MBO – Management by Objectives was popularized mainly through the writings of Peter Drucker.
Some Managers find organizational objectives such an important and fundamental part of management that they use a management approach based exclusively on them.
Although mostly discussed in the context of profit oriented companies, MBO is also a valuable management tool for non profit organizations.
MBO Strategy has 3 basic parts:
- All individuals within an organization are assigned a specialized set of objectives that they try to reach during a normal operating period. These objectives are mutually set and agreed upon by individuals and their managers.
- Performance reviews are conducted periodically to determine how close individuals are to attaining their objectives.
- Rewards are given to individuals on the basis of how close they come to reaching their goals.
The MBO process consists of 5 steps:
- Review Organizational Objectives: The manager gains a clear understanding of the organization’s overall objectives.
- Set Worker Objectives: The manager and worker meet to agree on worker objectives to be reached by the end of the normal operating period.
- Monitor Progress: At intervals during the normal operating period, the manager and worker check to see if the objectives are being reached.
- Evaluate Performance: At the end of the normal operating period, the worker’s performance is judged by the extent to which the worker reached the objectives.
- Give Rewards: Rewards given to the worker are based on the extent to which the objectives were reached.
CRITICAL SUCCESS FACTORS:
- Top Management must be committed to the MBO process and set appropriate objectives for the organization.
- Managers and subordinates together must develop and agree on each individuals goals.
- Employee performance should be conscientiously evaluated against established objective.
- Management must follow through on employee performance evaluations by rewarding employees accordingly.
- MBO programs continually emphasize what should be done in an organization to achieve organizational goals.
- MBO process secures employee commitment to attaining organizational goals.
- One is that the development of objectives can be time consuming, leaving both managers and employees less time in which to do their actual work.
- Increased Paper Work