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The concept of management by objective was first given by Peter Drucker in 1954. It can be defined as a process whereby the employees and the superiors come together to identify common goals, the employees set their goals to be achieved, the standards to be taken as the criteria for measurement of their performance and contribution and deciding the course of action to be followed. The essence of MBO is participative goal setting, choosing course of actions and decision making. An important part of MBO is the measurement and the comparison of the employee's actual performance with the standard set.
Management By Objectives
PROCESS OF MBO
The princple behind MBO is to create empowered employees who have clarity of the roles and responsibilities expected of them, understand their objectives to be achieved, and thus help in accomplishment of organisational and personal goals.
FEATURES AND ADVANTAGES OF MBO
CLARITY OF GOALS: with MBO came the concept of smart goals i.e goals that are:
The goals thus set are clear, motivating and there is a linkage between the organisational goals and performance targets of the employees.
MOTIVATION: Involving employees in the whole process of goal setting increases employee empowerment which in turn increases job satisfaction and commitment.
BETTER COMMUNICATION AND COORDINATION: Frequent reviews and interaction between superiors and subordinates helps to maintain harmonious relationships within the organization.
AÂ performance appraisal orÂ performance evaluationÂ is a systematic and periodic process that assesses an individual employee's job performance and productivity in relation to certain pre-established criteria and organizational objectives.
PURPOSE OF PERFOMANCE APPRAISAL
Peformance Appraisal is practiced in 90% of the organizations worldwide. Self Appraisal and Potential Appraisal also form a part of the performance appraisal processes. Perhaps the most significant benefit of appraisal is that, in the rush and bustle of daily working life, it offers a rare chance for a supervisor and subordinate to have "time out" for a one-on-one discussion ofÂ important work issues that might not otherwise be addressed. Almost universally, where performance appraisalÂ is conducted properly,Â both supervisors andÂ subordinates haveÂ reportedÂ the experience asÂ beneficial and positive. Appraisal offers a valuable opportunity to focus on work activities and goals, to identify and correct existing problems, and to encourage better future performance. Thus the performance of the whole organization is enhanced.
To review the performance of the employees over a given period of time.
To judge the gap between the actual and the desired performance.
To help the management in exercising organizational control.
Helps to strengthen the relationship and communication between superior - subordinates and management - employees.
To diagnose the strengths and weaknesses of the individuals so as to identify the training and development needs of the future.
To provide feedback to the employees regarding their past performance.
Provide information to assist in the other personal decisions in the organization.
Provide clarity of the expectations and responsibilities of the functions to be performed by the employees.
To judge the effectiveness of the other human resource functions of the organization such as recruitment, selection, training and development.
To reduce the grievances of the employees.
PROCESS OF PERFORMANCE APPRAISAL
ESTABLISHING PERFORMANCE STANDARDS
The foremost step in performance appraisal is setting up the standards which will be used as a base to compare the actual performance of the employees. This step requires setting up the criteria to judge the performance of the employees as successful or unsuccessful and the degrees of their contribution to the organisational goals and objectives. The objective should be clear, easily understandable and in measurable terms.
COMMUNICATING THE STANDARDS
Once the standards are set, it is the responsibility of the management to communicate the same to the employees. This will help them comprehend their roles and responsibilities and also to know what is expected of them.
MEASURING THE ACTUAL PERFORMANCE
The most difficult part of theÂ Performance appraisal process isÂ measuring the actualÂ performance of the employees that is the work done by the employees during the specified period of time. It is a continuousÂ process which involves monitoring the performance throughout the year. This stage requires the careful selection of the appropriate techniques of measurement, taking care that personal bias does not affect the outcome of the process and providing assistance rather than interfering in an employees work.
COMPARING THE ACTUAL WITH THE DESIRED PERFORMANCE
The actual performance is compared with the desired or the standard performance. The comaprison tells the deviations in the performance of the employees from the standards set. The result can show the actual performance being more than the desired performance or actual performance being less than the desired performance depicting a negative deviation in the organisational performance. It includes recalling, evaluating and analysis of data related to the employees' performance.
The result of the appraisal is communicated and discussed with the employees on one-to-one basis. The focus of this discussion is on communication and listening. The results, the problems and the possible solutions are discussed with the aim of problem solving and reaching consensus. The feedback should be given with a positive attitude as this can have an effect on the employee's future performance. The purpose of the meeting should be to solve the problems faced and motivate the employees to perform better.
