CHAPTER

MBO and BusinessProcess

4 Reengineering

LEARNING OUTCOMES
After studying this chapter, the student shall be able to:
Understand the concept and nature of Managing By Objectives (MBO)
Explain the steps in Managing by Objctives
Elaborate the benefits of Managing by Objectives
Suggest guidelines for effective implementation of Managing by Objectives
Explain the concept and nature of Business Process Reengineering (BPO)
Highlight the features of Business Process Reengineering
Explain the steps in puting BPR into practice.

Alarge number of management techniques have emerged over the

years. But this chapter is devoted
to the study of two very significant techniques, namely,
Business Process Reengineering (BPR)
Management by Objectives (MBO) and

4.1 Concept and Nature of Managing By Objectives (MBO)

The concept of 'Management by Objectives' was first of all used by Peter F.
was strongly advocated by Douglas McGregor. Drucker suggested that Drucker in 1954 and it
the
attention to the establishment of goals so that the subordinate may exercisemanager should evote
of those goals. This technique is known as goal setting self-control in pursuit
approach or managing by objectives. It was
called work planning and review' by the General Electric Co. of U.S.A.
MBO is known by different names such as "Goal Setting Process'",
"Management by Results'
"Accountability Management "Performance Results and Individual Development Evaluation (PRIDE)",
"Work Planning and Review" etc., So, it has been defined differently by different authors. John
W. Humble has defined management by objectives as "a
dynamic
the company's need to clarify and achieve its profit and growth system which seeks to integrate
goals with the manager's need to
contribute and develop himself"
According to George S. Ordiorne, "Management by objectives can be described as a process
whereby the superior and subordinate managers of an organisation jointly
goals, define each individual's major areas of responsibility identify its common
in terms of results expected of him,
and use these measures as guides for operating the unit and assessing the
of its members" contribution of each
4.1
 ORGANISATIONAL BEHAVIOu
4.2 MANAGEMENT PROCESS AND

thinking about management tis not a technigue or a principle or management,

of
way Isofa way
but ambO managing a goal oriented unit. It is a system of performing managerial functions in a
logical and effective manner. It is not a set of rules or a series of procedures, but a way of making
management effective. The MBO philosOpby is built upon the assumptions of goal clarity, role clarity,
periodic feedback, participation and performance improvement. It calls for shifts in emphasis from
the conventional thinking and practice.
Features of MBO
The broad characteristics of MB0 are as follows :

() Comprehensive Philosophy. MBO represents a comprehensive management philosophy.

It is not merely a tool of measuring performance, but an overallsystem of management.
(0) Participative Approach. MBO emphasises participative approach to management. The
goals are determined by superiors in consultation with their subordinates. MB0 is not
merely a meeting of minds, but joint authorship of goals and their joint implementation.
(im) Result Oriented. MBO is performance-oriented. That is why, its other name is Management
by Results. This approach concentrates on ends rather than means and is diagnostic
rather than punitive in character. The performance evaluation of personnel is based on
the results obtained.
(iv) Concentration on Key Result Areas. The emphasis in MBO is on performance improvement
in the areas which are of critical importance to the organisation as a whole. By identification
of key result areas, MBO ensures that due attention is given to the priority areas which
are crucial for good performance and growth of the organisation.
(V) System Approach. MB0 attempts to integrate the individual with the organisation and
the organisation with its environment. It allows management to attain maximum results
from available resources by focusing on goals. It allows the subordinates plenty of room
totake initiative and use creativity in achieving their goals.

4.2 Steps in Managing by Objectives

The basic steps in MBO are described below :
1. Defining Overall Corporate Objectives. The first step in MBO is to define in clear terms
the corporate objectives. These objectives are broad, general and enduring statements of purposes.
They involve such basic questions as what return should be aimed for? How products are to be
sold andin what markets? They are basically concerned with survival, growth and profitability of
the enterprise. It should be carefully noted that it is the specific objectives not general objectives
which are of importance for MB0. These objectives form the basis of long-term planning and help
provide a sense of unity, harmony and accomplishment that is essential for cooperative efforts. The
determination of the overall objectives is the primary responsibility of the top management. This is
because only these people are in a position to understand the broad and long-range implications of
forecasting trends and various strategies which are expected to meet the company's requirements.
2. Setting DepartmentalObjectives. After the overallcorporate objectives have been established,
the next step is to set specific goals for each unit or sub-unit so that each division or department
goals serve as performance
knows what it has to achieve and within what specined period. These
MBO ANDBUSINESS PROCESS REENGINEERING 4.3

