Management by Objectives (MBO), also known as Management by Planning (MBP), was first popularized by Peter Drucker in The Practice Book Management (The Practice of Management) in 1954.
Management by Objectives (MBO) is the process of identifying specific goals within an organization that management can communicate to members of the organization, and then deciding how to achieve each goal accordingly. sequence. This process allows Managers to take the work that needs to be done step by step to create a quiet yet productive work environment. In this management system, individual goals are synchronized with organizational goals.
An important part of Management by Objectives (MBO) is measuring and comparing actual employee performance with established standards. Ideally, when employees are involved in setting goals and choosing a course of action, they are more likely to fulfill their responsibilities.
1. General overview of management by objectives (MBO)
According to George Stanley Odiorne, 1920 – 1992, American academic and management theorist, one of the developers of Management by Objectives (MBO) theory: The management by objectives system can be described as described as a process by which superiors and subordinates jointly define common goals, identify each individual’s key areas of responsibility for their expected results, and use these measures as a guide to Operate the unit and evaluate the contribution of each member. MBO refers to the process of setting goals for employees so they know what they are expected to do at work. Management by Objectives (MBO) defines roles and responsibilities for employees and helps them chart their future course of action within the organization.
Peter Drucker first used the term “Management by Objectives” in his 1954 book: The Practice of Management. Although the basic ideas of Management by Objectives (MBO) were not Drucker’s original ideas, they drew from other management practices to create a complete ‘system’. This idea draws on many of the ideas presented in Mary Parker Follett’s 1926 essay, The Giving of Order.
After the term and idea were introduced, Drucker’s student George Odiorne continued to develop the idea in his book Management Decisions by Objectives, published in the mid-1990s. 1960. Management by Objectives (MBO) was popularized by companies, such as Hewlett-Packard Computer Company (HP), which claimed Management by Objectives (MBO) led to success. their.
2. Concepts and scope of management by objectives
At its core, Management by Objectives (MBO) is the process by which employers/supervisors attempt to manage their subordinates by setting a specific set of goals that both the employee and the company agree on. strive to achieve in the near future and work to meet those goals accordingly.
Five (05) steps of Management by Objectives (MBO):
(i) Review organizational goals: The organization’s leadership needs to set specific goals related to vision, mission, long-term and short-term business strategies. After determining the general goal, the organization needs to break down goals for each individual and department. Whether or not the overall goals of the business are achieved depends on each employee in the company. Therefore, company leaders need detailed control and corporate management skills for timely coordination.
(ii) Set worker objective: Action plan is simply the steps taken to achieve the goal. Each individual and department needs to have a clear plan and goal development process. At the same time, strictly comply and implement the set goals.
(iii) Monitor progress: Controlling the operating process is a way to help individuals and organizations grasp the status of goal implementation. From there, there are reasonable adjustments and changes when necessary.
(iv) Evaluation: After completing the work process. Each individual and organization needs to compare results with the initial goals set. If the results are far from the set goals, the organization needs to review its working process to learn lessons and experiences for the next time.
(v) Give rewards: For individuals and departments that complete the set goals, the organization should have recognition to motivate the development of all employees in the organization.
Companies that use Management by Objectives (MBO) often report higher sales and productivity rates within the organization. Targets can be set in all areas of operations, such as manufacturing, marketing, service, sales, research and development (R&D), human resources, finance, and systems information. Some goals are collective, and some may be goals for individual employees. Both make the task at hand seem achievable and allow workers to visualize what needs to be done and how.
3. Applying management by objectives (MBO) in practice
There are countless ways to implement Management by Objectives (MBO). People must find specific goals to aim for in an organization or business. Many notable companies have used MBO. The management of Hewlett-Packard Computer Company (HP) has said that it considers this policy a key component of its success. Many other corporations praise the effectiveness of MBO, including Xerox, DuPont, Intel, and countless others. Companies that use MBO often report higher sales and productivity rates within the organization. Goals can be set in all areas of operations, such as manufacturing, marketing, service, sales, R&D, human resources, finance, and information systems. Some goals are collective, and some may be goals for individual employees. Both make the task at hand seem achievable and allow workers to visualize what needs to be done and how.
In the MBO model, managers determine the mission and strategic goals of the business. Goals are set by senior managers based on an analysis of what the organization can and should accomplish within a specific period of time. The functions of these managers can be centralized by appointing a project manager who can monitor and control the activities of different departments. If this is not possible or desirable, then each manager’s contribution to the organization’s goals should be clearly stated.
In many large Japanese corporations, starting in the late 1990s, Management by Objectives (MBO) was used as the basis of a “Performance-Based Reward System” (Seika-Shugi), using clear numerical targets to measure performance as opposed to the previous non-specific system.
Goals need to be quantified and monitored. A reliable management information system is needed to set relevant goals and track their “hit rates” objectively. Bonuses (bonuses) are often tied to the achievement of goals.
