Management by objective (MBO)

MBO is a system in which specific performance objectives are determined through participative approach. Progress towards objectives is periodically reviewed and rewards determined accordingly. In other words it refers to a formal, or moderately formal, set of procedures that begins with goal setting and continues through performance review.

The key to MBO is that it is a participative process, actively involving managers and staff members at every organizational level. By building on the link between the planning and controlling functions, MBO helps to overcome many of the barriers to planning. This approach is also known by other names such as 'Management by Results' (MBR), 'Goal Management', 'Planning by Objectives' (PBO), 'Results Management', 'Joint Target Setting', 'Work Planning and Review'. Today, MBO is used not only as a technique of goal setting but also as a total system of planning, motivation, performance appraisal and self-control.

MBO is difficult to define. Organizations use it in different ways and for different reasons. In broad terms, it may be stated that MBO is both a philosophy and an approach of management. It is a process in which superiors and subordinates sit together to identify the common objectives and set the goals which are to be achieved by the subordinates, assess the contribution of each individual and integrate individual objectives with those of the organisation so as to make best use of the available resources of the organisation.

Features of Management by objectives

Based on the definitions of MBO, its features can be identified as below:

1. MBO as a Philosophy:

 MBO is a philosophy of management. It is more than a set of techniques. It emphasis on what is to achieve, not how to achieve. It suggests how the best use of available resources may be done to achieve the expected objectives. Peter Drucker writes, "MBO may properly be called a 'philosophy' of management because it rests on a concept of human action, behaviour, and motivation. Finally, it applies to every manager, whatever his level or function, and to every organisation, whether large or small."

 2. MBO as an Approach:

MBO is an approach to management. Approach refers to various tools or techniques used in order to achieve the objectives. MBO introduces several new techniques of management. It also enhances the relevance and utility of existing ones. It is thus, a joint application of a number of principles and techniques. It works as an integrating device. Many principles and techniques of planning and control are used in an organisation in the normal situation, but in MBO the focus is more on these techniques.

 3. Organizational and Individual Goals Determination:

MBO is a participating and interactive process whereby superiors and subordinates jointly determine common objective for the organisation and also define each individual's areas of work and responsibility.

4. MBO Emphasizes Participatively Set Objectives that are Tangible, Verifiable, and Measurable:

 Kreitner writes, "The common denominator that has made MBO approach so popular in both management theory and practice is the emphasis on 'objectives' that are both measurable and participatively set.

 5. MBO is a Top-down or the Bottom-up Approach in Results Management:

MBO aims at optimum use of organisational resources. Thus MBO is a systematic and rational technique that allows management to attain maximum results from available resources. It allows the subordinate plenty of room to make creative decisions on his own.

6. MBO has Multiple Uses:

 MBO is a way of promoting managerial self-control and it applies to total management system. It has multiple uses. There are various managerial sub-systems that can be integrated with MBO process; they include performance appraisal, design of organisational structures, management development programmes, organisational change programmes, and budgeting.

7. MBO has Some Relationship with Every Management Technique and It is a Universal Tool:

In fact, MBO provided the stimulus for the introduction of new techniques of management and enhances the utility of the existing ones. MBO is the joint application of a number of principles and techniques. It works as an integrating device. It is a valuable management tool for profit as well as non-profit organizations. It is a simple, non-technical, operational management approach which can be applied to every type of organizations.

8. MBO as a Performance Appraisal and Review:

As a performance appraisal and review, MBO is intended to measure and judge performance, to relate individual performance to organisational goals and to foster the increasing competence and growth of the subordinates.

 9. A Comprehensive System Approach:

MBO has become a comprehensive system. It considers both economic and human aspects of an organisation. It applies to managers and employees in any kind and size of organisation at all levels and in all functional areas. Koontz and Weihrich write, "MBO, to be effective, has to be viewed as comprehensive system. It must be considered as a way of managing, and not an addition to the managerial job."

10. Guidelines for Appropriate System:

MBO has a thrust achieved on the objectives. Therefore it provides guidelines for appropriate systems and procedures. Resources allocation, delegation of authority etc are determined on the basis of objectives. Similarly, reward and punishment system is attached with the achievement of objectives. Finally we can say that the salient features of MBO are - cascading of organizational goals and objectives; specific objectives for each team/group and member; participative decision making process; explicit time period deadlines; and performance evaluation and feedback.