targets for each unit. The goals for each unit should be expressed in such a meaningful manner
that they effectively contribute towards the accomplishment of the corporate objectives. Care has
to be taken to see that there is no inconsistency between corporate objectives of the organisation
and specific goals of its unit.

Organisational Departmental Goal or targets

Objectives Objectives for subordinates

Performance
Review of Check-points or
Appraisal and
Counseling Progress key result areaS

Fig. 4.1. The Process of MBO.

3. Setting Goals or Targets for Individuals. MBO is a participative approach; so the subordinate
must play an active part in determining the target for himself. In other words, it is the subordinate
who sets the goals for himself. After this he willdiscuss the goals with his superior who will approve
the goals after modifications, if necessary. Once this process is complete, there will exist ameeting
of minds of the superior and his subordinate as to what is to be accomplished by the subordinate.
The finalised version of objectives and responsibilities for the subordinate is reduced into writing to
avoid any misunderstanding. This document is termed as the Key Result Analysis. It should contain
the following information:
(i) The overallobjectives of the subordinate's job.
(ii) The key targets he must accomplish.
(i) The short-term and long-term priorities of his job.
(iv) The standards by which his performance willbe evaluated.
4Éstablishing Checkpoints. Management by objectives ensure periodic meetings between
the superior and the subordinate to review the progress towards the accomplishment of targets of
the subordinate. For this, the superior must establish check-points or standards of performance for
evaluating the progress of the subordinate. The standards should be defined quantitatively as far
as possible and the subordinate must understand them fully.
The superior must make a periodic review of the progress in achieving the subordinate's
targets. For this, the superior must seek progress reports from the subordinate at regular intervals,
say fortnightly or monthly. He should also contact the subordinate to identify the problems faced
by himand take appropriate steps to overcome the problems. Even the targets may be revised in
the light of the problems faced. Acontinuous contact between the superior and the subordinate
will ensure that things do not go out of control.
5. Performance Review. Formal appraisal at the end of the target period is done by the superior
for thorough evaluation of the subordinate's performance. Under this, achievements are carefully
analysed in the light of prevailing circumstances and the goals of the subordinate. The design and
format of the Performance Review Form will depend on the nature of the job of the subordinate.
4.4
MANAGEMENT PROCESS AND ORGANISATIONAL BEHAVIOU

ne pertormance of every subordinate is evaluated in terms of the standards or end-results

Cieariy agreed to between the superior and the subordinate. Under MBO, the superior does not
evalute the individual concerned, but his performance. Moreover, the performance review is
dt assisthing the subordinate to improve his performance in the future. It also helps in aimed
goals for the next period. setting fresh
6. Feedback and Counselling, The results of performance review are
to convey his strengths and weaknesses. It is the shared with the subodinate
responsibility of the superior to suggest ways to
remove deficiencies in the performance of the subordinate
of his performance. At this stage, the superior offers and make plan for the further improvement
work problems but also on his personal problems. This counselling to the subordinate not only on the
two and help in setting will improve understanding between the
mutually agreed goals for the future.
4.3 Benefits of MBO
The important benefits of MBO are discussed
() Better Planning. Managing by below:
objectives involves setting of goals and targets through
active participation of both superiors and
goal clarity and results in realistic plans subordinates. Such mutual goal
to which the people become setting improves
makes objectives explicit and planning committed. MBO
(in) Better Organisation. When directed towards these objectives.
the goals for each individual are
is a considerable change in
the reset under M80, there
job descriptions of
a revision of the
existing organisation structure. Thevarious positions. This may call for
should be suitably amended to various
jobs
organisation charts and manuals
and authority. They must clearly lay must define their objectives, responsibility
the organisation. down the relationship with other job positions in
(iii) Self-Control. MBO
serves as a means of
of identification by the organisation control. There is agreater sense
management team
controls are reckoned as tools of 'self with the objectives of the enterprise wherein
contro> rather than devices to be used
managers. against
(iv) Higher Productivity. There is an improvement in productivity
concentrates on the important task of reducing costs and as management team
than dissipating energies on less important matters. harnessing opportunities rather
(v) Better Appraisal of
Performance. The process of defining the results expected
accurate criteria for appraisal of establishes
criteria of evaluation intensifies performance. Clear understanding of responsibilities or
accountability. MBO provides an objective measuring
instrument for the evaluation of actual
trait oriented. An individual can pertormance. Appraisal is result-oriented and not
evaluate himself the results of his own
(vi) Executive
Developement. MBO emphasises long-term and performance
new methods to deal withcomprehensive viewpoint of
the executives. It calls for finding
MBO is a tool of self development of the emerging situations. Thus.
executives. That is the individual acouires the
knowledge and skills on the job as aby-product of his meeting pertormance
Opportunities learning and experimenting are natural ingredients in thereguirements.
for
goal setting
process.
MBO AND BUSINESS PROCESS REENGINEERING 4.5

