MBO, known as Management By Objectives, is a well-known concept in the field of management. No single person can be credited as the sole originator of an approach that emphasizes objectives.
Peter F. Drucker, in 1954, played a pivotal role in promoting the idea that objectives should be established in all areas where performance impacts the health of the enterprise. He introduced a philosophy that underscores self-control and self-direction. Around the same time, if not earlier, General Electric Company began incorporating elements of MBO in its efforts to decentralize managerial decision-making. The company adopted a philosophy of appraisal by identifying key result areas and conducting extensive research on performance measurement.
In 1957, in his seminal article in the Harvard Business Review, Douglas McGregor, a significant figure in behavioral sciences, criticized traditional appraisal programs that focused on personality traits as criteria for evaluating subordinates. Performance is then assessed against the current objectives, primarily by the subordinates themselves.
The active participation of subordinates in the appraisal process fosters commitment and cultivates a motivational environment. A study by the University of Maryland revealed that performance improved when individuals had specific objectives compared to when they were simply instructed to do their best.
In MBO programs that highlight performance appraisal and motivation, the emphasis tends to be on short-term objectives; however, many organizations now integrate long-term and strategic planning into their MBO programs.
Realistic comments on this topic and how to implement MBOs in organizations would include emphasizing the importance of clear and measurable objectives, fostering employee involvement in goal-setting, providing regular feedback and coaching, aligning individual goals with organizational goals, and continuously evaluating and adjusting objectives to ensure relevance and effectiveness.
From Australia, Adelaide
Acknowledge(0)
Amend(0)
10Peter F. Drucker, in 1954, played a pivotal role in promoting the idea that objectives should be established in all areas where performance impacts the health of the enterprise. He introduced a philosophy that underscores self-control and self-direction. Around the same time, if not earlier, General Electric Company began incorporating elements of MBO in its efforts to decentralize managerial decision-making. The company adopted a philosophy of appraisal by identifying key result areas and conducting extensive research on performance measurement.
In 1957, in his seminal article in the Harvard Business Review, Douglas McGregor, a significant figure in behavioral sciences, criticized traditional appraisal programs that focused on personality traits as criteria for evaluating subordinates. Performance is then assessed against the current objectives, primarily by the subordinates themselves.
The active participation of subordinates in the appraisal process fosters commitment and cultivates a motivational environment. A study by the University of Maryland revealed that performance improved when individuals had specific objectives compared to when they were simply instructed to do their best.
In MBO programs that highlight performance appraisal and motivation, the emphasis tends to be on short-term objectives; however, many organizations now integrate long-term and strategic planning into their MBO programs.
Realistic comments on this topic and how to implement MBOs in organizations would include emphasizing the importance of clear and measurable objectives, fostering employee involvement in goal-setting, providing regular feedback and coaching, aligning individual goals with organizational goals, and continuously evaluating and adjusting objectives to ensure relevance and effectiveness.
From Australia, Adelaide
Acknowledge(0)Amend(0)
Dear Liz,
Here is some information about MBO for you to review and digest. Once you have read and understood it, you can implement MBO within your organization. If you need further clarification, please feel free to come back.
What is MBO?
Management by Objectives (MBO) is a systematic and organized approach that enables management to focus on achievable goals and attain the best possible results from available resources. It aims to enhance organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees provide significant input in identifying their objectives, timelines for completion, etc. MBO involves ongoing tracking and feedback in the process of achieving objectives.
This enables managers to "avoid the activity trap," where they get so engrossed in their day-to-day activities that they lose sight of their main purpose or objective. Instead of just a few top managers, all managers:
- participate in the strategic planning process to enhance the implementability of the plan,
- implement various performance systems designed to keep the organization on the right track.
Managerial Focus
MBO managers concentrate on results rather than activities. They delegate tasks by negotiating a contract of goals with their subordinates without dictating a detailed roadmap for implementation. MBO involves setting objectives and breaking them down into more specific goals or key results.
