Management by Objectives and Its Key Concepts Explained

By definition, management by objectives (MBO) is a personnel management strategy in which employees and managers get together to plan strategy, and monitor and record the process of achieving goals concerning a specific period. The flow of organizational planning and goals starts from the top to bottom across the organization and is transformed into selective personal goals for the members of the organization.

This approach/strategy named Management by Objectives was first introduced by an expert in management named Peter Drucker. Eventually, the technique went over the world and become common in the early 1960s. It is also known as Management by results.

In simple words, it is such a management system where specific objectives of the organization are set by the cooperation and coordination of the higher authorities such as managers and lower-level personnel like employees or subordinates. There is a range of beneficial outcomes that can be easily achieved by implementing the Management by Objectives technique across the entire organization.

The following are the main three purposes that MBO aims to serve.

1. To achieve improved and greater efficiency by applying systematic procedures.
2. To offer employees enhanced motivation and a strong commitment by making them participate in the planning process.
3. Rather than implementing work plans, it utilizes planning for expected outcomes.

In MBO, all the activities are monitored regularly; for example, periodic review of progress toward set objectives, evaluation of results, and allocation of rewards and bonuses according to the progress.

Further, there are five main requirements that objectives should meet to offer an effective management structure.

1. Objectives should be classified based on importance.
2. Objectives should be expressed quantitatively whenever/wherever possible
3. Objectives should be realistic
4. Objectives should comprise consistency as per the policies of the organization
5. Objectives should be compatible with each other

Management by Objectives has been gaining enough popularity since the Guru of Management Peter Drucker highlighted the technique in the hall of management. From the early 1950s to today, many organizations influence, creating cooperation between managers and their subordinates based on MBO.

The key concepts of the MBO are defined below to clear the perception of the candidates about the technique.

Management by Objectives Key Concepts

Planning is the central concept of MBO, which pertains that the organization and its members along with their subordinates are not simply reacting quickly to certain issues and events but are moving towards being proactive. It is the requirement of the Management by Objectives that employees set a set of personal goals that should be associated with the organizational goals.

Read the full steps of MBO here.

Suppose that a civil engineer would like to finish the job that is to finish the infrastructure of any housing division by the time, in such case, completing the infrastructure is the career or personal goal of the engineer, whereas it is also an organizational goal at the same time.

Management by Objectives is a such activity that is managed and supervised to coordinate the individual’s goals with the work or organizational goals. An individual or personal goal can be termed as a piece of a joint puzzle that is supposed to fit in the provided place and help to complete the entire puzzle that is an organizational goal in terms of MBO.

Usually, the goals are prepared annually and are constantly monitored by the top managers to evaluate the progress. The rewards are also offered based on goal achievement.

Advantages of MBO

There are many various advantages of the MBO. It offers a track to identify, analyze and plan strategies for the accomplishment of specific goals. It is true that if any organization does not know its goals, then it is not capable of achieving them.

In short, if the organization wants to earn something, then it must have a specific set of goals. Planning goals allows an effective, disciplined, and reliable approach to achieving the goal. Apart from facilitating, it also works as an informer it makes the organization to be prepared for possible hurdles that might come in the process of achieving the goal. Goals can be adjusted and assessed easily as they are measurable.

When a goal is properly set, monitored, and achieved, then the organization will surely avail greater efficiency, enhanced organizational morale, and save resources.

Disadvantages of MBO

Partially, MBO also comprises disadvantages that make it relative to other theories in the field of management.  Implementing MBO across the organization requires concrete efforts more than just setting goals. It might look easy and simple to set a goal, but in certain cases, setting a goal is not necessary.

Suppose that the job of an individual is to assemble two pieces of a product on any specific line, so this action does not require setting individual/personal goals as the work does not need it.

A well-known CEO named Rodney Brim, criticized the Management by Objectives technique and introduced four major weaknesses of the technique that are stated below.

1. The usual focus is merely on the goal rather than preparing an effective plan capable of being implemented efficiently.
2. The organization always becomes fails to control the environmental factors, which act as a block in the accomplishment of the goal, such as a lack of management support or several resources.
3. Possibly, the organization can also become fail to manage the change that may need the modification of the goal or even make it irrelevant.
4. Eventually, the organization may also go off track or may fail to follow the goal.