management by organisation
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Management ByObjectives.
Amit S. Rajpal
Jasmeet S. Kohli
Yogesh G. Raghani
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What is MBO?
Management by objectives (MBO) is a systematic and organizedapproach that allows management to focus on achievable goals and toattain the best possible results from available resources. It aims toincrease organizational performance by aligning goals and subordinateobjectives throughout the organization. Ideally, employees get strong
input to identify their objectives, time lines for completion, etc. MBOincludes ongoing tracking and feedback in the process to reachobjectives.
Management by Objectives (MBO) was first outlined by Peter Druckerin 1954 in his book 'The Practice of Management'. In the 90s, Peter
Drucker himself decreased the significance of this organizationmanagement method, when he said: "It's just another tool. It is not thegreat cure for management inefficiency... Management by Objectivesworks if you know the objectives, 90% of the time you don't."
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THE NATURE & PURPOSE OF MBO
MBO is concerned with goal setting and planning for individual
managers and their units.
The essence of MBO is a process of joint goal setting between a
supervisor and a subordinate.
Managers work with their subordinates to establish performance goals
that are consistent with higher organizational objectives.
MBO helps clarify the hierarchy of objectives as a series of well-defined
means-ends chains.
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Essential Steps for MBO
Set Goals
The most difficult step.
Develop Action Plan For both workgroups and individuals.
Review Progress/ Take corrective action
Periodic during the year.
Appraise Overall Performance. Review Annual Goals.
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Essential Steps for MBO
Set GoalsThe most difficult step.ConcreteSpecific target and timeframeAssign responsibility
Develop Action PlanCourse of actionFor both workgroups and individuals
Review ProgressPeriodicity?
Course corrections
Appraise Overall Performance.How are we doing?Do we need to restate our goals?
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MBO Principles
Cascading of organizational goals and objectives.
Specific objectives for each member. Participative decision making.
Explicit time period.
Performance evaluation and feedback.
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Main Principle of MBO
The principle behind Management by Objectives (MBO) is to
make 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 inachieving 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.
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Setting Objectives
In Management by Objectives (MBO) systems, objectives are writtendown for each level of the organization, and individuals are givenspecific aims and targets. "The principle behind this is to ensure thatpeople know what the organization is trying to achieve, what their partof the organization must do to meet those aims, and how, as
individuals, they are expected to help. This presupposes thatorganization's programs and methods have been fully considered. If theyhave not, start by constructing team objectives and ask team members toshare 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 objectivesprecise and keep their number small. Most people disobey this rule, tryto focus on everything, and end up with no focus at all.
Contd
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Setting Objectives
For Management by Objectives (MBO) to be effective, individualmanagers must understand the specific objectives of their job and howthose objectives fit in with the overall company objectives set by theboard of directors. "A manager's job should be based on a task to be
performed in order to attain the company's objectives... the managershould be directed and controlled by the objectives of performance ratherthan by his boss."
The review mechanism enables leaders to measure the performance oftheir managers, especially in the key result areas: marketing; innovation;
human organization; financial resources; physical resources;productivity; social responsibility; and profit requirements.
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Six MBO Stages
Define corporate objectives at board level
Analyze management tasks and devise formal job specifications,
which allocate responsibilities and decisions to individual managers
Set performance standards
Agree and set specific objectives
Align individual targets with corporate objectives
Establish a management information system to monitor achievements
against objectives
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MBO Strategy : Three Basic Parts
All individuals within an organization are assigned a special set ofobjectives that they try to reach during a normal operating period.
These objectives are mutually set and agreed upon by individuals andtheir managers.
Performance reviews are conducted periodically to determine howclose individuals are to attaining their objectives.
Rewards are given to individuals on the basis of how close they cometo reaching their goals.
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MAKING MBO PROCESS EFFECTIVE
If MBO is to be successful,it must start at the top ofthe organization
Employees must be educated about what MBO is and whattheir role in it will be.
Managers must implement MBO in a way that is consistentwith overall organizational goals.
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THE EFFECTIVENESS OF MBO
- STRENGTHS Organizations create a powerful motivational system for their
employees by adopting MBO.
Through the process of discussion and collaboration, communication is
greatly enhanced.
With MBO performance appraisal may be done more objectively.
MBO helps identify superior managerial talent for future promotion.
Contd
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THE EFFECTIVENESS OF MBO
- STRENGTHS MBO provides a systematic management philosophy.
MBO facilitates control through the periodic development and
subsequent evaluation of individual goals and plans.
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THE EFFECTIVENESS OF MBO
- WEAKNESSES
The major reason for MBO failure islack of top managementsupport .
goals and plans cascading throughout the organization may not be those
of top management.
Some firms mayoveremphasize quantitative goals.
Some managers will not or cannot sit down and work out goals with
their subordinates
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Advantages Of MBO.
MBO programs continually emphasize what should be donein an organization to achieve organizational goals.
MBO process secures employee commitment to attainingorganizational goals.
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Disadvantages Of MBO.
The development of objectives can be time consuming, leavingboth 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 anorganization.
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