Process of MBO:

MBO programs can vary enormously. Some are designed for use in a subunit, while others are used for the organization as a whole. The particular methods and approaches that managers use in an MBO program will differ. There also may be wide differences in emphasis. Therefore the MBO process requires rigorous analysis, clarity and balance of objectives and participation of managers with accountability for results. This process has the following steps:

1. Setting of Objectives:

          The first step of MBO process is to establish verifiable objectives for the organization and for various positions at various levels. Without having a clear objective no group or individual can perform effectively or efficiently. One of the major criteria to set clear objectives is the scope of measuring it. Therefore, objectives should be set in such a way that they provide a clear direction to the people who have to contribute and perform for achievement of the same. It is always desirable to have a participatory approach to set objectives. However, management aspirations and expectations should be kept in view while adopting a participatory approach to set objectives. Setting precise, measurable, and well-defined objectives is indeed a difficult task. It requires an intelligent input from superiors and practice and team effort on the part of subordinates.

Objectives should:

ü Be verifiable;

ü Indicate the time frame within which they are to be achieved;

ü Indicate associated cost involved;

ü Indicate quantity and quality aspects of the expected achievements;

ü Help in promoting personal and professional growth and development;

ü Get duly communicated to all who are concerned with it;

ü Align short-term objectives to medium and long-term objectives; and

ü Give due importance to the views of individuals expected to contribute in the achievement of    objectives at the time of setting objectives.

 2. Key Result Areas:

Organisational objectives and planning premises together provide the basis for the identification of key-result areas. Key-result areas are derived from the expectations of the various stake holders and indicate priorities for organisational performance. They indicate top management perspectives for the future and the present state of health of the organisation. These are the areas in reference to which organisational health may be measured or appraised for example:

Ø profitability,

Ø market standing,

Ø innovation,

Ø productivity, etc.

These areas are not the same for every organisation. They differ from organisation to organisation, depending upon various internal and external environmental factors.

3.Setting of Subordinates Objectives:

Organisational objectives are achieved through individuals. Therefore, every individual must know in advance what he is expected to achieve. Objectives for each subordinate should be set in consultation between that subordinate and his or her supervisor. A degree of recycling is required in setting of objectives. This means that a degree of interaction, consultation, and discussion among top level managers, departmental heads, superiors and subordinates is necessary. Revision of Organizational Structure:

When the goals for each individual are reset under MBO there is a considerable change in the job description of various positions. This may call for a revision of the existing organization structure. The organization charts and manuals should be suitably amended to depict the change brought about by the introduction of management by objectives. The job description of various jobs must be defined with their objectives, responsibilities, and authorities. They must clearly lay down the relationship with other job positions in the organization.

4.Matching Objectives and Resources:

It should be noted that without a proper balance between the objectives and resources, the achievement of goals will be difficult. Hence, the superiors must ensure combination of goals with available resources. All managers at various levels require these resources to accomplish their goals. By relating these resources to the goals themselves, superiors can better see the most effective and most economical way of allocating them.

5.Conducting Periodic Progress Reviews:

Management by objectives ensures periodic meetings between the superior and the subordinate to review the progress towards the goal attainment. For this the superior must establish check points or standards of performance for evaluating the progress of the subordinate. The reviews should be held monthly or quarterly. These reviews serve as a built-in feedback mechanism for an MBO system. Since individual or group goals are specifically defined, usually in quantifiable terms, employees can compare their progress at review time against the specified goals. This periodic check-up allows managers and employees to see whether they are on targets or whether some change is necessary. During the review, managers and employees decide what problems exist and what they can do to resolve them.

6.Performance Appraisal:

While informal performance appraisal of a subordinate is done by his immediate superior almost everyday, formal appraisal at periodic interval, usually once or twice a year, does ensure that a thorough evaluation of a manager's performance is done and his achievements are carefully analyzed against the background of prevailing circumstances and given objectives. The design and format of the performance review form will depend on the nature of the enterprise. Performance appraisal can serve three purposes:

Ø Feedback to employees concerning their actual performance;

Ø Provide the basis for identifying more effective job behaviour;

Ø Supply information to managers relevant to future job assignments and to compensation     decisions.

7.Feedback:

On the basis of overall evaluation, the feedback is provided to higher level of hierarchy. Feedback information helps in taking decisions to make necessary changes in MBO programme and to shape goals for the next year. The MBO cycle repeats itself on an annual basis.

