Management By Objectives (MBO): A Comprehensive Analysis

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Management By Objectives
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What is Management by Objectives (MBO)?

‘Management By Objectives’ is the strategic process of setting organizational goals with reciprocated responses from both employees and management. The term ‘Management by Objectives’ was coined by Australian-American management author Peter Drucker in his book ‘The Practice Management’ in 1954.


Management By Objectives is designed by aligning organizational goals with the overall employee objectives to provide a directive pre-defined conduct to accomplish the vision of the business in the future.


It is a strategic approach to enhance the efficiency and effectiveness of the organization and remove any ambiguity.


The MBO process follows a ‘SMART’ approach to set organizational objectives. The SMART goals include:


S – Specific: It signifies a clearly defined set of goals that are constituted by the organization to assist employees in functioning with clarity and avoiding complexity. It emphasizes specific goals rather than generic ones.


M – Measurable: It implies that organizational goals to be framed must be flexible to align with alterations in the future and should have measurable traits for evaluation.


A – Achievable: It signifies the goals must be attainable. It should be challenging enough, but with achievable traits.


R – Realistic: It signifies that the goals are expected to be realistically achievable in a given frame of time with adequate available resources.


T – Time Bound: The goals to be set must be time bound or have deadlines. Having a specified defined time limit for accomplishments will also avoid work overdue.


Now that we learned about what the MBO process means and what theory it follows, let us take a trip to know the steps involved in defining specific objectives and framing Management by objectives and goals.


Steps Of the Management By Objectives Process

The steps required in Management By Objectives comprise the following:


#Step 1: Setting Organizational Objectives

The first and foremost step in the MBO process is to develop the objectives of the company. Following the SMART approach, the management of the organization needs to draft and finalize its goals.


The company goals should comply with its policies and procedures to avoid any legal or operational issues or internal conflict. The goals are set to ultimately enhance the focus of employees.


#Step 2: Aligning Company Objectives with Employees’ Progress

Every employee has their personal objectives, career and own goals. The project manager needs to align the company goals with the employees’ personal goals so it will result in enhancing the organization as well as employee progress and keep the organization away from employee turnover.


When the company objectives match the company culture and the individual goals of employees, it inflates the employee satisfaction index.


Aligning objectives also heightens the objective standards and reputation of the organization. Besides, it builds an image among noteworthy companies for valuing human resources.


#Step 3: Evaluation of Company Performance

The next in a row is the evaluation of the objectives from time to time to examine the output and overall impact of the objectives set for the entire company.


Objectives management is an essential task as the business trends of companies are dynamic and keep changing over time according to geographic location, company size, necessities, available resources, customer satisfaction and demands, and more.


#Step 4: Monitoring

The succeeding step is to monitor the progress or degradation of the pre-defined objectives. It is crucial to monitor the output matrix for making necessary alterations in case of decline or stagnation and improvise plans accordingly.


#Step 5: Feedback

Employers should provide feedback to employees to ascertain their progress and point out the flaws in execution along with strategic solutions for a clear understanding of the company’s goals.


It enables them to understand their progress and take corrective actions if required.


#Step 6: Rewards and Recognition

Last but not the least, employees should be given performance appraisals, promotions, and more for positive performance reviews. This would not only improve the performance of employees but also escalate their self-motivation to achieve success for themselves as well as their company.


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What are the Advantages of Management by Objectives?

There are various advantages of the MBO process, such as:


1. Strategic Planning to Achieve Company Goals

The most crucial advantage of the MBO process is strategic planning. It takes into consideration all the factors that are directly or indirectly associated with the operational objectives of the company.


The SMART approach covers all the major elements that are required to be considered while framing the organizational objectives of management, making it the first step towards success.


2. Inflate Productivity

Management By Objectives clarifies the goal to be accomplished which sets the path for achieving the goal without any ambiguity and yields the enhancement of productivity.


In addition, the MBO process goal-setting techniques are inherited from the SMART approach which combines the individual objectives of employees with the company’s objectives process. Hence, a balance between both employer and employee objectives is maintained, improving overall productivity.


3. Increase Staff Retention

One of the indirect yet huge components of the success of many noteworthy companies is to retain their employees. The Management By Objectives (MBO) process is one of the many techniques to enhance the job satisfaction of employees by providing them adequate guidelines (which have the personal interests of team members mixed in it) with proper performance management to achieve the goals.


In addition, performance appraisal, corporations praise, etc. improve the performance of employees and encourages them to enhance their focus to achieve success. Hence the chance of retention increases for a motivated employee.


4. Curtail Ambiguity

The Management By Objectives (MBO) system cuts down the perplexity and confusion which arises out of the operations and functioning of tasks, thereby enhancing clarity.


When the ambiguity in performing tasks gets curtailed, it not only fastens up the company’s performance but also brings success in accomplishing the objective standards smoothly.


What are the Disadvantages of Management by Objectives?

The Management By Objectives (MBO) system has a few limitations as well which are consequences of various factors such as specific industries operations, company size, location, type of company, and more.


Let us understand the negative traits of the MBO process on the organization and its employees:


1. Emphasized Target

One of the major limitations of the Management By Objectives (MBO) process is that it emphasizes mostly on accomplishing targets that have been set and ignores other aspects of businesses like company culture, work environment, and more.


Targets and deadlines can create anxiety and a pressurized work environment that is toxic, and unpleasant for the workers to sustain, resulting in a drop in valuable staff and productivity. It drains out the creativity and energy of workers.


2. Ignores the Mental Health

It puts both managers and employees under stress when there is a target to achieve. While framing the MBO targets, the evaluation of the mental health of workers is ignored as it is impossible to consider evaluating the psychic condition of all the staff.


Hence the pressure of achieving the pre-defined targets, and performance reviews stress becomes a bane for the mental health of staff.


3. Long-term Goal-centric Visions

The Management By Objective system has a maximum focus on execution and management of the targets laid which are mostly framed to enhance and increase customer satisfaction and profitability of the business in the long term. This process ignores the short-term difficulties that are encountered on the way as disruptions.


Short-term disputes include conflicts between managers, team members, and different departments such as finance, admin, or marketing department that certainly could arise in day-to-day functioning. However, it is conveniently ignored while framing the MBO standards.


4. Toxicity Prospect

Management By Objectives becomes a toxic prospect for the work environment by forbidding major aspects that should be inclusive while framing the policies.


Major aspects include the analysis of transitory or interim situations that might emanate during the routine operations of the business.


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Final Note

Management By Objectives can be a boon as well as a bane for the organization depending on its map-out techniques and utilization.


The management should consider all factors during the formulation of goals and make sure it aligns with the personal interest of the staff so they stay motivated throughout without getting distracted by conflicts.


In addition, the managers should be cordial in assessing the accomplishments of their team members and stay open to assist in case of divergence. Management By Objectives is a trump card for the business processes which should be utilized sagely to advantage both the staff and the company.

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