Management By Objectives Business Essay

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The management by objectives is the best way to get more out of an employee in any organization. It is the way of dealing the problems by defining prior objectives for each employee and then to compare and to direct their performance against the objectives which have been set for each of them individually. It helps in increasing the performance of the organization by matching organizational goals with the objectives of subordinates from top level to the bottom level in any company. In normal cases the employees are asked to find out their own objectives and then they are evaluated by their superiors and will be added any extra if they do not meet the requirements or deadlines which are already preset for project completion.

MBO includes tracking of the continuous changes of the processes and providing feedback to reach the objectives.


Term coined by Peter Drucker:

Management by Objectives was first introduced by Peter Drucker in 1954 in the book written by him, 'The practice of Management'. According to DruckerManagers follow two rules without their knowledge

Rule 1: With active involvement in the current activities,Managers come under a trap namely "activity trap" to successfully complete those jobs.

Rule 2: As they are continuously involving in current activity it is quite common that they will lose their vision on long term goal.

One of the concepts of Management ByObjectives was that instead of just a few top-managers, all managers of a firm should participate in the strategic planning process, in order to improve the implementability of the plan.

According to Peter Drucker all managers (which implies both top as well as middle level) should:

participate in the strategic planning process, in order to improve the implementability and practicality of the plan, and

implement a range of performance systems, designed inorderto help the organization stay on the right track.

Another concept of Management by Objectives was, that managers should implement a range of performance systems, which are designed to help the organization to function well without any problems. Clearly, Management by Objectives can thus be seen as a predecessor of Value Based Management.


MbO - Main Principles

Cascading of organizational goals and objectives,

Specific objectives for each and every member,

Participative decision making,

Explicit time period, and

Performance evaluation after an activity and provide feedback.

The SMART Objectives:

The SMART goal era of the 1980's and 1990's provided some helpful criteria about what makes goals more or less effective in shaping behavior. By definition, a goal that doesn't shape behavior is ineffective. The theory went on to suggest that SMART parameters were good predictors of influential or effective goals. As an example, goals that were not specific or measurable were less likely to shape behavior than those that were high in these characteristics. Using a play on

words, you were smart to include these characteristics in your goal and objective definition.

Management by Objectives has also introduced the SMART method for checking the validity of the objectives, which should be 'SMART':




Realistic, and


One of the almost important impressions of SMART goals is that they are pointed; they have an edge, often a sense of energy created by the specificity, the time limits and the measurement.

Non-SMART goals seem flat in comparison (ie. Improve productivity); bureaucratic, like one more strategic plan that's going nowhere. While the enhancement to goal definition was a helpful direction, it did not address fundamental weaknesses in this model.

In the 90s, Peter Drucker put the significance of this organization management method into perspective, when he said: "It's just another tool. It is not the great cure for management inefficiency... Management by Objectives works if you know the objectives, but 90% of the time you don't.

The MBO style is appropriate for knowledge-based enterprises when your staff is competent. It is appropriate in situations where you wish to build employees' management and self-leadership skills and tap their entrepreneurial creativity, tacit knowledge and initiative.Management by Objectives (MBO) is also used by chief executives of multinational corporations (MNCs) for their country managers abroad.

Famous innovation management policies:

MBO followed at Intel

A Manager's Guide at Intel provides the following directions.

Start with a few well-chosen overriding objectives.

Set your subordinates objectives that fit in with your overriding objectives.

Allow your subordinates to set their own key results to enable them to meet their objectives

MBO followed at Microsoft

By: Bill Gates, Founder of Microsoft

Prevent the missions or objectives that are competing against each other.

Review Mechanism

The review mechanism enables leaders to measure the performance of their managers, in the key result areas: marketing; innovation; human organization; financial resources; productivity; social responsibility; and profit requirements

All individuals within an organization are assigned a special set of objectives that they try to reach during a normal operating period. These objectives are mutually set and agreed upon by individuals and their managers.

Performance reviews are conducted periodically to determine how close individuals are to attaining their objectives.

Rewards are given to individuals on the basis of how close they come to reaching their goals. .

Setbacks of Management by Objectives:

1. May lead to suboptimalization: which means people are not ready to look beyond their own objectives and help each other.

2. Innovation cannot be seen anywhere.

3. Involvement of the time and paperwork.

4. Potential misuse by superiors who simply assign the objectives rather than asking their opinion.

5. Subordinates may try to negotiate easy goals.

6. Watch out for unrealistic expectations about what can be reasonably accomplished.

7. Inflexible and rigid.

Solution: The Scheduled Project Management

Drawing upon the influence of MBO theory that is to set clear objectives, build an action plan, andmeasure progress and Deming's work (optimize processes and products by identifying andpracticing listed best practices behaviors), emerged the project management movement. Ineffect saying,

1. Yes set clear objectives, and get key stakeholder buy-in and definition for the participantthrough explicit requirement setting

2. Yes, put together a series of best practices action steps in the form of a work breakdownstructure.

3. But, what primarily helps people achieve their objective, is the planning, securing,scheduled deployment of resources and the completion of tasks.

Project management is an evolution of MBO theory.

Management by Objectives (MBO) (All about the goal)

In the 60's, 70's and 80's it seemed like a good thing to manage work efforts by goals, hence theterm "management by objectives." The idea was to improve management and workproductivity in general by being more clear visioned about the intended outcomesMBO principals contained many precursors to the basic building blocks used by current projectmanagement tenants.

The basic MBO principles include the following activities:

1. Establishing a set of top level strategic goals.

2. Creating a cascade of organizational goals that are supported by the lower level definitiveobjectives and action plans.

3. There should be participative decision making in developing an organizational role and mission statement, as well as specific objectives andaction plans for each member.

4. Establish key results and/or determined performance standards for each objective.

5. Periodical measurement and assessment of the status or outcome of the goals.

The assumptive strength behind the MBO model, as commonly practiced, is the notion that if adesired outcome is defined as a goal and progress is measured towards reaching that goal, thenthe chances of reaching that outcome are enhanced.

Mission Statements and MBO

All organizations have their own mission statement or vision statement that tries to encapsulate the overall strategic management of their company.

Such statements are designed to implicitly state the organizations' objectives in the broader sense. Yet this often fails to capture the true meaning behind the meaning of 'mission'.

A mission is an objective - that needs to be managed, i.e they are the short term goals to be achieved. Therefore it should be specific to elements that make up the whole; thus flexible, dynamic and responsive to both the internal and external environment.

Each mission needs a main effort - an overriding factor that underpins the purpose of the mission. This should be communicated to all those involved - it is the desired outcome that must be achieved.

Expressed in this manner the objectives are clear, unambiguous and the employees are told what needs to be achieved not how to achieve them; thus encouraging new methods of innovation, flair and problems solving.


Successful management consists of settingup the good objectives and making the rightchoices towards the fulfillment of those objectives. Thosewho fail these two basic tasks, fail asmanagers. Management by objective is ageneralized procedure which lends itselfwell to that portion of management capableof being systematic. The remainingportion of management which is not systematic cannot be followed easily either in theory or in practice.