Difficulties in Implementation of Managing by Objectives

MBO is not without weaknesses and problems, some of which are discussed below :
) Hesitation toChange. The idea of MBO appears to be simple, but it requires far reaching
changes in traditional thinking and practices. The specialised functional classification,
hierarchial structure, unilateral goal setting, trait-oriented appraisals, etc., are major
impediments to the successful implementation of MBO, which requires real hard work
and patience on the part of managers. Its successful use requires continuous education
and training of supervisor and others in its implications.
() Lack of Preparation. One of the major weaknesses often seen in MBO is poor planning
of the programme prior to its implementation. Those concerned with the implementation
of MBO must be well-trained. Theymust know how to involve all levels of management
and obtain their support.
(ii) Imposition of Goals. There is generally a lack of patience of the superiors in implementing
the programme. Many are prone to sit down with the subordinate, dictate the goals and
targets with no input permitted from the subordinate and then demand be met in a
specified time. Whether those are realistic goals or not, does not enter the picture. No
consideration is given to any outside factors over which the subordinate has no control of
influence. In this type of environment, there can be no two-way communication because
of the outer-imposed objectives.
(iv) Non-quantifiable Targets. Avital element of MBO is the setting of objectives in quantitative,
measurable terms. But in industry, there are some areas which are not amenable to this
kind of analysis. Orgnizational units (in these areas) are typicalof the headquarters of large
corporations and are becoming more common as the need for specialization increases.
Examples are legal, design, technical or market research and management development
departments. In all these, the quality acceptability or effectiveness of output is what
matters most and the mesurement of the volume of output or productivity is virtually
meaningless. The contribution made by such units to the profits of the company may
be highly significant but is extremely difficult to assess.
(v) Unnecessary Paperwork. MBO results in plethora of newsletters, instruction booklets,
training manuals, performance reports, etc. Subordinates have to fill in forms and submit
detailed reports on their performance. This leads to wastage of time and efforts.
(v) Lengthy Process. MBO requires agreat deal of time insetting measurable goals through
consensus. In the initial stages several meetings may have to be held to instil confidence
in the subordinates. The formal periodic reviews and final appraisal sessions also consume
a lot of time. In this way the patience of those responsible for its implementation is taxed.
(vi) Neglect of Goals of Individuals. MBO is concerned with the objectives of the organisation
and not those of the individuals who work it out. But employees are motivated most
when they see prospects of their own goals advanced through those of the organisation.