The SMART mnemonic associated with the goal setting process in this model is:
(i) Specific: Target a specific area for improvement,
(ii) Measurable: Quantify or propose an indicator of progress,
(iii) Assignable: Specify who will do it,
(iv) Realistic: Clearly state the results that can be achieved realistically, with available resources,
(v) Time-bound: Specify when the result(s) can be achieved.
The aphorism: “What gets measured gets done” is consistent with the MBO philosophy.
4. Limitations of management by objectives (MBO)
Many people criticize MBO, notable among them is William Edwards Deming, 1900 – 1993, Professor, Inventor, and American management consultant, considered the father of Quality Management Theory (Theories of Management). William Edwards Deming argued that a lack of understanding of systems often leads to misapplication of goals. Additionally, Deming claimed that setting production goals encourages workers to achieve those goals by any means necessary, which often leads to poor quality.
Point 7 of Deming’s key principles encouraged managers to abandon goals in favor of leadership, as he felt that a leader who understood systems was more likely to guide workers to A more appropriate solution is targeted incentives. Deming also points out that Drucker warned managers that a systems perspective was needed and feels that Drucker’s warning has gone largely unheeded by MBO practitioners.
There are limitations to the underlying assumptions about the impact of Management by Objectives (MBO):
(i) It overemphasizes setting goals rather than implementing a plan as a driver of results.
(ii) It emphasizes the importance of the environment or context in which goals are set.
That context includes everything from the availability and quality of resources, to the relative support of leadership and stakeholders. As an example of the influence of acquisition management as a contextual influencer, in a comprehensive review of 30 years of research on the impact of Management by Objectives (MBO) in 1991, Robert Rodgers and John Hunter concluded that companies whose CEOs demonstrated a high commitment to MBO showed, on average, a 56% increase in productivity. Companies whose CEOs demonstrated low commitment experienced only a 6% increase in productivity.
When this approach is not properly established, consistent and managed by organizations, self-centered employees can easily distort results, misrepresenting achievement of stated goals. set in a narrow, short-term manner. In this case, Management by Objectives (MBO) will be counterproductive.
The limitations mentioned above, combined with the challenges faced by modern service companies, have led to the development of approaches that integrate aspects of MBO but appear to be more effective. significant in application. These include, for example, the Objectives and Key Results (OKR) method, which was developed by John Doerr (among others) and has been used successfully in many companies, especially at Google. Agile management techniques also emphasize goals. The group of goal-based management techniques, with a strong focus on cohesion, team dynamics, and leadership, can be summarized as the Management by Objectives (MBO) approach.
5. Recent research on management by objectives (MBO)
Management by Objectives (MBO) is still practiced today, focusing on planning and supporting the development of various organizations. The most recent research focuses on specific industries, specifying MBO practices for each industry.
Additionally, after criticism of the original Management by Objectives (MBO) approach, a new formula was introduced in 2016, aiming to revive it, namely OPTIMAL MBO (Optimal MBO). , stands for its components, namely: (O) Objectives, Outside-In – Objectives, Outside-in; (P) Profitability (budget) related goals; (T) Target Setting – Target Setting; (I) Incentives & Influence – Incentives & Influence; (M) Measurement – Measurement; (A) Agreement, Accountability, Appraisal, Appreciation – Agreement, Accountability, Appraisal, Appreciation; and (L) Leadership Support.
Although this method is used today, it may have different names – the letters “MBO” have lost their formality and future planning is a more standard method.
6. Some related terms
OGSM (Objectives, Goals, Strategies and Measures): is an action planning and goal setting framework used in strategic planning. It is used by organizations, departments, teams, and sometimes program managers to define and track measurable goals and actions to achieve goals. Documenting your goals, strategies, and actions all on one page provides insights that other frameworks may lack. It defines the measures that will be followed to ensure that objectives are met and helps teams work together towards common goals, across functions, geographical distances and across the organization.
The purpose of OGSM: is to provide a basis for strategic planning and execution, as well as a strong management routine that keeps planning a part of daily operations. It aligns leaders to company goals, links key strategies to financial goals, and brings visibility and accountability to the work of improving the company’s capabilities.
OKR (Objectives and Key Results, abbreviated: OKR, OKRs): is a goal-setting framework used by individuals, teams and organizations to identify measurable goals and track results of them.
The development of OKRs is often attributed to Andrew Grove, who introduced the approach to Intel in the 1970s.
OKRs include an objective (an important, specific, clearly defined goal) and 3-5 key results (measurable success criteria used to track achievement of that goal ).
Goals must not only be important, specific and clearly defined, they must also inspire the individual, team or organization working towards them. Objectives can also be supported by initiatives, which are plans and activities that help drive key results and achieve goals.
Key results must be measurable, on a scale of 0–100% or with any numerical value (e.g., quantity, dollar amount, or percentage) that planners and decision makers can be used to determine whether participants are successfully working towards key results. There should be no opportunity for “gray areas” when determining primary outcomes.
