Management by Objectives
The term was coined by Peter Drucker in his book- “The Practice of Management”.
MBO is a management approach that uses objectives as the primary means for managing an organization. It is a process through which specific goals are set collaboratively as an organization. The goals are then used as bases for planning, managing organizational activities, and assessing and rewarding contributions. Here, managers and employees define goals for every department, project, and person and use them to monitor subsequent performance.
Objectives set for MBO must be SMART. This essentially means that objectives must meet the following criteria – S-pecific, M-easurable, A-chievable, R-elevant, and T-ime specific.
There are four specific steps involve in the MBO process:
1) Set goals
2) Develop Action Plans
3) Review Progress
4) Appraise Overall Performance
Managers who employ the MBO approach enjoy the following advantages:
1) It encourages a more cohesive work environment and with proper motivation, even subordinates develop a stronger commitment to achieving organizational objectives.
2) Some activities can be classified as ‘high priority’. Thus, these receive clear and purposeful attention.
3) There is better communication between managers at various organizational levels. Better communication enhances collaboration. Even subordinates are informed of the plans and activities in other parts of the organization.
However, the MBO process also has its disadvantages:
1) Embracing the MBO approach can be difficult to adopt in very complex organizations.
2) MBO requires great time and effort.
3) Managers and subordinates need to meet regularly to document plans, review performance, discuss corrective actions, and revise objectives. Thus, the process tends to be bogged down with paper work and schedules.
4) To succeed, MBO requires strong commitment from the top management and individual managers. When these conditions are absent, MBO will not be effective.
