Management by objectives

Management by objectives (MBO) is a comprehensive technique, result-oriented, possible to use not only in industrial organizations, but also in public institutions. According to this concept, the manager together with his subordinates systematically determine the personal and team objectives. Objectives should have a moderate degree of difficulty, be substantiated, and at the same time such that the employee was willing to accept and get involved in their implementation. Rewards must be directly related and equivalent to the objectives achieved by the employee. This technique helps managers in matching awards to the individual needs of employees, explains the expectations, ensure justice in rewarding.

Idea of management by goals (objectives)

The idea of ​​management by objectives (MBO) has been developed and published by Peter Drucker rather as a way of applying targets to motivate people than to control them. He wrote that "the effective management must be guided by the vision and effort of all managers toward a common purpose." It is assumed that employees act in accordance with the assumptions of the theory of Y (i.e., physical and mental effort in work is as natural as play or rest, commitment to goals is a function of rewards associated with their achievement, people acting on objectives exercise self-direction and self-control, the average person learns under the right conditions, people are not afraid to take over the responsibility, and even strive for it, imagination, creativity and ingenuity needed to solve the problems of the organization, are widespread in the population of workers).

Over the years, the concept was variously modified and refined but in general its main message has not changed: the aim should be to improve the efficiency of management and their subordinates.

Management by objectives implementation

Properly introduced management by objectives is permeating the entire organization enabling a significant improvement in short- and long-term planning and, perhaps most importantly, focus on activities that are relevant from the perspective of the success of the company as a whole. It allows to articulate manager's expectations to a single employee and their enforcement. This leads to the optimization of the organizational structure - responsibilities are precise and actually observed, followed and supported by delegation of difficult tasks.

Management by objectives provides effective procedures for monitoring the degree of implementation, allow corrections and improvement of the performance of individual employees. One of the most important benefits is more just evaluation based on objective criteria, and consequently more adequate reward and promotion. In the longer term, typical of the MBO element of participation in the decision making process can significantly enhance the motivation of the individual and the belief that by doing his duties in the company he acquires his own aspirations.

The components of the Management By Objectives system

Individual MBO systems can be very different from each other. Some concern the individuals in the organization and other organizations as a whole, some insist on planning at the corporate level and other on individual and individual motivation. The most effective MBO systems include following six elements:

• Commitment - on all level of management. Both in the process of determining how and evaluation of objectives.
• Setting objectives at the highest level of management - the top management determines the strategy of the organization and outlines the main objectives, by which both managers and employees have a clearer picture of the organization's strategy, which allows them to better plan and implement individual goals and feel their own share in success of organization.
• Individual goals are determined for each employee on every level of organization. This way of setting objectives allows an employee to understand exactly what is expected of him and helps to efficiently plan how to implement the planned activities.
• Participation - the greater the involvement of both managers and employees in setting goals, the greater is the chance to achieve those objectives. One of the distinguishing features of the MBO is the participation in goal setting.
• Independence in carrying out the plans - after the goals are set, everyone has a lot of flexibility in their implementation, without the interference of management.
• Reviews of the efficiency - workers and managers meet periodically in order to review the implementation of the company objectives. Determine potential problems and decide what could be done to solve them. If necessary goals can be changes for the next period.

Rules for implementing management by objectives

Involvement in the process at all levels of the organization, Setting objectives at the highest level, individual goals - determined in consultation with the supervisor, autonomy in carrying out the plans - the objective, systematic assessment of the results, continuous commitment to the highest level, education and training of managers, clear formulation of objectives, an effective flow of information on the results, encouraging the participation

Benefits of Management by Objectives

The main benefit of management by objectives is improved employee motivation, resulting from the participation in shaping the goals and tasks. Resulting from interaction in goal setting is better communication. It is also easier control employees and processes thorough the company. Periodic setting of objectives contributes to maintaining the progress of the organization towards realization of its long-term goals.