4.4 Implementation of MB0

The following guidelines should be followed for the effective implementation of MBO :
() Top-level Commitment. Initial acceptance and enthusiasm among employees for an MBO
program may quickly disappear unless the top management makes concerted efforts to
 AND ORGANISATIONAL
4.6
MANAGEMENT PROCESS

Managers who find it

difficult to BEHAVIOUR
set and
functioning. authoritarian
keep the system alive and fully traditional and approaches. Ton
review objectives may revert to more
tendencies and provide
continuing support to keen
managers must be aware of those procedures.
organisations operating
(ii) the program
Training of Managers. For of MBO
a vital point to succeed, managers must understand it and acquire

to implement it. They must be educated concerning the procediur

the appropriate skills
properly trained, tne MBO program
and advantages of the system. If managers are not
will fail.
planning
(n) Clarity of Purpose. MBo may be used for different purposes, e.g., long-range
mechanics of MBO
pertormance appraisal, productivity improvement, etc. The details and
programme vary with the purpose for which it is used. Therefore, the purp0se should
be clearly defined before installing an MBO programme.
() Encouragement of Participation. Managers must realise that participation by subordinates
in goal setting is necessary for their commitment to goals. They must be willing to
relinquish some direct control over their subordinates and encourage them tß play more
active role in defining and achieving their own objectives.
() Delegation of Adequate Authority. The subordinates who have accepted the challenging
assignments through discussion with the superior must be given adequate authority
to accomplish their goals. MBO will not work if the manager is not willing to delegate
sufficient authority to the subordinates as the subordinates will not be willing to accept
new assignments and may even resist the setting of clearly defined goals.
(vi) Overall Integration. MBO should not be treated as
an isolated
integrated with all the organisation programmes including humanprogram. must be
It
human resource development, product planning and resource planning,
financial planning and so on. development, production control,

4.5 Concept and Nature of Business Process

Re-engineering in the field of management means redesigning of Re-engineering (BPR)
quatity and productivity and to cut costs so as to organisational processes to improve
The poineers of remain competitive in the uncertain
re-engineering
the popularity of business Michael Hammer and James Champy have contributed environment.to
of BPR at IBM Credit process re-engineering throughout the world. extensively
Corportation, the time taken to procesS a credit Because of the application
minutes from a week or more. (See Box 1) proposal was reduced to 90
According to Michael
redical redesign of business Hammer and James Champy, "BPR is the
fundamental rethinking and
measures of performance, processes to achieve dramatic
such as cost, quality, service,improvements in critical, conrtemporary
re-engineering's (BPR) basic assumption is that the and speed. " One of
nrocess around very specialised tasks is business process
traditional way of organising departments
inherently and
firm's customers. In duplicative, wasteful, and
re-engineering, a company and its departments and processes,unresponsive to the
therefore, need to ask themselves. "why do we do and the re-engineers,
"Why do we do it the way we do?"
MBO AND BUSINESS PROCESS REENGINEERING 4.7

Box 1: BPR at IBM Credit Corporation

IBM Credit Corporation finances the computers, softwares, andf services sold by IBM Corporation. As
originally organised, the credit-checking and approval process took several weeks. Asalesoperson
would callin to get credit for aprospective customer. A sequence of steps was then carried out
by individual employees, each of whom logged in the request, carted the request up-stairs to
the credit department, entered the information into a computer system, cheked the credit, and
dispatched it to the next link in the chain.
When the above procedure was assessed, IBM Credit made a monumental discovery. Specificaly
if someone who got the financing request walked it through all the stages personally and at each
stage and what needed to be done, the whole process took only 90 minutes rather than a week
or more! Re-engineering the process in this case involved substituting several generalists for the
specialists and letting a generalist do all the tasks for a request rather than having the process
carried out like a realy race.
Re-engineering is intended to accomplish four objectives as follows:
() Total customer satisfaction
() Improving competitive advantage
(ii) Indtroducing planned change
(iv) Creating smart business processes.
not aim at getting rid
BPR eliminates unwanted operations from the business process. It does
is done or how an organisation is
of people. It is not mere reconstructing centered on how work
offers a radical new principle that
structured. It should not be confused with mere automation. BPR
arrangement or division of work and
the new design of work is based not on classical hierarchical customers.
new values for the
specialisation, but on end-to-end processes and creation of

