2. MANAGEMENT BY OBJECTIVES
• MBO was conceptualized by Peter F. Drucker
and was made into practice by Harold Smiddy.
• Harold Smiddy was a long time Vice President
of General Electric Company.
• MBO is a Management system in which each
member of the Organization effectively
participates and involves himself
3. Contd…
• According to George Odiorne:
“The system of management by objectives can be
described as a process whereby the superior and
subordinate managers of an organization jointly identify
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.”
4. According to Koontz and Weihrich
• MBO is a comprehensive Managerial system
that integrates many key managerial activities
in a systematic manner and that is consciously
directed towards the effective and efficient
achievement of organizational and individual
objectives
5.
6. Steps in MBO
• Step 1: Overall objectives and strategies are formulated.
• Step 2: Major objectives are allocated among divisional and departmental units.
• Step 3: Unit managers collaboratively set specific objectives for their units with
their managers.
• Step 4: Specific objectives are collaboratively set with all department members.
• Step 5: Action plans, defining how objectives are to be achieved, are specified and
agreed upon by managers and employees.
• Step 6: The action plans are implemented.
• Step 7: Progress toward objectives is periodically reviewed and feedback is
provided.
• Step 8: Successful achievement of objectives is reinforced by performance-based
rewards.
7. Process of MBO
Setting Preliminary objectives:
• Process of MBO begins with the active support of the
management who gives the direction to the organization
• Setting of objective starts from top level management
Fixing Key result areas:
• KRA are identified on the basis of Organizational
Objectives and Planning premises.
• KRA are arranged on priority basis
• EG: Profitability, Market Standing, Innovation,
Productivity, Market Performance, Public
Responsibility
8. Setting Subordinate objectives:
• Organizational Objectives are achieved
through individuals
• During setting of Objectives for subordinates,
we should consider the Organizational goals,
subordinates ability and resources available to
him.
• There should be an open discussion between
superior and his subordinates
9. Recycling Objectives:
• Under MBO, goal-setting is not the direction
from the top level management only
• It is a two way process in which superior
suggests a goal that is acceptable to the
subordinates
• Thus setting objectives are not only a joint
process but also an interactive one.
10. Matching resources with objectives:
• Objectives should be carefully matched with
the available resources.
• If certain resources are not adequately
available, the Objectives of an Organization
are changed accordingly
• The allocation and movement of resources
should be done in consultation with the
subordinates.
11. Periodic Performance reviews:
• At specified intervals, the superior and
subordinates should hold meetings in which
they discuss the progress in the
accomplishment of objectives
• Such reviews are made to identify short
comings and to take timely steps to improve
results.
• Feedback from these reviews is provided to
each individual to facilitate self regulation and
control
12. Appraisal:
• Appraisal aspect of MBO tries to measure whether the
subordinates are achieving their objective or not.
• At the end of the fixed period for achieving the
objectives, there should be a discussion between
superior and subordinate
• If subordinates do not achieve their objectives, then the
superior should identify what are the problems arises
and how these problems can be overcome
• The main purpose of the Appraisal is to find the
shortcomings in achieving objectives and also to
remove them promptly.
• It ensures that everything is going on according to the
plan.
13.
14. Benefits of MBO
1. Improvement of Managing:
• MBO forces managers to think about planning
for end results rather than merely planning
activities or work
• MBO produces clear and measurable
performance goals
• A network of goals are created and appropriate
action plans are formulated for goal
achievement.
15. 2. Clarification of Organization:
• Another major benefit of MBO is that it forces
managers to clarify organizational roles,
authorities and responsibilities.
3. Personnel satisfaction:
• MBO provides the greatest opportunity for
personnel satisfaction. It is possible for two
reasons:
a. Participation in objective setting
b. Rational performance appraisal
• When the individuals are involved in setting
goals, they feel satisfaction that they are
important for the organization
16. 4. Team work:
• MBO results a better communication between
superiors and subordinates which reduces
conflicts.
• The whole management team is actively
involved in goal setting
• There is an integration of lower level goals
with organizational goals
17. 6. Fast Decision Making:
• Decision is taken by the management very
quickly
• The reason is that each worker knows the
purpose of taking the decision and he does not
oppose the decision.
18. 5. Development of effective control:
• MBO not only provides a better planning but
also aids in developing effective control
• Control involves the measuring of results and
taking corrective action if any deviations arise
from plans.
• Objectives serve as the standards for
appraising performance
• It ensures that the goals are achieved
• MBO also allows employees to monitor and
control their own performance
19. Weakness of MBO
1. Failure to teach the philosophy of MBO
2. Failure to give guidelines to goal setters
3. Difficulty of setting goals
4. Emphasis on short term goals
5. Danger of inflexibility
6. Time consuming
7. Increased paper work
20. Advantages
• Employee feel motivated when working in the
organization because of clear goals.
• Improvement of managing through result oriented
planning.
• Classification of organization roles and structures as
well as delegation of authority according to the results
expected of the people occupying the roles.
• Encouragement of commitment to personal and
organizational goals.
• Development of effective controls that measure results
and lead to corrective action.
• Autonomy in implementation of plan.
21. Drawbacks
• MBO is not the best approach for
organization functioning in dynamic
environment.
• Overemphasis on individual accomplishment
may create problems with teamwork.
• Difficulty in implementation.
• Difficulty of setting verifiable goals with right
degree of flexibility.
• Overuse of quantitative goals and the attempt
to use numbers in areas where they are not
applicable.
22. References
1. Stephen A. Robbins & David A. Decenzo &
Mary Coulter, ―Fundamentals of
Management Pearson Education, 7th Edition,
2011.
2. Robert Kreitner & Mamata Mohapatra, ―
Management Biztantra, 2008.
3. https://www.iedunote.com/management-by-
objectives-mbo-process
