Management by Objectives

Meaning of MBO- MBO is difficult to define. Organizations use it in different ways

and for different reasons. In broad terms, it may be stated that MBO is both a
philosophy and an approach of management.
It is a process in which superiors and subordinates
sit together to identify the common objectives and set the goals which are to be
achieved by the subordinates, assess the contribution of each individual and integrate
individual objectives with those of the organisation so as to make best use of the
available resources of the organisation.
 According to George S. Odiorne, "Management by objectives can be described as
a process whereby the superior and subordinate managers of an organisation jointly
identify its common goals, define each individuals major area of responsibility in
terms of results and use these measures as guides for operating the unit and assessing
the contribution of each of its member."
 According to Koontz, O'Donnell and Weihrich, "MBO is a comprehensive
managerial system that integrates many key managerial activities in a systematic
manner, consciously directed towards the effective and efficient achievement of
organisational and individual objectives."
Features Of Management By Objectives MBO:-
1. Superior-subordinate participation: MBO requires the superior and the subordinate
to recognize that the development of objectives is a joint activity. They must be jointly
agree and write out their duties and areas of responsibility in their respective jobs.
2. Joint goal-setting: MBO emphasizes joint goal-setting that are tangible, verifiable
and measurable. The subordinate with his superior sets his own short-term goals. It is
examined both by the superior and the subordinate that goals are realistic and
attainable. In brief, the goals are to be decided jointly through the participation of all.
3. Joint decision on methodology: MBO focuses special attention on what must be
accomplished (goals) rather than how it is to be accomplished. The superior and
subordinate mutually methodology to be followed in the attainment of objectives.
They also mutually set standards and establish norms for evaluating performance.
4. Makes way to attain maximum result: MBO is a systematic and rational technique
that allows management to attain maximum results from available resources by
focusing on attainable goals. It permits lot of freedom to make creative decisions on
his own. This motivates subordinates and ensures good performance from them.
5. Support from superior: When the subordinate makes efforts to achieve his goals,
superior's helping hand is always available. The superior acts as a coach and provides
his valuable advice and guidance to the subordinate. MBO facilitates effective
communication between superior & subordinates for achieving the objectives set.
Steps In Management By Objectives Planning:-
1) Goal setting: The first phase in the MBO process is to define the
organizational objectives. These are determined by the top management and usually in
consultation with other managers. Once these goals are established, they should be
made known to all the members.
2) Manager-Subordinate involvement: After the organizational goals
are defined, the subordinates work with the managers to determine their individual
goals. In this way, everyone gets involved in the goal setting.
3) Matching goals and resources: Management must ensure that the
subordinates are provided with necessary tools and materials to achieve these goals.
Allocation of resources should also be done in consultation with the subordinates.
4) Implementation of plan: After objectives are established and
resources are allocated, the subordinates can implement the plan. If any guidance or
clarification is required, they can contact their superiors.
5) Review and appraisal of performance: This step involves periodic
review of progress between manager and the subordinates. Such reviews would
determine if the progress is satisfactory or the subordinate is facing some problems.
Performance appraisal at these reviews should be conducted, based on fair and
measurable standards.
Advantages of Management By Objectives MBO:-
1. Develops result-oriented philosophy: MBO is a result-oriented philosophy. It
does not favor management by crisis. Managers are expected to develop specific
individual and group goals, develop appropriate action plans, properly allocate
 resources and establish control standards. It provides opportunities and motivation to
staff to develop and make positive contribution in achieving the goals of an
Organisation.
2. Formulation of dearer goals: Goal-setting is typically an annual feature. MBO
produces goals that identify desired/expected results. Goals are made verifiable and
measurable which encourage high level of performance. They highlight problem areas
and are limited in number. The meeting is of minds between the superior and the
subordinates. Participation encourages commitment.
3. Facilitates objective appraisal: MBO provides a basis for evaluating a person's
performance since goals are jointly set by superior and subordinates. The individual is
given adequate freedom to appraise his own activities. Individuals are trained to
exercise discipline and self control. Management by self-control replaces management
by domination in the MBO process. Appraisal becomes more objective and impartial.
