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Unit 4 - Week 5 - Management by Objectives

Management by Objectives (MBO) is a systematic process for setting objectives and monitoring performance. It was first outlined by Peter Drucker in 1954 and aims to increase organizational performance by aligning goals throughout the organization. The MBO process involves managers and subordinates jointly setting specific and measurable objectives, monitoring performance, and providing feedback. Key aspects of MBO include cascading objectives down the organization, evaluating performance against objectives, and linking rewards to goal achievement.

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Diana Elena Chiribasa
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114 views

Unit 4 - Week 5 - Management by Objectives

Management by Objectives (MBO) is a systematic process for setting objectives and monitoring performance. It was first outlined by Peter Drucker in 1954 and aims to increase organizational performance by aligning goals throughout the organization. The MBO process involves managers and subordinates jointly setting specific and measurable objectives, monitoring performance, and providing feedback. Key aspects of MBO include cascading objectives down the organization, evaluating performance against objectives, and linking rewards to goal achievement.

Uploaded by

Diana Elena Chiribasa
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Lesson 5- Management By Objectives

What is MBO?
Management by Objectives (MBO) was first outlined
by Peter Drucker in 1954 in his book 'The Practice of
Management'.

It is a systematic and organized approach that allows


management to focus on achievable goals and to attain
the best possible results from available resources.

It aims to increase organizational performance by


aligning goals and subordinate objectives throughout
the organization.

MBO includes ongoing tracking and feedback in the


process to reach objectives.
Core Concepts of MBO
According to Drucker managers should "avoid the
activity trap", getting so involved in their day to
day activities that they forget their main purpose or
objective.
Participate in the strategic planning process, in
order to improve the implementation of the plan,
and
Implement a range of performance systems,
designed to help the organization stay on the right
track.
Managerial Focus
MBO focus on the result, not the activity.

MBO delegate tasks by "negotiating a contract of goals"


with their subordinates without dictating a detailed
roadmap for implementation.

MBO is about setting yourself objectives and then


breaking these down into more specific goals or key
results.
Main Principle of MBO
MBO makes sure that everybody within the
organization has a clear understanding of the aims,
or objectives, of that organization, as well as
awareness of their own roles and responsibilities in
achieving those aims.

The complete MBO system is to get managers and


empowered employees acting to implement and
achieve their plans, which automatically achieve
those of the organization.
MBO
MBO is a program that encompasses:
specific goals (goal setting theory)
participatively set (this is emphasized in MBO systems)
for an explicit time period
with feedback on goal progress
MBO operationalizes the concept of objectives by devising a
process by which objectives cascade down through the
organization.
The result is a hierarchy of objectives that links objectives
at one level to those at the next level.
For the individual employee, MBO provides specific
personal performance objectives.
Where to Use MBO
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 creativity ,tacit knowledge and
initiative.

MBO can also used by multinational companies


for their country managers abroad.
Setting Objectives

In Management by Objectives (MBO) systems, objectives are


written down for each level of the organization, and individuals
are given specific aims and targets. "The principle behind this is
to ensure that people know what the organization is trying to
achieve, what their part of the organization must do to meet
those aims, and how, as individuals, they are expected to help.
This presupposes that organization's programs and methods
have been fully considered. If they have not, start by
constructing team objectives and ask team members to share in
the process."
"The one thing an MBO system should provide is focus", says
Andy Grove who ardently practiced MBO at Intel. So, have your
objectives precise and keep their number small. Most people
disobey this rule, try to focus on everything, and end up with no
focus at all.
Setting Objectives
MBO is to be effective, individual managers must understand the
specific objectives of their job and how those objectives fit in with
the overall company objectives.

 "A manager's job should be based on a task to be performed in


order to attain the company's objectives... the manager should be
directed and controlled by the objectives of performance rather
than by his boss."

The review mechanism enables leaders to measure the


performance of their managers, especially in the key result areas:
marketing; innovation; human organization; financial resources;
physical resources; productivity; social responsibility; and profit
requirements.
Individual Responsibility
Management by Objectives (MBO) creates a link between
top management's strategic thinking and the
strategy's implementation lower down. Responsibility for
objectives is passed from the organization to its individual
members. It is especially important for
knowledge-based organizations where all members have to be able
to control their own work by feeding back from their results to their
objectives.
Management by objectives is achieved through self-control, the
tool of effectiveness. Today the worker is a self-manager, whose
decisions are of decisive importance for results.
In such an organization, management has to ask each employee
three questions:
What should we hold you accountable for?
What information do you need?
What information do you owe the rest of us?
The Five-Step MBO Process
MBO Principles in Summary

Cascading of organizational goals and objectives


Specific objectives for each member
Participative decision making
Explicit time period
Performance evaluation and feedback
MBO Strategy : Three Basic Parts
 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.
8 Key Result Areas Where Managers Must Pursue
Clear Objectives
Marketing & Sales
Innovation
Human Resources
Financial resources
Physical resources
Productivity, Efficiency & Quality
Social responsibility
Profit requirements
MBO Advantages

Advantages
MBO programs continually emphasize what should
be done in an organization to achieve organizational
goals.
MBO process secures employee commitment to
attaining organizational goals.
MBO Disadvantages
Disadvantages
The development of objectives can be time consuming, leaving both
managers and employees less time in which to do their actual work.
The elaborate written goals, careful communication of goals, and
detailed performance evaluation required in an MBO program increase
the volume of paperwork in an organization.

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