4.6 Features of BPR

The distinctive features of BPR are as follows:
organisation must ask the most basic question about
(i) Fundamental Rethinking. In BPR, an
business and how does it operate. These questions force people to took at the tacit
it
the business is done. Re-engineering first
rules and assumptions that underline the way
then, how to do.
determines what company must do and disregarding all
Radical Redesign. BPR means getting to the root of things. It involves
(ii)
inventing completely new ways of accomplishing
existing structures and procedures and business
Re-engineering is about business process reinvention and not simply
work.
enhancement.
improvement, modification or leap in
Improvements. The main purpose of BPR is to secure quantum
(ii) Dramatic improvements. The old ways of doing business
need
performance rather than marginal growing competition nad
more demanding customers,
to be replaced by new way due to
changing environment. and creates
business process is a collection of activities that takes inputs
(iv) Key Processes, A BPR concentrates on the entire
process rather than
customer.
a product valuable to the
any single activitiy.
4.8 MANAGEMENT PROCESS AND ORGANISATIONAL BEHAVIOUR

4.7 Putting BPR into Practice

AS shown in Fig. 4.2, an organisation can undertake the following types of efforts to put BPR into
practice:
() Process Improvement. It can lead to dramatic cost reduction in non-core processes.
() Best in Class. It is aimed at attaining competitive parity with those who have set standards
in the past.
(ii) Break-point BPR. It is intended to find and implement break-points and create new
definitions of best in class for others to attain.
BPR is a management philosophy focusing on reduction of seven wastes of
waiting time, transportation, processing, motion, inventory and scrap in any type of overproduction,
process or any type of business. By eliminating wastes, quality is manufacturing
reduced and cost is reduced. improved, production time is

Type 2
Achieving
Best-in-Class
Type 1 Competitive
Process Focus
Improvement Type 3
Cost Reduction Break-point
Focus Rewriting the
Rules

BPR

Fig. 4.2 Types of Efforts in

Business Process Re-engineering
Many people feel that destructuion of
existing
involved and BPR is, therefore, aprocesses
of due to the cost is something which they cannot
Cost involved should never be buzzword for MNCS or TNCS. This is a thinkmyth.
of analysed in isolation, instead cost-benefit analysis is a
decision-making. It is not a question of size of the organisation as it is not better tool
processes should be changed in one go. necessary that all
Although re-engineering alone may not lead to significant
of the unit, yet the
improvement improvement in the overall performance
relating to the particular process may indeed,
case some resource is a constraint and the be dramatic. In
organisation can implement re-engineering in terms of
individual process, the following guidelines should be taken into
() The strategic purpose should be account:
a firm wants to be in and how it
clearly defined. It means understanding what business
wants to gain competitive advantage.
MBO AND BUSINESS PROCESS REENGINEERING 4.9

(ii) BPR must begin from the top. The top management must develop a core team of
competent people from different departments and divisions to plan andimplement the
re-engineering programme.
(ii) ldentify the processes which are to be avoided in the early stages.
(iv) Give priority to those processes that can make maximum contribution to the overall
bottomline, or towards achieving anyspecific corporate mission like customer satisfaction
or creating niche markets.
(v) A timeframe should be developed for achieving results through reengineering.
(vi) Environment conducive to change must be created. Involvement and participation of
people can be helpful in overcoming resistance to change.

Box 2: Implications of BPR

Redefinition of business
Re-definition of roles and responsibilities of personnel
Organisation-wide information systems implementation
Achievement motivation training
"Business process obliteration
" Newprocess innovation
Business network redesign
Creation of flat structure
Empowerment of employees

Revieuw Questions
Short Answer Type Questions
1. Explain the concept and features of Management by Objectives (MBO).
2. "MBO is a comprehensive philosophy of management". Comment.
3. What are the advantages of MBO?
4. State the limitations of MBO.
5. Briefly explain the significance of management by objectives.
6. Explain the concept of BPR.
7. Howcan BPR be put into practice?
Long Answer Type Questions
1. What is meant by Managing by Objectives? Explain the utlitiy of putting managing by objectives
into practice.
2. What do you understand by Management by Objectives (MBO)? What steps are necessary for
the effective implementation of an MBO programme in an organisation?
3. "MBO is a comprehensive management system that integrates many key managerial activities in
a systematic manner and that is consciously directed to achieve the stated objectives". Explain
this statement.