Main Principle
The main principle behind MBO is to ensure that everyone within the organization has a clear understanding of the organization's aims or objectives, as well as awareness of their roles and responsibilities in achieving those aims. The complete MBO system aims to have managers and empowered employees actively implementing and achieving their plans, which automatically contributes to the organization's objectives.
Where to Use MBO
The MBO style is suitable for organizations where staff are competent. It is ideal in situations where you aim to develop employees' management and self-management skills and leverage their creativity, tacit knowledge, and initiative. MBO is also utilized by chief executives of multinational corporations (MNCs) for their country managers abroad.
Setting Objectives
In MBO systems, objectives are documented for each level of the organization, and individuals are provided with specific aims and targets. The principle is to ensure that individuals understand what the organization aims to achieve, what their part is in meeting those aims, and how they are expected to contribute as individuals. This presupposes thorough consideration of the organization's programs and methods. If not considered, start by constructing team objectives and involve team members in the process.
"The one thing an MBO system provides is focus." Therefore, ensure your objectives are precise and limited in number. Many people overlook this rule, attempting to focus on everything, leading to a lack of focus.
For MBO to be effective, individual managers must comprehend the specific objectives of their role and how these objectives align with the overall company objectives set by the board of directors. A manager's role should be task-oriented to achieve the company's objectives, and the manager should be guided and controlled by performance objectives rather than by their superiors.
The managers of various units or sub-units of an organization should not only know the objectives of their unit but should also actively participate in setting these objectives and take responsibility for them.
The review mechanism helps leaders evaluate the performance of their managers, particularly in key result areas such as marketing, innovation, human organization, financial resources, physical resources, productivity, social responsibility, and profit requirements.
However, recent opinions have shifted away from placing managers in a formal, rigid objective system. In today's environment where maximum flexibility is crucial, achieving objectives correctly holds more significance.
Balance between Management and Employee Empowerment
The balance between management and employee empowerment needs to be achieved by practicing managers, not just thinkers. Turning aims into successful actions requires managers to master five basic operations:
- setting objectives,
- organizing the group,
- motivating and communicating,
- measuring performance,
- developing people, including oneself.
These MBO operations are all in line with empowerment, provided the main principle of decentralization is followed: instructing people on what needs to be done while allowing them to achieve it in their way. For this principle to work effectively, individuals need personal development opportunities. Additionally, people have different needs hierarchies and, as a result, should be managed differently to perform well and reach their potential.
Empowerment acknowledges the decline of the command-and-control system but retains a sense of power and rank. A manager should view team members as a conductor views players in an orchestra, recognizing their individual skills contribute to the enterprise's success. While individuals are still subordinates, the superior increasingly relies on them to produce results in their area of responsibility where they possess the necessary knowledge. In turn, subordinates depend on their superior for direction and, most importantly, to define the organization's standards, values, performance, and results.
Managing for Results
The only place where meaningful management results can be achieved is in the external world. Managing for results expands MBO into the marketplace, focusing on how to deliver results externally, in the market and economy.
To achieve these results, develop a solid, customer-focused, entrepreneurial strategy for market leadership based on innovation and sharp focus on key opportunities.
Individual Responsibility
MBO bridges top management's strategic thinking with the strategy's implementation at lower levels. Responsibility for objectives shifts from the organization to individual members. This is particularly crucial for organizations where all members must be capable of controlling their work by providing feedback from their results to their objectives.
Management by objectives is accomplished through self-control, which is a tool for effectiveness. Today, employees are self-managers whose decisions significantly impact results.
In such an organization, management needs 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?
CORPORATE STRATEGIC PLANNING / MBO
In most companies, senior management contributes to the development of:
- corporate mission statement,
- corporate objectives,
- corporate strategy.
Normally, the senior management team or top management consists of:
- CEO or managing director,
- corporate planning manager,
- finance manager,
- marketing manager,
- manufacturing manager,
- sales manager,
- supply chain manager,
- HR manager, etc.
