MANAGING BY OBJECTIVES (MBO)
Meaning of MBO
It was Peter F. Drucker who first one who gave the concept of MBO to the world way back in 1954 when his ‘The Practice of Management’ was first published. The MBO concept, as conceived by Drucker, reflects a management philosophy which values and utilised employee contributions. Application of MBO in the area of performance appraisal is recent thinking.
Management by Objectives (MBO) is a process of defining purposes within an organization so that management and employees agree to the objectives and understand what they are in the organisation.
MBO aims to increase organisational performance by aligning objectives and subordinate goals throughout the organisation. Ideally, employees get strong input to determine their objectives, timelines for completion, etc. MBO includes ongoing tracking and feedback in the process to reach goals.
Definition of MBO
According to Prof. Reddin, “MBO is the establishment of effectiveness areas and effectiveness standards for managerial positions and the periodic conversions of these into measurable time-bound objectives linked vertically and horizontally and with future planning”.
MBO may be defined as a result-centred, non-specialist operational managerial process for the effective utilisation of material, physical and human resources of the organisation, by integrating the individuals with the organisation and the organisation with the environment.
Features of MBO
1) An attempt is made by the management to integrate the goals of an organisation and people. This will lead to effective management.
2) MBO tries to combine the long-range goals of the organisation with short-range goals.
3) Management tries to relate the organisation’s goals with society’s goals.
4) MBO’s focus is not only on goals but also on effective performance.
5) It pays constant attention to refining, modifying and improving the goals and changing the approaches to achieve the objectives on the basis of experience.
6) It increases the organisational capability of achieving objectives at all levels.
7) A high degree of satisfaction and motivation is available to employees through MBO.
8) Recognises the participation of employees in goal setting process.
9) Aims at replacing the exercise of authority with consultations.
10) Encourages a climate of trust, goodwill and a will to perform.
Process of MBO
1) Set Organisational Goal: The first step is to establish the goals each subordinate is to achieve. In some organisations superiors and subordinates work together to establish objectives. In other, superiors establish goals for subordinates. The goal generally refers to the desired outcome to be achieved. These goals can then be used to evaluate the performance of employees.
2) Joint Goal Setting: Joint goal setting, i.e., the establishment of short-term performance targets between the senior and the subordinate in a conference between them. The manager must clarify in his own mind the responsibilities of their subordinates. Organisational charts & Job Descriptions may be used. The manager may ask each subordinate to pen down his personal goals, while in turn, the manager writes out the goals he thinks subordinates should have. The manager and subordinate then discuss them together, reach an agreement about them, and put them in writing.
3) Performance Review: This involves the performance standard for the subordinates in the previously arranged time period. As subordinates perform, they know fairly well what is to be done, what has been done, and what remains to be done.
4) Set Check Posts: In this, the actual level of goal achievement is compared with the goals agreed upon. The evaluator explores the reasons for the goals that were not met and the goals that were exceeded. This step helps determines possible training needs. It also alerts the superior to conditions in the institution that may affect a subordinate but over which the subordinate has no control.
5) Feedback: The employees who receive frequent feedback concerning their performance are more highly motivated than those who do not feedback that is specific, relevant, and timely feedback helps satisfy the need most people feel about understanding where they stand.
Guidelines for Effective MBO
The following guidelines can help to make MBO effective:
1) Top Management Support: The active participation of top management is necessary for MBO implementation. If the top managers use the objective as an instrument for managing, this practice will also be followed in the organisation.
2) Education about MBO: The organisational members must be adequately educated about the philosophy of MBO. MBO can produce the anticipated results only when its purpose is precisely defined and the techniques chosen are appropriate to the purpose.
3) Active Participation in Goal Setting: There should be face-to-face communication between the superior and subordinate in setting the goals, discussing the subordinate’s problems and re-setting the goals, and reviewing his performance. Thus, there must be adequate and effective two-way communication in the organisation.
4) Decentralisation of Authority: The subordinates who have accepted the challenging assignments through discussion with the superior must be given adequate authority to accomplish their goals. MBO will not work if the manager is not willing to delegate sufficient authority to the subordinates as the subordinates not be willing to accept new assignments without commensurate authority and may even resist the setting of clearly defined objectives.
5) Orientation of Executives: The philosophy of MBO is to be implemented by the leaders. They must be adequately oriented about the importance of MBO. They should be imparted adequate training for the effective implementation of management of objectives.
6) Integration of MBO Programme: MBO should not be implemented as an isolated programme. It must be integrated with all the organisation programmes including human resource planning, human resource development, product planning and development, production control, financial planning, etc.