The last step of the process is to take decisions which can be taken either to improve the performance ofÂ the employees, take the required corrective actions, or the related HR decisions like rewards, promotions, demotions, transfers etc.
ESTABLISHING PERFORMANCE STANDARDS
COMMUNICATING STANDARDS AND EXPECTATIONS
MEASURING THE ACTUAL PERFORMANCE
COMPARING WITH STANDARDS
(TAKING CORRECTIVE DECISIONS)
PERFORMANCE MANAGEMENT SYSTEM
According to Armstrong and Baron, Performance management is both a strategic and integrated approach to delivering successful results in organization by improving the performance and developing the capabilities of team and individuals. Performance Management is an ongoing communication process which is carried out between the supervisors and employees throughout the year. The process is very much cyclical and continuous in nature.
PERFORMANCE MANAGEMENT PROCESS
Performance Management Process sets the platform for rewarding excellence by aligning individual employee accomplishments with the organisation's mission and objectives and making the employee understand the importance of a specific job in realizing outcomes. By establishing clear performance expectations which includes results, actions and behaviours, it helps the employees in understanding what exactly is expected out of their jobs. Through regular feedback and coaching, it provides an advantage of diagonising the problems at an early stage and taking corrective actions.
PERFORMANCE APPRAISAL TECHNIQUE: MANAGING BY OBJECTIVES
One well-regarded and widely used approach to performance appraisal is called management by objectives (MBO). By definition, under this method, you evaluate your employees on the basis of results. MBO is more than performance appraisal - it's a construct for managing the entire organization. Its breadth includes the organization's vision, values, strategies, goals, and performance measurement.
MBO begins with managers at the top of the company setting goals. Then managers and employees at each successively lower level develop their own goals. Employees' goals are designed to support the goals of their own managers. In this way, the entire organization is linked together in the pursuit of objectives.
The focus is on outcomes that are clear, specific, measurable, and supported by action plans, benchmark dates, and deadlines. All aspects of the goal-setting process also apply toÂ the employees' personal and developmental goals, such as building their skills or knowledge base.
After employees meet with their managers to establish their goals and action plans, the employees return to work newly energized and focused on specific short-term and long term targets. Simultaneously, their managers monitor the employees' performance, provide coaching and support, remove barriers or help employees overcome them, and make adjustments and course corrections as necessary. The employees' performance and progress are clear, measured, documented, and transparent every step of the way.
Employees are highly motivated through MBO because they've been able to actively participate in the process of setting goals, instead of simply having the goals dumped on them. Their involvement in this type of decision-making helps meet many of their higher-level needs for accomplishment, achievement, recognition, and self-worth.
MBO brings a wide range of advantages to the appraisal process:
It helps build relationships between managers and employees.Â MBO includes a great deal of contact and communication between managers and their employees, which builds camaraderie, communication, and trust - all key elements in strengthening teamwork.
It fosters a comfortable climate in the workplace.Â MBO helps build an atmosphere of respect and trust within a given department and beyond.
Manager initiates: Managers work directly with employees to identify and solve problems, MBO improves the quality of decision-making and problem solving.
It's fair.Â Employees are evaluated on the basis of their performance and attainment of goals, which is regarded as fair and energizing.
It's quick and easy.Â Performance evaluation forms associated with MBO are a breeze to complete. Typically, they spell out each objective as established at the beginning of the cycle, and then provide a space for the manager to summarize the results.
Some MBO forms also include a scale that asks for a numerical assessment of the employees' success in meeting their goals. These scales guide the managers in the rating process by including specific descriptions of excellent, good, fair, and poor levels of goal attainment.
Assessment centre refers to a method to objectively observe and assess the people in action by experts orÂ hr professionals with the help of various assessment tools and instruments. Assessment centers simulate the employee's on-the-job environment and facilitate the assessment of their on-the-job performance. An assessment centre typically involves the use of methods like social/informal events, tests and exercises, assignments being given to a group of employees to assess their competencies and on the job behavior and potential to take higher responsibilities in future. Generally, employees are given an assignment similar to the job they are expected to perform if promoted. The trained evaluators observe and evaluate employees as they perform the assigned jobs and are evaluated on job related characteristics.