MBO – Management by Objectives Monday, Dec 8 2008 

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:

  1. 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.                                                 
  2. Performance reviews are conducted periodically to determine how close individuals are to attaining their objectives.                    
  3. Rewards are given to individuals on the basis of how close they come to reaching their goals.  

The MBO  process consists of 5 steps:

  1. Review Organizational Objectives: The manager gains a clear understanding of the organization’s overall objectives.                     
  2. Set Worker Objectives: The manager and worker meet to agree on worker objectives to be reached by the end of the normal operating period.                                                                                               
  3.  Monitor Progress:  At intervals during the normal operating period, the manager and worker check to see if the objectives are being reached.                                                                                             
  4. 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.                                               
  5. Give Rewards: Rewards given to the worker are based on the extent to which the objectives were reached.

CRITICAL SUCCESS FACTORS:

  1. Top Management must be committed to the MBO process and set appropriate objectives for the organization.
  2. Managers and subordinates together must develop and agree on each individuals goals.
  3. Employee performance should be conscientiously evaluated against established objective.
  4. Management must follow through on employee performance evaluations by rewarding employees accordingly.

ADVANTAGES:

  1. MBO programs continually emphasize what should be done in an organization to achieve organizational goals.
  2. MBO process secures employee commitment to attaining organizational goals.

DISADVANTAGES:

  1. 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.
  2. Increased Paper Work
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PETER DRUCKER on Setting Management Objectives Tuesday, Jun 10 2008 

Peter Drucker believed that the survival of the company was at risk when managers emphasized only the profit objective because this single objective emphasis encourage managers to take action that will make money today with little regard for how a profit will be made tomorrow.  

8 key areas in which managers should set management system objectives are:
  1. MARKET STANDING: Management should set objectives indicating where it would like to be in relation to its competitors.                                                                                                         
  2. INNOVATION: Management should set objectives outlining its commitment to the development of new methods of operation.                                                                                             
  3. PRODUCTIVITY: Management should set objectives outlining the target levels of production.                                                                                                                                                     
  4. PHYSICAL & FINANCIAL RESOURCES: Management should set objectives regarding the use, acquisition, and maintenance of capital and monetary resources.                                              
  5. PROFITABILITY: Management should set objectives that specify the profit the company would like to generate.                                                                                                                               
  6. MANAGERIAL PERFORMANCE & DEVELOPMENT: Management should set objectives that specify rates of worker productivity as well as desirable attitudes for workers to possess.                                                                                                                                                  
  7. WORKER PERFORMANCE & ATTITUDE: Management should set objectives that specify rates of worker productivity as well as desirable attitudes for workers to possess.                                        
  8. PUBLIC RESPONSIBILITY: Management should set objectives that indicate the company’s responsibilities to its customers and society and the extent to which the company intends to live up to those responsibilities.