STEP 1:
TOP management will:
- evaluate the current (last 12 months) performance against the objectives/targets set previously, including return on investment, profitability, etc., and also the performance of various departments like marketing, sales, HR, manufacturing, etc.
STEP 2:
CEO or MD will summarize the evaluation of current performance for review by the board. Based on the review and external environmental factors, the board will make decisions on a new mission statement, new corporate objectives, and new corporate governance.
STEP 3:
TOP management will scan and assess the company's:
- external environment—political/economic/social/technology—to identify strategic factors as opportunities/threats,
- internal environment—structure/culture/resources, etc., to determine strategic factors as opportunities/threats.
TOP management will analyze the strengths/weaknesses of the organization and identify problem areas that need attention and strengths that can be leveraged.
Based on the above analyses, TOP management will generate, evaluate, and select the best strategic factors.
TOP management will review and revise (if necessary) the mission statement and corporate objectives.
TOP management will generate, evaluate strategy alternatives and objectives.
The final corporate mission statement, objectives, and strategies become the foundation for various departments to develop their departmental objectives/strategies/plans.
After developing their respective objectives/strategies/plans and budgets, departmental managers submit their information to TOP management for approval.
Upon receiving the approved package from TOP management, departmental managers develop the implementation plan.
MBO SETTING IS CASCADED DOWNWARDS
For example:
1. TOP MANAGEMENT SETS SALES OBJECTIVES.
2. THE SALES DIRECTOR SETS HIS REGIONAL SALES OBJECTIVES.
3. THE REGIONAL SALES MANAGERS SET THEIR AREA SALES OBJECTIVES.
4. THE AREA SALES MANAGERS SET THEIR TERRITORY SALES OBJECTIVES.
5. THE TERRITORY SALES MANAGERS SET THE CUSTOMER SALES OBJECTIVES.
Similarly, the Manufacturing Director, Supply Chain Director, etc., set their departments' cascading MBO objectives.
WITH THE INTRODUCTION OF THE 'BALANCED SCORECARD' SOFTWARE, YOU CAN HAVE:
- SHORT-TERM MBOs,
- LONG-TERM MBOs,
- STRATEGIC MBOs—all combined into one system in the balanced scorecard.
MBO PRINCIPLES:
- Cascading of ORGANIZATION GOALS/OBJECTIVES.
- Specific objectives for each member.
- Participative decision-making.
- Explicit time period.
- PERFORMANCE EVALUATION AND FEEDBACK.
2 QUESTIONS YOU NEED TO ANSWER TO GET THE WHOLE PROCESS ROLLING:
- Where do I want to go? (What is the objective?)
- How will I pace myself to see if I am getting there? (What are my milestones or key results?)
TYPES OF OBJECTIVES:
- Routine objectives.
- INNOVATION objectives.
- IMPROVEMENT objectives.
The objectives must be:
- FOCUSED ON RESULTS.
- CONSISTENT.
- SPECIFIC.
- MEASURABLE.
- RELATED TO TIME.
- ATTAINABLE.
MBO STRATEGY 3 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 based on how close they come to reaching their goals.
6 MBO STAGES:
- Define CORPORATE OBJECTIVES at the board level.
- Analyze management tasks and devise formal job specifications that allocate responsibilities and decisions to individual managers.
- Set performance standards.
- Agree and set specific objectives.
- Align individual targets with corporate objectives.
- Establish a management information system to monitor achievements against objectives.
KEY RESULT AREAS WHERE
From India, Mumbai
Acknowledge(0)Amend(0)
Here is some information about MBO for you to review and digest. Once you have read and understood it, you can implement MBO within your organization. If you need further clarification, please feel free to come back.
What is MBO?
Management by Objectives (MBO) is a systematic and organized approach that enables management to focus on achievable goals and attain the best possible results from available resources. It aims to enhance organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees provide significant input in identifying their objectives, timelines for completion, etc. MBO involves ongoing tracking and feedback in the process of achieving objectives.
