Management by Objectives

Dr. Gnanasekar Thirugnanam

Assistant Professor
Department of Hospital Administration
 Definition

Management By Objectives (MBO) can be defined

as a process whereby the employees and the superiors
come together to identify common goals, the
employees set their goals to be achieved, the standards
to be taken as the criteria for measurement of their
performance and contribution and deciding the course
of action to be followed.
• Management by Objectives (MBO) is a process of agreeing
upon objectives within an organization so
that management and employees agree to the objectives and
understand what they are in the organization.
• The term "management by objectives" was first
popularized by Peter Drucker in his 1954 book 'The
Practice of Management'
 Main Concept

• 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 in
achieving 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.
 Management by Objectives Principles

• Cascading of organizational vision, goals and objectives

• Specific objectives for each member
• Participative decision making
• Explicit time period
• Performance evaluation and feedback
 MBO Strategy: Three Basic Parts

• All individuals within an organization are assigned a special 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

Define
Organization
al Goals

Define
Performance
Employee
Appraisals
Objectives

Continuous
Monitoring
Providing
Of Employee
Feedback
Performance
And Progress

Performance
Evaluation/R
eviews
Features and Advantages of MBO

• Motivation – Involving employees in the whole process of goal

setting. Increasing employee empowerment increases employee
job satisfaction and commitment.
• Better communication and Coordination – Frequent reviews
and interactions between superiors and subordinates helps to
maintain harmonious relationships within the enterprise and
also solves many problems faced during the period.
• The Smart Method
 Where to Use MBO

• The MBO style is appropriate for knowledge-based enterprises

when your staff is competent. It is appropriate in situations
where you wish to build employees' management and self-
leadership skills and tap their creativity and initiative.

• Management by Objectives (MBO) is also used by chief

executives of multinational corporations (MNCs) for their
country managers abroad.
 The Smart Method

Clarity of goals – With MBO, came the

concept of SMART goals i.e. goals that are:
• Specific
• Measurable
• Achievable
• Relevant, and
• Time bound.
 The Smart Method

• The goals thus set are clear, motivating and there is a linkage
between organizational goals and performance targets of the
employees.
• The focus is on future rather than on past. Goals and standards
are set for the performance for the future with periodic reviews
and feedback.
 Core Concepts

According to Drucker managers should "avoid the activity

trap", getting so involved in their day to day activities that they
forget their main purpose or objective. Instead of just a few top
managers, all managers should:
• Participate in the strategic planning process, in order to
improve the implement ability of the plan, and
• Implement a range of performance systems, designed to help
the organization stay on the right track.
 Managerial Focus

• MBO managers focus on the result, not the activity.

• They delegate tasks by "negotiating a contract of goals" with
their subordinates without dictating a detailed roadmap for
implementation.
• Management by Objectives (MBO) is about setting yourself
objectives and then breaking these down into more specific
goals or key results.
MBO in Action at Intel

A Manager's Guide at Intel provides the following directions.

• Start with a few well-chosen overriding objectives.
• Set your subordinates objectives that fit in with your overriding
objectives.
• Allow your subordinates to set their own key results to enable
them to meet their objectives.
 MBO in Action at Intel

• In Management by Objectives systems at Intel, objectives are

written down for each level of the organization, and individuals
are given specific aims and targets.
• The principle behind this is to ensure that people know what
the organization is trying to achieve, what their part of the
organization must do to meet those aims, and how, as
individuals, they are expected to help
Balance Between Management and Employee
Empowerment
• The balance between management and employee empowerment has to be struck,
not by thinkers, but by practicing managers. Turning their aims into successful
actions, forces managers to master five basic operations:
• setting objectives
• organizing the group
• motivating and communicating
• measuring performance and
• developing people
Individual Responsibility
• Management by Objectives (MBO) creates a link between top
manager's strategic thinking and the strategy's implementation lower down.
• Responsibility for objectives is passed from the organization to its individual
members.
• It is especially important for knowledge-based organizations where all
members have to be able to control their own work by feeding back from
their results to their objectives.
 Individual Responsibility

Management by objectives is achieved through self-control, the tool of

effectiveness. Today the worker is a self-manager, whose decisions are of
decisive importance for results.
In such an organization, management has to ask each employee three
questions:
• What should we hold you accountable for?
• What information do you need?
• What information do you owe the rest of us?
MBO at Microsoft By Bill Gates

• Eliminate politics, by giving everybody the same message.

• Keep a flat organization in which all issues are discussed openly.
• Insist on clear and direct communication.
• Prevent competing missions or objectives
• Eliminate rivalry between different parts of the organization
• Empower teams to do their own things
MBO: Key Advantages and
Disadvantages
Advantages
• MBO programs continually emphasize what should be done in an
organization to achieve organizational goals.
• MBO process secures employee commitment to attaining
organizational goals.
Disadvantages
• The development of objectives can be time consuming, leaving
both managers and employees less time in which to do their
actual work.