Importance and advantage of MBO:

Management by objectives is a comprehensive management planning and control technique and is bound to affect the entire organization structure, culture. Management by objectives calls for regulating the entire process of managing in terms of meaningful, specific and variable objectives at different levels of managerial hierarchy. It stimulates meaningful action for better performance and higher accomplishment. It is closely associated with the concept of decentralization. In 1954, Drucker noted that, "The first requirement in managing managers is management by objectives and self-control." The main advantages of MBO are described below:

1.Better Management of Organizational Activities:

By applying MBO, organisational resources and activities can be better managed which shows improved results. How the performance of an organisation can improve through MBO may be clarified on the following five assumptions laid down by L.M. Prasad, these are:

o   Clarity of objectives;

o    Role clarity;

o    Periodic feedback of performance;

o    Participation of managers in the management process;

o    Realization that there is always scope for improvement of performance in every situation.

2. Clarity in Organizational Action:

MBO tends to provide the key result areas where organisational efforts are needed. A key factor in objective setting is the external environment in which the organisation operates and any change in the external environment should be considered very carefully at the time of objective setting. Besides the external factors, internal factors also help in setting objectives and therefore they should also be considered suitably. They define what the organisation intends to do, what it can do, where it takes and how this gap can be bridged. All these factors lead to clarity in organisational action.

3. Provides Maximum Personnel Satisfaction:

MBO provides maximum opportunity for personnel satisfaction. It is possible due to two closely related phenomena

Ø participation of individuals in goal setting

Ø rational performance appraisal.

People are involved in goal setting and it is a source of inspiration to them. They feel that they are important for the organisation and being consulted in goal setting. They are sure that their performance will be measured independently without any bias, prejudice and other personal factors. MBO provides guidelines for appraising performance. Therefore, there is no room for any partiality.

4. Basis for Organisational Change:

 MBO initiates and stimulates organisational change and it provide framework for planned change. Due to change in external and internal factors a change is required in any organisation. Sometimes change is resisted by the people in the organisation. But by MBO the changing process becomes easier because there is constant interaction between superiors and subordinates, less resistant on the part of subordinates, frequently review the situation.

5. Other Benefits:

Other specific benefits of MBO are as follows:

Ø It increases the effectiveness of management process.

Ø It effectively and efficiently uses the human resources.

Ø It encourages commitment towards goal attainment.

Ø It is a self appraisal and self management technique which leads through self motivation and    control.

Ø It inbuilt the result oriented attitude in employees.

Ø It is a path which encourages personal development and provides opportunities for career    development.

Ø It reduces duplication of efforts.

Ø It advocates trust, cooperation and supportiveness that are central to human nature.  

Ø It develops a greater sense of identification in employees.

Ø It improves communication and organization structure which helps in locating weak and    problem areas.

Ø It serves as a device for organization control and integration.

Ø It provides a realistic means of analyzing training needs and opportunities for growth on the    basisof measurement of performance against accepted standards.

Conclusion

The essence of an MBO system lies in the establishment of common goals by managers and their subordinates acting together. Each person's major areas of responsibility are clearly defined in terms of measurable expected results (objectives). These objectives are used by subordinates in planning their work and by both subordinates and their superiors for monitoring progress. Performance appraisals are conducted jointly on a continuing basis, with provisions for regular periodic reviews. To conclude we can say, MBO involves managers and subordinates in jointly establishing specific objectives and periodically reviewing progress toward meeting those targets.

The salient features of MBO are - cascading of organizational goals and objectives; specific objectives for each team/group and member; participative decision making process; explicit time period deadlines; and performance evaluation and feedback. The basic elements of effective MBO programs include- formulate clear objectives, support and commitment of top management to the MBO system, encourage active participation of subordinates in goal setting, educate and train managers about MBO, autonomy in implementing plans, periodic review of performance, make feedback effective.

 MBO is not a panacea, for organizational problems. Quite often many organizations look MBO as an instant solution to their problems. They fail to recognize that MBO demands careful planning and proper implementation. Many organizations have been overwhelmed by problems of MBO. Some of the problems are present in MBO system itself and others emerge due to wrong implementation like incomplete understanding of MBO philosophy in personnel, poor planning and lack of guidelines for implementation, practical difficulty in setting objectives, increases pressure and frustration on the subordinates, quantitative bias, lack of follow up.

MBO programs have achieved considerable acceptance, even though they require a great deal of time and energy, because they appear to result in improved performance and higher morale. Today, MBO is used not only as a technique of goal setting but also as a total system of planning, motivation, performance appraisal and self-control.