4. Raises employee morale: Participative decision-making and two-way
communication encourage the subordinate to communicate freely and honestly.
Participation, clearer goals and improved communication will go a long way in
improving morale of employees.
5. Facilitates effective planning: MBO programmes sharpen the planning process
in an Organisation. It compels managers to think of planning by results. Developing
action plans, providing resources for goal attainment and discussing and removing
obstacles demand careful planning. MBO provides better management and better
results.
6. Acts as motivational force: MBO gives an individual or group, opportunity to
use imagination and creativity to accomplish the mission. Managers devote time for
planning results. Both appraiser and appraise are committed to the same objective.
Since MBO aims at providing clear targets and their order of, employees are
motivated.
7. Facilitates effective control: Continuous monitoring is an essential feature of
MBO. This is useful for achieving better results. Actual performance can be measured
against the standards laid down for measurement of performance and deviations are
 corrected in time. A clear set of verifiable goals provides an outstanding guarantee for
exercising better control.
8. Facilitates personal leadership: MBO helps individual manager to develop
personal leadership and skills useful for efficient management of activities of a
business unit. Such a manager enjoys better chances to climb promotional ladder than
a non-MBO type.
Limitations of Management By Objectives MBO :-
1) Time-consuming: MBO is time-consuming process. Objectives, at all
levels of the Organisation, are set carefully after considering pros and cons which
consumes lot of time. The superiors are required to hold frequent meetings in order to
acquaint subordinates with the new system. The formal, periodic progress and final
review sessions also consume time.
2) Reward-punishment approach: MBO is pressure-oriented programme. It
is based on reward-punishment psychology. It tries to indiscriminately force
improvement on all employees. At times, it may penalize the people whose
performance remains below the goal. This puts mental pressure on staff. Reward is
provided only for superior performance.
3) Increases paper-work: MBO programmes introduce ocean of paper-work
such as training manuals, newsletters, instruction booklets, questionnaires,
performance data and report into the Organisation. Managers need information
feedback, in order to know what is exactly going on in the Organisation. The
employees are expected to fill in a number of forms thus increasing paper-work. In the
words of Howell, "MBO effectiveness is inversely related to the number of MBO
forms.
4) Creates organizational problems: MBO is far from a panacea for all
organizational problems. Often MBO creates more problems than it can solve. An
incident of tug-of-war is not uncommon. The subordinates try to set the lowest
possible targets and superior the highest. When objectives cannot be restricted in
number, it leads to obscure priorities and creates a sense of fear among subordinates.
Added to this, the programme is used as a 'whip' to control employee performance.
5) Develops conflicting objectives: Sometimes, an individual's goal may
come in conflict with those of another e.g., marketing manager's goal for high sales
turnover may find no support from the production manager's goal for production with
least cost. Under such circumstances, individuals follow paths that are best in their
own interest but which are detrimental to the company.
6) Problem of co-ordination: Considerable difficulties may be encountered
while coordinating objectives of the Organisation with those of the individual and the
department. Managers may face problems of measuring objectives when the
objectives are not clear and realistic.
7) Lacks durability: The first few go-around of MBO are motivating. Later
it tends to become old hat. The marginal benefits often decrease with each cycle.
Moreover, the programme is deceptively simple. New opportunities are lost because
individuals adhere too rigidly to established goals.
8) Problems related to goal-setting: MBO can function successfully
provided measurable objectives are jointly set and it is agreed upon by all. Problems
arise when: (a) verifiable goals are difficult to set (b) goals are inflexible and rigid (c)
goals tend to take precedence over the people who use it (d) greater emphasis on
quantifiable and easily measurable results instead of important results and (e) over-
emphasis on short-term goals at the cost of long-term goals.
9) Lack of appreciation: Lack of appreciation of MBO is observed at
different levels of the Organisation. This may be due to the failure of the top
management to communicate the philosophy of MBO to entire staff and all
departments. Similarly, managers may not delegate adequately to their subordinates or
managers may not motivate their subordinates properly. This creates new difficulties
in the execution of MBO programme.