AN

ASSIGNMENT
ON
MANAGEMENT CONCEPTS

“MANAGEMENT BY OBJECTIVES (MBO)”

Submitted to:
Prof.
 MANAGEMENT BY OBJECTIVES (MBO)

DEFINITION:
Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in his book 'The
Practice of Management'. In the 90s, Peter Drucker himself decreased the significance of this
organization management method, when he said: "It's just another tool. It is not the great cure for
management inefficiency... Management by Objectives works if you know the  objectives, 90%
of the time you don't."

"MBO is one of the rational school of management's successful products."

– The Economist

Management by objectives (MBO) is a systematic and organized approach that allows

management to focus on achievable goals and to attain the best possible results from available
resources.

It aims to increase organizational performance by aligning goals and subordinate objectives

throughout the organization. Ideally, employees get strong input to identify their objectives, time
lines for completion, etc. MBO includes ongoing tracking and feedback in the process to reach
objectives.

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 implementability of

the plan, and

 implement a range of performance systems, designed to help the organization stay on the
right track.
MAIN PRINCIPLE:

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. 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.

S.M.A.R.T.

The S.M.A.R.T. method is one way to help you remember how to walk through the process of
setting your first MBO objectives.

 S for Specific: There are several key factors which should be present in the objectives
that are set in order for them to be effective. They should be specific. In other words, they
should describe specifically the result that is desired. Instead of "better customer service
score," the objective should be "improve the customer service score by 12 points using
the customer service survey."

 M for Measurable: The second example is much more specific and also addresses the
second factor—measurable. In order to be able to use the objectives as a part of a review
process it should be very clear whether the person met the objective or not.

 A for Achievable: The next important factor to setting objectives is that they be
achievable. For instance, an objective which states "100 percent customer satisfaction"
isn't realistically achievable. It's not possible to expect that everyone must be 100 percent
satisfied with their service. A goal of "12 percent  improvement in customer satisfaction"
is better—but may still not be achievable if it's assigned to the database developer. They
aren't likely to have enough influence over the customer interaction process to improve
satisfaction by 12 percent.

 R for Realistic: This leads into the next factor—realistic. Realistic objectives are
objectives that recognize factors which can not be controlled. Said another way, realistic
goals are potentially challenging but not so challenging that the chance of success is
small. They can be accomplished with the tools that the person has at their disposal.

 T for Time-based: The final factor for a good objective is that it is time-based. In other
words, it's not simply, "improve customer service by 12 percent," it's "improve customer
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K service by 12 percent within the next 12 months." This is the final anchor in making the
objective real and tangible. This final factor is often implied in MBO setting. The implied
date is the date of the next review, when the employee will be held accountable for the
commitments that they've made through their objectives.

STEPS OF MBO:
WHERE TO USE MBO:

The MBO style is appropriate for knowledge-based enterpriseswhen your staff is competent. It is

appropriate in situations where you wish to build employees' management and self-
leadershipskills and tap their creativity, tacit knowledge and initiative.

BENEFITS OF MBO:

Better managing - MBO forces managers to think about planning for results, rather than merely
planning activities or work. Managers are required to ensure that the targets are realistic and
needed resources are made available to subordinates to achieve the targets. Clearly set objectives
for the subordinates serve as evaluation standards as well as motivators for them.

Better organizing - The positions in the enterprise can be built around the key result
areas. Managers are required to clarify organizational roles and structures. Hence better
organizing.

Greater employee involvement & commitment. If MBO program is installed in an organization,

people are not just doing work, following instructions and waiting for guidance and decisions
form above and things are not dictated by the superiors. They are now individuals with clearly
defined goals which have been formalized through their own participation in the process.
Orderly growth of organization - MOB provides for the maintenance and orderly growth
of organization by means of predetermined set of objectives for everyone involved. It also
provides for measurement of what is actually achieved. The progress and even the tenure
of management by objectives emphasizes the ability, skill and achievement of managers rather
than their personality.

Development of effective controls - MBO not only sharpens the planning, but also develops
effective controls. It specifically provides for periodic reviews and annual performance
appraisals serving as the needed feedback for further streamlining the objectives or targets. It
makes possible for a manager to control his own performance, high deg4ree of self control
resulting in stronger motivation.

Generating of an ideal atmosphere - Doughlas mcGregor says, the motivation, the potential for
development, the capacity for assuming responsibility, the readiness to Direct behavior
toward organization goals are all present in people. Management does not put them there. The
essential task of management is to arrange organizational conditions and methods of operation.
Motivation – Involving employees in the whole process of goal setting and 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 solve many problems faced during the period.
Clarity of goals – With MBO, came the concept of SMART goals i.e. goals that are:
1. Specific
2. Measurable
3. Achievable
4. Relevant, and
5. Time bound.

LIMITATIONS:
There are several limitations to the assumptive base underlying the impact of managing by
objectives, including:
1. It over-emphasizes the setting of goals over the working of a plan as a driver of outcomes.
2. It underemphasizes the importance of the environment or context in which the goals are set.
That context includes everything from the availability and quality of resources, to relative buy-in
by leadership and stake-holders.
3. Companies evaluated their employees by comparing them with the "ideal" employee. Trait
appraisal only looks at what employees should be, not at what they should do.
4. It did not address the importance of successfully responding to obstacles and constraints as
essential to reaching a goal. The model didn’t adequately cope with the obstacles of:
 Defects in resources, planning and methodology,
 The increasing burden of managing the information organization challenge,
 The impact of a rapidly changing environment, which could alter the landscape enough to
make yesterday’s goals and actions irrelevant to the present.
When this approach is not properly set, agreed and managed by organizations, in self-centered
thinking employees, it may trigger an unethical behavior of distorting the system of results and
financial figures to falsely achieve targets that were set in a short-term, narrow, bottom-line
fashion.

CONCLUSION:
The use of MBO needs to be carefully aligned with the culture of the organization. While MBO
is not as fashionable as it was before the 'empowerment' fad, it still has its place in management
today. The key difference is that rather than 'set' objectives from a cascade process, objectives
are discussed and agreed, based upon a more strategic picture being available to employees.
Engagement of employees in the objective setting process is seen as a strategic advantage by
many.