Management By Objectives MBO Commerce Essay

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According to George Odiome, MBO is a process whereby superior and subordinate managers of an Organization jointly define its common goals, define each individual's major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each of its members."

Management by objectives was first popularized by Peter Drucker in 1954 book 'The Practice of Management'. Drucker drafted MBOs as an approach to get the management and employees to jointly set goals to achieve known as objectives. The main purpose for setting objectives was to give both the managers and employees a clear understanding of what they were expected to do in the organization in order to achieve the objectives set. The objectives were set during certain time periods which at the end of the period two evaluative performances are carried out to determine the extent to which the set objectives had been achieved. An example of an objective includes attaining a sales or profit target by the end of a financial year.

In the modern world of business where gaining competitive over competitors has became one of the main goals by organization, Management by Objective has become one of the most widely accepted philosophy of management as stated by Gaurav Akrani 2010. One of the factors that has made MBO the most acceptable management approach is its demanding and rewarding styles of management. MBO further received recognition when it becomes an integral part of "The HP way". Hewlett-Packard incorporated this management technique at every level within the company; managers had to develop objectives and integrate them with those of other mangers and of the company as a whole. (The Economist, 2009) This approach focuses attention on the achievement of objectives through involvement of the concerned parties. For example trough building strong team spirit as MBO is mainly based on the assumption that people achieve more when they know what is expected of them and can relate their personal goals to organizational objectives. Other features of MBO include good subordinate participation, joint goal setting, support and encouragement from top level manager to subordinates.

MBO is a democratic style of management approach where every subordinate is involved and encouraged to participate towards achieving organizational objectives. MBO is an approach to planning that aims to overcome barriers that might stop an organization from achieving its objectives. It involves the setting up of goals by managers and their subordinate working together by specifying responsibilities and assigning authority for achieving the goals. The final step involves constant monitoring of performance so as to initiate continuous improvement.

Features of Management of Objectives

The following are the prominent characteristics of MBO

All activities are goal oriented. The first important feature of the MBO is that under it all the activities happen to be goal-oriented (Dr.R.Singla 2010-11). This means that MBO concentrates on the determination of unit and individual goals in with organizational goals. These goals set state responsibilities of different parts of the organization and help to coordinate the organization with its parts and its environment.

Integration among Organizational, Departmental and Objectives: the basis of the MBO is setting of Objectives jointly by the supervisors and subordinates and their effective realization (Dr.R.Singla 2010-11)

With the MBO approach the objectives are decide in the following order

Figure 1

Organizational Objectives

Department Objectives

Personal Objectives

The above figure shows that first of all the objectives of the organization are set. Then the departmental objectives are decided which must be in line with the objective of the organization. The third sub step is personal objectives which involves individual objectives being determined first before departmental objectives can be achieved. To sum it up this process is followed to minimize clashes or oppositions at any level regarding the determined objectives.

MBO views organization as Dynamic Entity: this feature considers the organization as a dynamic entity. This means that every organization is affected by various external and internal factors therefore the organization is considered to be a dynamic unit. The dynamic nature affects the objectives which as a result make it possible that the objectives set today may not be realized. In such an event the organization might be forced act swiftly to change its objectives

MBO is a Participative Attempt: "the MBO process is characterized by high level of participation of the concerned people in goal setting and performance appraisal" (Kuldeep 2010). Increased participation provides the opportunity to influence decisions and make clear job relationship with managers and their subordinates.

MBO Matches the Objectives and Resources: The objectives set when the MBO approach is adopted by organization are based on the resources available so as to avoid having incomplete tasks or activities because of the lack of resources. Dr.R.Singla. (2010-11).

MBO is a Philosophy and not a Technique: MBO is not a technique of management but it's a philosophy, because a technique can only be applied or used in a one department and its effects will only be felt on the particular department. For example an inventory technique can only be used in relation to stock control and it cannot be used in another department like HRM.

MBO gives more emphasis to Review and Performance Appraisal: regular appraisal of the work performance of employees form one the important characteristics of MBO. This Philosophy helps observe whether all the employees are performing at the expected level and also identify if there is any impediments in their work performance.

MBO provides more freedom to Subordinates: with MBO Philosophy the subordinates are not only associated with the task of coming up with the objectives but they also get complete freedom in the performance of their work. This philosophy gives them the right to make decisions related to their designation and as a result this increases their importance which improves their interest and job satisfaction.

MBO gives more emphasis to results and not to work: with the MBO philosophy more focus is given to results. The subordinates have the freedom to choose which technique to adopt to achieve the final result. This means that the subordinates are expected to give the best possible results regardless of the technique used.

Steps in Management by Objectives Planning

Peter Drucker identified fives steps for MBO as shown in figure 1

Source (

The five steps explained

Set of organizational Objectives: this is the first step which involves setting of the organizational objectives. Objective setting begins with the conducting of an internal and external analysis to determine the level of efficiency, threats and opportunities.