This enables managers to "avoid the activity trap," where they get so engrossed in their day-to-day activities that they lose sight of their main purpose or objective. Instead of just a few top managers, all managers:
- participate in the strategic planning process to enhance the implementability of the plan,
- implement various performance systems designed to keep the organization on the right track.
Managerial Focus
MBO managers concentrate on results rather than activities. They delegate tasks by negotiating a contract of goals with their subordinates without dictating a detailed roadmap for implementation. MBO involves setting objectives and breaking them down into more specific goals or key results.
Main Principle
The main principle behind MBO is to ensure that everyone within the organization has a clear understanding of the organization's aims or objectives, as well as awareness of their roles and responsibilities in achieving those aims. The complete MBO system aims to have managers and empowered employees actively implementing and achieving their plans, which automatically contributes to the organization's objectives.
Where to Use MBO
The MBO style is suitable for organizations where staff are competent. It is ideal in situations where you aim to develop employees' management and self-management skills and leverage their creativity, tacit knowledge, and initiative. MBO is also utilized by chief executives of multinational corporations (MNCs) for their country managers abroad.
Setting Objectives
In MBO systems, objectives are documented for each level of the organization, and individuals are provided with specific aims and targets. The principle is to ensure that individuals understand what the organization aims to achieve, what their part is in meeting those aims, and how they are expected to contribute as individuals. This presupposes thorough consideration of the organization's programs and methods. If not considered, start by constructing team objectives and involve team members in the process.
"The one thing an MBO system provides is focus." Therefore, ensure your objectives are precise and limited in number. Many people overlook this rule, attempting to focus on everything, leading to a lack of focus.
For MBO to be effective, individual managers must comprehend the specific objectives of their role and how these objectives align with the overall company objectives set by the board of directors. A manager's role should be task-oriented to achieve the company's objectives, and the manager should be guided and controlled by performance objectives rather than by their superiors.
The managers of various units or sub-units of an organization should not only know the objectives of their unit but should also actively participate in setting these objectives and take responsibility for them.
The review mechanism helps leaders evaluate the performance of their managers, particularly in key result areas such as marketing, innovation, human organization, financial resources, physical resources, productivity, social responsibility, and profit requirements.
However, recent opinions have shifted away from placing managers in a formal, rigid objective system. In today's environment where maximum flexibility is crucial, achieving objectives correctly holds more significance.
Balance between Management and Employee Empowerment
The balance between management and employee empowerment needs to be achieved by practicing managers, not just thinkers. Turning aims into successful actions requires managers to master five basic operations:
- setting objectives,
- organizing the group,
- motivating and communicating,
- measuring performance,
- developing people, including oneself.
These MBO operations are all in line with empowerment, provided the main principle of decentralization is followed: instructing people on what needs to be done while allowing them to achieve it in their way. For this principle to work effectively, individuals need personal development opportunities. Additionally, people have different needs hierarchies and, as a result, should be managed differently to perform well and reach their potential.
Empowerment acknowledges the decline of the command-and-control system but retains a sense of power and rank. A manager should view team members as a conductor views players in an orchestra, recognizing their individual skills contribute to the enterprise's success. While individuals are still subordinates, the superior increasingly relies on them to produce results in their area of responsibility where they possess the necessary knowledge. In turn, subordinates depend on their superior for direction and, most importantly, to define the organization's standards, values, performance, and results.
Managing for Results
The only place where meaningful management results can be achieved is in the external world. Managing for results expands MBO into the marketplace, focusing on how to deliver results externally, in the market and economy.
To achieve these results, develop a solid, customer-focused, entrepreneurial strategy for market leadership based on innovation and sharp focus on key opportunities.
Individual Responsibility
MBO bridges top management's strategic thinking with the strategy's implementation at lower levels. Responsibility for objectives shifts from the organization to individual members. This is particularly crucial for organizations where all members must be capable of controlling their work by providing feedback from their results to their objectives.
Management by objectives is accomplished through self-control, which is a tool for effectiveness. Today, employees are self-managers whose decisions significantly impact results.
