Introduction to Management by Objectives

On any given day, the business manager or business owner must prioritize tasks.  Putting out fires may well be at the top of the list.  Directing and supervising subordinates is going to be necessary every day.  Organizing and coordinating are likely to be priority functions as well.

Using long-accepted wisdom about management functions, that leaves two major areas that may be overlooked:  planning and controlling.  This is where Management by Objectives (MBO) can be a big help.  MBO emphasizes these functions with its techniques for effective goal setting.

Management by objectives (MBO) is a methodical and organized approach based on achievable goals.  It is a proven way to get the best possible results from the resources at hand.  With an MBO system, you see any job in terms of the desired end result.   Activities are never the primary element, but rather steps in achieving positive results.

With an MBO system, you see any job in terms of the desired end result.   Activities are never the primary element, but rather steps in achieving positive results.

Management by objectives techniques may be implemented in any organizational field.   But it takes commitment and skill to achieve the maximum benefits from any MBO system.

Management by objectives is not new.  In fact, Peter Drucker originated the concept in the 1950s.  He wrote about this method in his 1954 book, The Practice of Management.  Drucker’s ideas gained sudden attention and were widely embraced until the 1990s when the concept of MBO lost popularity.

However, with the experience of decades and the research available now, managers and owners can benefit greatly from rediscovering the advantages of MBO.

The aspect of MBO that was most widely practiced has been performance appraisal.  But MBO has evolved and been improved by practitioners and researchers.  What was once essentially a philosophy has developed into a highly effective system of management practice.  Nowadays, MBO applies not only to performance measurement, but to every management function.

The aspect of MBO that was most widely practiced has been performance appraisal. . . .  Nowadays, MBO applies not only to performance measurement, but to every management function.

Over the years, MBO systems in different companies and different industries have met with different levels of success.  Some factors that limit the effectiveness of an MBO system, might well apply to any management tool:  unrealistic expectations regarding results, lack of commitment by top management, and an inability or unwillingness to allocate rewards based on goal accomplishment.

While Managing by Objectives is not a foolproof management strategy, there are ways to make the process of setting your MBO objectives smoother. The S.M.A.R.T strategy is one way to emphasize the  characteristics of an effective set of objectives:

• S for Specific: In any level of an organization, goals must be specific. This means that each objective should include its desire result.  For example, a poorly stated goal would be “improve employee performance.”  A better statement of the objective would be “improve employee performance by tracking with monthly rewards system.”
• M for Measurable: Objectives in a successful MBO environment must be measurable. There must be a way to look at progress towards an objective and be very clear whether the goal was met or not.
• A for Achievable: While it may seem like a no-brainer, objectives must be achievable.  For example, an objective that aims for “100 percent customer satisfaction” is not achievable.  It is not doable, and everyone will know it.
• R for Realistic: This leads us to the next most important characteristic—is the objective realistic?  Realistic goals are ones that can be accomplished with the tools at the immediate disposal of the employee.  Realistic objectives are also ones that allow for factors that cannot be controlled, such as economic cycles.
  

  Realistic goals are ones that can be accomplished with the tools at the immediate disposal of the employee.  Realistic objectives are also ones that allow for factors that cannot be controlled, such as economic cycles.

•  T for Time-Based:  The final characteristic of a good objective is that it is time related.  It must have a specific ending point.  Using the example from above, “improve employee performance” becomes “improve employee performance by tracking with a monthly rewards system for 6 months.”  This establishes a solid foundation for the objective and gives it a clear and measurable deadline.

MBO has come a long way:  from primarily a performance appraisal device to a tool for integrating individual and company objectives and, ultimately, to a long-term planning mechanism.  MBO has survived as an effective managerial approach because it has changed, grown, and developed along with real life business practices.

Bernhard S