In BusinessFebruary 3rd, 2014

Management By Objectives: A Management Driven by Goals

Posted by on February 3rd, 2014 | No Comments »

A manager has a crucial part in the organization. He is expected to achieve results that are not just for his own benefit, but also for the benefit of his team and the organization in general. Because of that, a manager needs to drive himself and his most important tool – the people, to achieve results. But before getting the results, goals that are common to all the members of the organization have to be set first.

What is Management by Objectives?

Many managers get trapped by all the activities they have to accomplish daily, in which not all are core activities that bring them to goals. Management by Objectives (MBO), also known as Management by Results (MBR), is an approach in which the organization requires the manager to define specific objectives that have to be attained within a certain period of time. It is an organized and systematic approach that aims to keep the manager focused on the journey towards the goal.

George Ordione, developer of MBO, described the approach as a process in which the manager and his subordinates meet to identify the common goals, define the responsibilities of each other and the time frame for when the goals must be met. Simply, Management by Objectives is participative goal setting.

History of MBO

MBO was first used by Peter Drucker in 1954 in his book the Practice of Management. In his book, he listed priorities that managers of the future must focus on. On top of the list, Drucker wrote “must manage by objectives”. Later on, management theoreticians George Odiorne, Douglas McGregor, and John Humble developed the approach.

The Concept and Principles of MBO

The concept of Management by Objectives follows the principle of setting objectives as a group and ensuring everyone cooperates, so each one clearly understands the expectations of the management. Furthermore, the concept of MBO features the following:

  • Superior-subordinate participation: The first step in MBO features the Superior and Subordinates participation. The key decision-makers of the organization as well as the managers must meet and participate to set up the goals and objectives of the organization.
  • Joint goal setting: In joint goal setting, the superiors and subordinates will draw out their professional goals as well as the goals of the organization. Both sides must clearly define the goals they have and must ensure that each objective is realistic, attainable and measurable. Moreover, each one’s goals must be linked to the organization’s goals.
  • Joint decisioning on Methodology:Management by objectives is different from other management concepts and strategies as it focuses on attaining rather than how these goals must be attained. The top management and subordinates will determine the implementation process, the standards and performance assessment.
  • Attaining maximum results: Because MBO focuses on objectives and simply achieving the goals, it allows the employees to use their creative thinking and decision-making skills.
  • Supportive-environment: The superiors or top management must be supportive to the employees to achieve results. They must offer guidance and advices to the employees who are working towards the goal of the whole organization. This will drive employees to become more productive, which is not only good for themselves but also to the whole organization.

Advantages of MBO

Management by Objectives, when done properly, can bring many advantages to the organization in general. These advantages are:

Improved PlanningMBO is result-oriented. It forces the managers to put their creative cap on and make explicit plans. Therefore, plans are more realistic; improving the decision-making and planning skills of the managers.

Improved Reliability: With MBO, each member of the organization is clear on what are their roles and what is expected of them. Because of that, there’s no confusion and ambiguity and each one can be relied on.

Enhanced Communication: Because MBO makes everyone in the organization involved, communication is better.

Increased Motivation and Commitment: In MBO, the goals of the employees and the organization are integrated. So, if the goals of the organization are met, personal goals of employees and managers are also met. This increases the motivation and commitment of everyone to achieve maximum results.

Better and More Accurate AppraisalsMBO bases appraisal with the performance, instead of the traits of the employees. Therefore, the appraisals are more subjective and accurate. It also lets the each one to know where they failed or lagged and where they should focus more on.

Executive Development : Because shortcomings can be easily identified in the concept of MBO, everyone will see where they fail or lag. This makes it easier for everyone to discipline themselves. It enables a high-degree of self-discipline and self-control and enhances the decentralization of authority.

Limitations of MBO

Management by Objectives have many advantages. But, this concept also have its own limitations that the management must prepare for. These are:

      • Time-consuming: Setting up goals is time-consuming. It will take considerable amount of time from the superiors and the subordinates. Also, most of the goals that management come up with are for short-term only. So, regular meetings must be held to make sure that the objectives are still updated and appropriate to the current state of the business and the industry it belongs to.
      • Stressful: MBO can be stressful to the superiors and subordinates. Because it focuses on achieving goals and results, it instills fear to the employees and causes too much pressure to them.
      • Lacks Flexibility: MBO is such a simple process, but it goes boring over time as the only focus is the goal. It forces the organization to only focus on achieving a certain goal, which leads to missing out on other opportunities.
      • Goal-setting Problems: It is difficult to set goals that are agreeable to everyone in the organization. It is easy to become successful with MBO when everyone is on the same page. But, when the goals of the organization are too high it can cause a lot of problem to the employees. Employees may start to believe that short-term goals are more necessary than the long-term goals.
      • Lack of appreciation: In MBO, everyone must be involved in goal setting. The involvement of the employees can make them feel valued and appreciated. But if the goals are not clearly passed down to the vine, it will make employees feel unappreciated. This can affect their commitment and dedication.

Creating SMART Objectives

Management by Objectives or Management by Results has its own good and bad side. To limit, if not avoid, the problems that can occur in the organization that follows this principle, the management must create SMART goals.

      • S (Specific) – The management must set specific goals. Instead of setting a goal that is “to become more productive”, the management should be more specific as to what department or who do they want to become more productive. For example, “to increase the productivity of the appointment setters”.
      • M (Measurable) – By creating measurable goals, the management becomes more specific in how much they expect from the employee. For example, “to increase the number of appointments set by the appointment setters to 5 per week instead of 3”.
      • A (Achievable) – The management must make sure that they can achieve their goals. For example, the goal is “to achieve 5 star ratings from all customers”. This is not an achievable goal, because customers do not have the same standards. Thus, not everyone will think that you are worth 5 stars. Some may have different or higher standards that the others.
      • R (Realistic) – For goals to be achievable, they should be realistic. The management must recognize the factors that they can and cannot control to create realistic goals. They should base the goals to the available resources, the capacity of their resources including the employees and the current state of the market.
      • T (Time-bound) – The management must also set goals that are time-bounded. This is the final element to create goals that are specific, measurable, achievable and realistic. For example, “to increase the number of appointments set by the appointment setters to 5 per week instead of 3 within the next 5 days”.

Management by Objectives is an effective management approach, which can motivate the employees to increase their productivity to achieve results that are for the good of every member of the organization. But the management should put much effort in training employees to improve their skills to ensure that they are equipped to do their responsibilities and motivate them to ensure that will continue to work in achieving the goals.

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