Cascading Objective Down to Employees: This second stages involves communicating of the set goals and objectives from the top level management to subordinates till they reach everyone. Drucker used the SMART acronym to make as a tool to make the make MBO objective setting more effective so as to set goals that were attainable and to which workers felt accountable to

For example the founder of Microsoft corporation Bill Gates adopted a MBO approach to keep every employee informed the about the company's objectives by following the guidelines below

Eliminate politics, by giving everybody the same message.

Keep a flat organization in which all issues are discussed openly.

Insist on clear and direct communication

Prevent competing Missions or objectives

Eliminate rivalry between different parts of the organization

Empower teams to do their own things

Source (

Encourage Participation in Goal Setting: step three aims to get everyone to understand how their personal goals fit in with the objective of the organization. This is done when goals and objectives at all levels are shared and discussed so as to get everyone understand how things are conducted and then sets their own goals that are in line with the organization objectives.

Monitor: this stage involves developing actions plans after setting objectives, it is important to establish a proper monitoring system which keeps track of the progress made towards achieving the set goals, the monitoring system helps the organization identify deviations or barriers that could slow down the organization from achieving its goals. If any barriers are identified then the corrective actions are taken to set the organization on the right course

Evaluate and Reward Performance. This last step involves rewarding the desired performance. MBO's main focus is to improve performance at all levels so as to achieve higher efficiency. In order to ensure this happen a good evaluation system has to be put in place to evaluate employee's performance and in turn motivate employees as they strive to achieve the set objectives.

Advantages of Management by Objectives

Over the years since Peter Drucker popularized this philosophy it has become one of the widely adopted by organizations because of the various advantages

One of the advantages of MBO is that it improves resource and activity management (Rahman 2009). This leads to better utilization of available of resources and this can be beneficial to the organization in many ways. One is the increase in efficiency which reduces wastage and improves productivity which as a result would lead to increased profits for the organization.

The second advantage is that MBO keeps every employee informed. Since all the employees in the organizations are encouraged to participate in setting the objectives, all of them know their responsibilities. This guides employees to work better as their responsibilities are clearly outlined and reduce the possibility of them going off track

The third advantage is that MBO improves employee's motivation. Involving all employees in decision making make employees feel valued by the organization and due to this employee commitment is improved. This can good for the organization because a motivated and committed workforce will strive to do their best and in turn help the organization achieve its desired results.

The forth advantage of MBO is that it facilitates effective control. Due to the continuous monitoring approach employed by MBO this can be useful in guiding the organization to achieve better results. The Monitoring system can be used to by the organization to gauge the performance against the laid down standard and undesired deviations are corrected in time.

The fifth advantage of MBO is that it encourages innovations. (Drucker, P. (1986). The MBO philosophy puts more focus on the results in order to achieve the objectives rather than procedure to achieve the objectives. This gives subordinates freedom on how, which method to employ in order to achieve the required results. This can be beneficial to the organization as innovation help an organization gain competitive advantage trough new ideas and products.

Disadvantages of Management by Objectives

However as much Management by Objective may be beneficial to organizations there some limitations or disadvantages worth being mentioned.

The first disadvantage is that MBO put employees under pressure. MBO being a result focused philosophy pressure is exerted on all the levels of the organization so as to attain the objectives. This might a bad thing for the organization as pressured employees might be stressed out due to the emphasis put on results within the organization and this could lead to high labour turnover. This could cost the organization a fortune as the organization could be forced to recruit and train new employees.

The second disadvantage is that MBO is time consuming. In order for MBO to be successful regular meetings and exchange of reports have to be conducted. This means managers have to speed a lot time in attending and preparing reports for the meetings while they could be focusing in performing important tasks that are over looked. These over looked could create a hindrance of in attaining the objectives laid down.

The third disadvantage is that MBO puts more importance to short term objectives. In order for an organization to achieve it ultimate goals and success the long term and short term goals should be given equal importance. However the MBO philosophy tends to give more attentions to the short term objectives and due to this employees are more concerned by the short term objectives. This creates a situation where they want to be successful at any cost within the shortest time possible and such a situation could be costly to the organization in the long run.


Management by Objectives might be seen as an outdated management philosophy by modern managers today but I believe it still has a place in modern management.If carefully aligned with the culture of the organization MBO can be quite beneficial to the any organization as from this report the advantages out weight the disadvantages. Also For example Intel has been successive due to the use of MBO However as stated by Drucker "MBO is just another tool. It is not the great cure for management inefficiency … Management by objectives works if you know the objectives: 90% of the time you don't". In order for MBO to be successful in Modern management managers and subordinates must closely work together to constantly update their short term and long term objectives from time to time due to the ever change business environment. Also an effective communication structure has to be place to as to allow managers and subordinates to easily set and communicate objectives to all concerned employees.