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2. What Is an MBO and How Do You Use It? (With Examples)

What Is an MBO and How Do You Use It? (With Examples)

Indeed Editorial Team

Updated November 27, 2022

Companies can embrace many management techniques to improve the overall efficacy of their internal
leadership and employee performance. Different strategic management models provide different
results, and the MBO, or management by objectives, method is an effective option for many
organizations. Understanding what management by objectives is and how it works can help companies
learn to use this effective strategic management technique.In this article, we explain what the MBO is,
explore the main benefits of using this technique, explain how to create your own management-by-
objectives program at work, and give focused examples for reference.

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What is management by objectives?

Management by objectives is a strategic management technique that uses the top company goals to
determine employee objectives. This technique allows everyone in the company to see what they have
accomplished pertaining to the top goals and priorities of the company while they perform tasks. By
aligning everyday activities with the company's primary goals, managers and employees can become
more cohesive and everyone in the company can better understand their individual contributions to
those goals. Since the employees' contributions ultimately drive the success of primary goals, this is an
important management technique for achieving long- or short-term company objectives.Related: What
Are Stretch Goals? (With Benefits, Tips, and Examples)

Benefits of MBOs

Embracing the management by objectives management strategy can offer benefits to companies of any
size. Here are some common benefits you may experience:

 Improved employee performance: MBO can greatly improve employee performance in the
workplace by helping individual employees better understand how their everyday actions
contribute to the company's primary goals. This may help inspire more pride in individual work
and encourage everyone to give their best effort.
  More acute sense of identity: MBO can give employees a greater sense of identity within the
larger frame of the company or industry. Everyone can better understand their role and the
difference it makes, which may help to improve employee morale, which can have its own
benefits.

 Greater employee career growth: Under the management by objectives strategy, employees
can have more room to grow within the company because management may have a more acute
interest in improving and enriching the skills of employees and providing training opportunities
to improve performance.

 More strategic goals: A company with a management-by-objectives strategy can have more
strategic and clearly defined goals. The company's managers might also understand more about
what's realistic for the company and its workforce, allowing them to adjust goals as necessary to
maximize success.

 Greater company growth: The company itself may also grow more under a management-by-
objectives strategy, as the strategy prioritizes primary company goals, which typically include
things like revenue growth, market expansion, or increased product distribution.

 More sustainable workforce: With a focused workforce that understands its role in the
business, companies can potentially create more sustainability in their employee groups and
reduce turnover rates. Employees may feel a larger sense of belonging and pride in their work,
encouraging them to continue working for the business.

Related: Complete Guide to Objectives for Managers (With Examples)

How to create your own management-by-objectives strategy

You can follow these steps to create an effective management-by-objectives strategy:

1. Define your primary organizational goals

To help align your workforce with the company's goals, it's important to first define what those primary
objectives are. When the company's leaders understand their objectives, it can be much easier to
explain them to the rest of the workforce. You can determine primary goals by noting what the company
has already accomplished, where it can improve, and where you see the company in the next few years.
You may want to expand or reduce operations to manage costs, improve the company culture, attract
more talent, or increase your customer base.

2. Create employee objectives

Once you create your primary company goals, develop objectives or steps to achieve them. Try
separating your goals into smaller objectives to create a timeline that you can follow. If you're working
with a team, communicate the steps to them to ensure you can all work toward the same objectives.
Assign each employee individual objectives that help contribute to the larger vision. For example, if the
company has a goal to expand operations, you might assign a higher quota to the sales team to drive
revenue higher so you can afford the expansion efforts.Related: 7 Types of Project Objectives (Plus Tips
and Examples)

3. Continuously monitor performance and progress

The MBO can create more effective management, but it can also be important for monitoring the
progress and performance of employees. Consider creating tracking sheets for progress and
performance for each employee, and host regular meetings for your team to discuss obstacles and
celebrate achievements. It's important to facilitate open, honest communication between everyone in
the company so you can identify and overcome challenges more easily and quickly. Tracking progress
also allows the management team to work with employees on improving specific areas that contribute
to the company's overall success.

4. Provide and receive feedback

One of the most important parts of the management by objectives strategy is continuous feedback on
performance and goals. Once you complete an objective or step, meet with your team to discuss how
you achieved that goal and how to continue making progress. Offer additional feedback or praise for
your team to maintain motivation and productivity. Embrace the team's feedback if you're in a
management position, as it can provide valuable insight into how you can improve your own skills to
better lead the team to long-term success.

5. Appraise employee and company performance upon reaching goals

When you reach the company's primary objectives, it's important to appraise each team member's
performance and the overall performance of the company. This final review process allows the
management team to more closely scrutinize the processes, behaviours, and individual contributions
that made each goal possible. Appraisals can also help the company identify particularly dedicated
employees to recommend for further training or even promotion. This process also allows you to review
the entire management by objectives strategy you used and create adjustments for the next set of
objectives.Related: What Are Performance Objectives and Why Are They Important?

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Examples of MBOs

Here are three examples of MBOs that you might experience in the workplace:

Human resources

This example focuses on a management-by-objectives strategy for a company's human resources

department:The company's human resources department determines a need to improve the overall
culture and support network of the business for its employees. The HR director organizes several
meetings with the company's departments to determine what they think can change to improve the
company culture. Then, the department meets with the company's leaders and provides a list of
objectives for the company, which the CEO approves. These objectives include increasing employee
resources, expanding the HR department, and focusing more on developing its leaders' interpersonal
skills. The department monitors progress over a two-year timeline to achieve these
goals.Related: SMART Goals: Objectives for Your Career

Marketing
This example focuses on a marketing department for a business that wants to increase its social media
following:Razor Services, Co. wants to increase its overall social media following across five platforms by
a combined 75,000 people by Q4 of 2022. To do so, the marketing department creates an action plan,
which includes more strategic management of company content, more relationships with influencers on
each platform, and investing more into the style and frequency of targeted ads. The department meets
with each member of the marketing department to learn how they might achieve these goals and assign
individual goals. Upon completion of this goal, the marketing department asks each participant to
complete a feedback survey.

Sales

The sales department might set a goal to achieve 30 new bookings per month. Sales might decide they
can achieve this by distributing flyers. Upon talking to employees, they determine they have a better
chance of achieving and even exceeding their goal if they offer pens with the flyers. With feedback, they
discover that the flyer-pen combination has landed the business 70 new bookings per month. Since they
have exceeded their goal, sales can focus on a new goal.