On the other hand, the use of the technique of management by objectives may end in failure, if there is no support of top management, and implementation is delegated to lower-level management. Another problem is the excessive focus on quantitative targets, associated with an excess of bureaucracy and reporting. Problems in the application of technology also result from a lack of ability or willingness to cooperate between superiors and subordinates.

Management by objectives can be a source of creative energy. it can increase the involvement of employees, enabling them to participate in management, which strengthens the whole organization. Everyone knows what is expected of him, forcing management to set objectives and determine the timing of their implementation, facilitates communication managers and subordinates, promotes understanding by employees of the purpose of the organization, provides a fair assessment, and allows employees to self-assessment of their work.

Problems with MBO implementation

Inadequate style of management and lack of management support, reluctance to change, no interpersonal skills, problems in defining job descriptions, employee relationship efforts on the work of others, it can cause frustration, setting the mind on the objectives can limit creativity and innovation

See also:

• Management by objectives steps
• Objectives of the organization

Examples of Management by objectives

• Setting performance goals: A manager may set performance goals with their team members to ensure objectives are met. For example, a manager may set a goal to increase sales by 10% within a certain period of time.
• Establishing team objectives: Managers can set team objectives to ensure that everyone is working together towards the same goal. For example, a manager may set a goal for the team to complete a project within a certain time frame or to increase customer satisfaction by a certain percentage.
• Developing action plans: A manager may develop action plans to ensure that objectives are met. For example, a manager may create a plan to increase customer satisfaction by introducing new products or services.
• Evaluating performance: Managers can use MBO to evaluate performance by measuring the progress made towards objectives. For example, a manager can evaluate the performance of their team by tracking the progress made towards a sales goal or customer satisfaction goal.

Limitations of Management by objectives

• Management by objectives can be a time-consuming process. It requires the manager to sit down with each employee to set goals, track progress, and adjust goals as needed.
• It can be difficult to create objectives that are specific, achievable, and measurable. This requires a lot of thought on the part of the manager to ensure that each goal is realistic and attainable.
• The focus on objectives can lead to a narrow focus on short-term goals and outcomes, rather than long-term vision and strategy.
• Depending on the objectives that are set, it can be hard to ensure that rewards are both fair and consistent.
• It can be difficult to evaluate the objectives objectively. Different people may have different opinions on whether an objective was met, which can lead to disagreements and confusion.
• In some cases, an employee’s performance may be outside of their control and thus difficult to measure. This makes it difficult to evaluate their performance and assign rewards accordingly.

Other approaches related to Management by objectives

Other approaches related to Management by Objectives are:

• 360-Degree Feedback System: This system involves collecting feedback from an employee’s colleagues, customers, and other stakeholders. This type of feedback can help managers to identify employee's strengths and weaknesses, and create a more objective evaluation of employee performance.
• Balanced Scorecard: This approach evaluates employees based on their performance and progress on a range of objectives. It focuses on four aspects of a business, including financial, customer, internal processes, and learning and growth.
• Strategic Planning: This approach involves setting goals and objectives for a business, and then creating an action plan for achieving them. This type of planning is used to create long-term strategies for success.

In summary, these approaches are used to help managers evaluate employee performance, create long-term strategies, and identify areas of improvement. They are all related to Management by Objectives because they all focus on setting measurable goals and objectives that can be used to measure performance.

Management by objectives — recommended articles

Management by objectives steps — Organizational culture and project management — Quality management principles — Management functions — Organizational diagnostics — Culture and QMS implementation — Administrative management — Achievement oriented leadership — Change management

References

• Drucker, P. F. (1995). People and performance: The best of Peter Drucker on management. Routledge.
• Drucker, P. F. (1954). Management by objectives and self-control. Practice of Management.
• Drucker, P. F. (1959). Long-range planning-challenge to management science. Management science, 5(3), 238-249.
• Greenwood, R. C. (1981). Management by objectives: As developed by Peter Drucker, assisted by Harold Smiddy. Academy of Management Review, 6(2), 225-230.
• Weihrich, H. (1982). Strategic career management—A missing link in management by objectives. Human resource management, 21(2‐3), 58-66.

Author: Krzysztof Wozniak