What is Management by Objectives?

Management by objectives (MBO) is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources. MBO is the participatory goal setting process between a manager and those who report directly to him or her. It is important to note that the goals in a management by objectives system are always directly integrate with the goals of the organization overall.

The term “management by objectives” was first popularized by Peter Drucker in his 1954 book The Practice of Management. While MBO is a useful and critical tool in many organizations, in the 1990s Peter Drucker dismissed the significance of his technique, saying: “It’s just another tool. It is not the great cure for management inefficiency… Management by Objectives works if you know the objectives, 90% of the time you don’t.”

The concept may have become a victim of its own success: management by objectives became so much a part of the way business is conducted that it no longer held any noteworthy weight in the theoretical sense. In addition to this, the concept partly evolved into that of the “Balanced Scorecard,” which was merely a more refined technique for illustrating essentially the same thing that MBO did.

Management by objectives’ primary characteristics are participative goal setting, choosing courses of action, and making decisions. An important factor in implementing MBO is measurement. A successful MBO program allows for the comparison employee performance with the standards set by the organization. Bearing in mind that the goals of the individual should be integrated with that of the organization, the comparison should identify any issues and give way to a means of correction. MBO’s participative goal setting allows employees to feel more involved in the process of creating the goals and provide a sense of belonging within the company, making employees more likely to fulfill their responsibilities.

But management by objective received redemption in recent years when it was said to be a critical part of “The HP Way.” Hewlett-Packard, a world-renowned computer company, uses this widely acclaimed management style. At each level of the company, HP managers develop goals and join them with the objectives of other managers, and of the company as a whole—one of the primary characteristics of the MBO methodology. At HP, this was carried out by creating written plans demonstrating what employees needed to do if they were to reach the objectives set by management. The plans were then shared and then coordinated with others in the corporation.

From a higher perspective, management by objectives offers the following benefits:

Improved Planning: The process of explicitly planning goals and defining measures drastically improves planning process, which are usually done ad-hoc without alignment with other goals in the organization.

Coordination: The integration of corporate, departmental and individual objectives helps in the decentralization of authority and focus on responsibility. MBO results in increased clarity of organizational roles and structure. It promotes an interlinked view of management, and assists with interdepartmental coordination.

Motivation and Commitment: When corporate goals are converted into personal goals at every level of a company, it helps to integrate the individual with the organization. Improved communication and a sense of participation provide employees with psychological gratifications and stimulates them to work hard.

Executive Development: The MBO strategy stresses long-term perspectives and self-development. These methods encourage growth by stretching the capabilities of higher-level managers and executives.

Organizational change and Development: MBO helps to identify shortcomings in a company’s structure and processes. In this way, managing by objectives can improve the organization’s ability to cope with a changing environment.

Bernhard S