the sale.

5. Provide Feedback

Feedback is an essential element of MBO. Coaches should provide constructive criticism to the employees but also the areas where they need improvement and positive achievements.

• Example: Positive feedback for passing the sales target, and constructive criticism if the sales target has not been achieved.

6. Evaluate Performance

At the end of the evaluation period, performance is graded against the set objectives at the beginning. In the review, it would be much better if it were based on how well the employee has performed against his objectives and the general impact to the organization.

• Example: A performance review session wherein the sales performances of the employee are tackled.

7. Reward or Correct

If the employee could achieve his goal, then he has to be rewarded in terms of monetary incentives or promotion or recognition. In case of failure of the employee in meeting his goal, then some corrective measures have to be there like providing him further training or change in his goal.

• Example: Additional training to perform better to sell more than expected.

 

 

 

Table: MBO Pros and Cons

 

 

Pros of MBO

The MBO system has abundant benefits, especially in terms of organizational alignment and motivation of the

1. Clarity of Goals

MBO helps to provide clear objectives both to the organization and individual employees so that there is not much vagueness related to expectations. The employees clearly get to understand their jobs and just how they can add up to the broader organizational goals.

2. Improved Motivation

When the employees are motivated actively during the goal setting process and rewards are given according to their achievements of that goals then motivational level and job satisfaction among employees increases.

3. Increased Productivity

Through MBO, the employee gets focused towards particular goals; therefore, higher productivity results in better performance.

4. Better Communication

Constant feedback with open communication among the employees and their relevant managers creates a highly transparent atmosphere where issues don’t survive long.

5. Employee Development

Employees can learn and grow professionally by constant performance review and feedback for the good of the individual and the organization.

6. Alignment of Organizational and Personal Goals

Because MBO sets individual goals that are aligned with the strategic goals of the organization, it ensures that everybody works toward the same vision.

Cons of MBO

MBO has some advantages, though there are some disadvantages with this system, and the organization has to look at the latter before actually implementing the system.

1. Overemphasis on Measurable Goals

MBO lays overemphasis on measurable objectives. In many cases, measurable factors overshadow the qualitative ones, like creativity, teamwork, or innovations, which cannot be easily measured.

2. Time-Consuming

This process of establishing, monitoring, and reviewing goals consume much time of managers and the employees that may have other things to attend hence, diverting their attention.

3. Stress and Pressure

The pressure of achieving a measurable target can stress out an employee; more so, if such goal is unrealistic.

4. Neglect of Long-Term Goals

MBO may focus more on short-term objectives, thus forgetting the long-term strategic objectives that are of much concern to the future of the organization.

5. Rigid System

MBO tends to become very rigid and bureaucratic if not used in an appropriate manner. It will stifle creativity or flexibility toward a change in the business environment as it focuses on specific objectives.

6. Potential for Misalignment

Unless an overall and effective process of goal formulation is in place, a goal-setting process may eventually result in incongruity among the three, in short, reduced total effectiveness.

MBO in Practice: Example
A firm manufacturing consumer electronics wishes to adopt MBO as one of the tools to motivate for sales:

Organizational Goal: Increase overall sales by 20% for the following fiscal year. This top-down objective represents strategic purpose for the company regarding enlargement of market share and expansion of revenues.

1. Individual Goals:
   • Sales representative 1:

Increase the mobile phone sale by 15% in the coming quarter. This directly goes well with the company’s attempt at having revenue growth through the particular product category that is highly in demand.

• Sales representative 2:

Increase the customer base 10% and also 95% rate of maintaining customer satisfaction. Growth also speaks well of retaining customers and culminates in sustainable success

2. Action Plan:

Every representative has a unique style with actionable steps like outreach, lead generation, and customer retention. The actionable steps will clearly outline how these goals can be met, hence serving as a guide to successful results.

3. Performance Monitoring:

Monthly sales reports and review meetings. There will be constant meetings which would keep the managers and employees abreast of the happenings. It would help detect issues early, and then changes could be made.

Feedback:

Periodic performance feedback with scope for changing strategies. Constructive feedback would streamline approaches and improve employee development, thereby improving performance.

4. Evaluation and Rewards:

The sales figures are assessed during the end of the year and the best performers in that year are rewarded in the form of bonuses or promotions. This will motivate them to maintain their performance and fulfill their goals as a means of rewarding the desired behavior.

 

 

Conclusion:

Management by Objectives (MBO) is a management by objectives where the proper setting of measurable objectives by an individual and a team takes place aligned to the objectives set by the organization, which drives the performance and success of the latter. Ownership, accountability, and motivation were provided by goals setting by the employees. Monitoring continuously, giving feedback, and a reward system ensured development and continuous improvement. The primary benefits of MBO are clear goals, motivated people, productivity increased, communication improved, and a matching of the objectives of individuals and the organization. Yet, some of the pitfalls with the approach include over stress on measurable goals, spending much time, the presence of stress, and failure to consider longer-term goals. In general, MBO improves organizational performance, employee engagement, and teamwork; however, it requires proper planning, regular monitoring, and flexibility to ensure success and minimize possible negative effects. A good balance of short-term targets and long-term strategic objectives makes MBO an excellent tool for personal and organizational growth.