Management by Objective (MBO) is a strategic management model that aims to improve the performance of an organization by clearly defining objectives agreed upon by both management and employees. This method underlines the congruence between organizational goals and employee performance goals, which are set jointly and subsequently evaluated.
Principles of MBO
Joint Goal Setting
The cornerstone of MBO is the collaborative establishment of performance goals between managers and employees. This method encourages mutual communication and alignment of objectives to ensure everyone is working towards the same end.
Continual Monitoring and Feedback
Ongoing tracking of progress towards set goals is crucial in MBO. Regular feedback sessions provide opportunities for adjustments and help in early identification of potential issues.
Performance Evaluation
Performance is periodically evaluated based on the predefined objectives. This assessment determines whether the goals were met and forms the basis for rewards or further action plans.
Participation and Involvement
MBO promotes employee engagement by involving staff in goal setting. This approach helps in fostering a sense of ownership and commitment to the organizational objectives.
Implementation Steps
Define Organizational Goals
Senior management should start by outlining the broad objectives of the organization. These goals must be clear, measurable, and aligned with the company’s mission and vision.
Set Employee Objectives
Managers and employees collaborate to define the individual employee’s performance goals. These should be specific, measurable, achievable, relevant, and time-bound (SMART).
Develop Action Plans
Action plans are created to delineate how objectives will be achieved. This includes identifying necessary resources, timelines, and responsibilities.
Monitor Performance
Regular reviews and progress tracking ensure continuous alignment with the set goals. Feedback mechanisms are crucial during this phase to make necessary adjustments.
Evaluate and Reward
At the end of the evaluation period, performance is assessed, and rewards are allocated based on goal achievement. This phase ensures accountability and recognition of efforts.
Benefits of MBO
Enhanced Alignment
MBO aligns individual performance with organizational goals, ensuring a unified direction for all employees.
Increased Motivation
Employees are more motivated when they have a clear understanding of their goals and how these contribute to the organization’s success.
Improved Communication
MBO fosters open communication between employees and management, enhancing transparency and trust.
Drawbacks of MBO
Time-Consuming
The MBO process can be time-intensive, requiring regular meetings and continuous performance monitoring.
Overemphasis on Goals
An overemphasis on goal achievement can lead to neglect of other important activities or ethical considerations.
Rigidity
Strict adherence to set objectives may reduce flexibility in responding to unforeseen changes or opportunities.
Historical Context
MBO was popularized by Peter Drucker in the 1950s, who saw it as a way to shift away from traditional command-and-control practices and towards a more participative approach. Companies like Hewlett-Packard adopted MBO with significant success, influencing its widespread adoption in various industries.
Applicability
MBO is particularly beneficial in environments where clear objectives can be defined, and employee involvement is critical. It is widely used in business management, project management, and public administration.
Example Scenarios
- Business Management: A sales team sets quarterly sales targets with their manager, who provides regular feedback and resources necessary to hit those targets.
- Project Management: Project managers and team members establish milestones and deadlines, ensuring each phase of the project is completed on time and to the required standard.
- Public Administration: Government agencies use MBO to ensure alignment between departmental initiatives and broader government policies.
Comparisons
MBO vs. Balanced Scorecard
- Focus: MBO is goal-centric, whereas the Balanced Scorecard involves multiple performance measures.
- Implementation: MBO focuses on setting and measuring specific objectives, while the Balanced Scorecard measures performance across financial, customer, internal processes, and learning & growth perspectives.
MBO vs. OKRs (Objectives and Key Results)
- Goal Structure: MBO often involves long-term goals, whereas OKRs emphasize setting shorter-term, flexible goals with measurable outcomes.
- Flexibility: OKRs offer more agility and frequent reallocations compared to the typically more rigid structure of MBO.
Related Terms
- KPI (Key Performance Indicator): A quantifiable measure used to gauge performance relative to goals or objectives.
- SMART Goals: A criterion to set objectives that are Specific, Measurable, Achievable, Relevant, and Time-bound.
- Performance Management: A continuous process of identifying, measuring, and developing the performance of individuals and aligning them with the organization’s goals.
FAQs
What is the main advantage of MBO?
How often should MBO evaluations be conducted?
Can MBO be used in non-profit organizations?
References
- Drucker, P. F. (1954). The Practice of Management. Harper & Row.
- Daft, R. L., & Marcic, D. (2018). Understanding Management. Cengage Learning.
- Kaplan, R. S., & Norton, D. P. (1996). The Balanced Scorecard. Harvard Business Review.
Summary
Management by Objective (MBO) is a vital management approach focusing on aligning individual performance goals with organizational objectives through a participatory process involving continuous feedback and performance evaluation. While it has its drawbacks, the model’s emphasis on clear goal-setting and mutual alignment makes it an effective strategy in many contexts. As with any management technique, its success depends on thoughtful implementation and adaptation to specific organizational needs.