In such an organization, management needs 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?
CORPORATE STRATEGIC PLANNING / MBO
In most companies, senior management contributes to the development of:
- corporate mission statement,
- corporate objectives,
- corporate strategy.
Normally, the senior management team or top management consists of:
- CEO or managing director,
- corporate planning manager,
- finance manager,
- marketing manager,
- manufacturing manager,
- sales manager,
- supply chain manager,
- HR manager, etc.
STEP 1:
TOP management will:
- evaluate the current (last 12 months) performance against the objectives/targets set previously, including return on investment, profitability, etc., and also the performance of various departments like marketing, sales, HR, manufacturing, etc.
STEP 2:
CEO or MD will summarize the evaluation of current performance for review by the board. Based on the review and external environmental factors, the board will make decisions on a new mission statement, new corporate objectives, and new corporate governance.
STEP 3:
TOP management will scan and assess the company's:
- external environment—political/economic/social/technology—to identify strategic factors as opportunities/threats,
- internal environment—structure/culture/resources, etc., to determine strategic factors as opportunities/threats.
TOP management will analyze the strengths/weaknesses of the organization and identify problem areas that need attention and strengths that can be leveraged.
Based on the above analyses, TOP management will generate, evaluate, and select the best strategic factors.
TOP management will review and revise (if necessary) the mission statement and corporate objectives.
TOP management will generate, evaluate strategy alternatives and objectives.
The final corporate mission statement, objectives, and strategies become the foundation for various departments to develop their departmental objectives/strategies/plans.
After developing their respective objectives/strategies/plans and budgets, departmental managers submit their information to TOP management for approval.
Upon receiving the approved package from TOP management, departmental managers develop the implementation plan.
MBO SETTING IS CASCADED DOWNWARDS
For example:
1. TOP MANAGEMENT SETS SALES OBJECTIVES.
2. THE SALES DIRECTOR SETS HIS REGIONAL SALES OBJECTIVES.
3. THE REGIONAL SALES MANAGERS SET THEIR AREA SALES OBJECTIVES.
4. THE AREA SALES MANAGERS SET THEIR TERRITORY SALES OBJECTIVES.
5. THE TERRITORY SALES MANAGERS SET THE CUSTOMER SALES OBJECTIVES.
Similarly, the Manufacturing Director, Supply Chain Director, etc., set their departments' cascading MBO objectives.
WITH THE INTRODUCTION OF THE 'BALANCED SCORECARD' SOFTWARE, YOU CAN HAVE:
- SHORT-TERM MBOs,
- LONG-TERM MBOs,
- STRATEGIC MBOs—all combined into one system in the balanced scorecard.
MBO PRINCIPLES:
- Cascading of ORGANIZATION GOALS/OBJECTIVES.
- Specific objectives for each member.
- Participative decision-making.
- Explicit time period.
- PERFORMANCE EVALUATION AND FEEDBACK.
2 QUESTIONS YOU NEED TO ANSWER TO GET THE WHOLE PROCESS ROLLING:
- Where do I want to go? (What is the objective?)
- How will I pace myself to see if I am getting there? (What are my milestones or key results?)
TYPES OF OBJECTIVES:
- Routine objectives.
- INNOVATION objectives.
- IMPROVEMENT objectives.
The objectives must be:
- FOCUSED ON RESULTS.
- CONSISTENT.
- SPECIFIC.
- MEASURABLE.
- RELATED TO TIME.
- ATTAINABLE.
MBO STRATEGY 3 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 based on how close they come to reaching their goals.
6 MBO STAGES:
- Define CORPORATE OBJECTIVES at the board level.
- Analyze management tasks and devise formal job specifications that allocate responsibilities and decisions to individual managers.
- Set performance standards.
- Agree and set specific objectives.
- Align individual targets with corporate objectives.
- Establish a management information system to monitor achievements against objectives.
KEY RESULT AREAS WHERE
From India, Mumbai
Acknowledge(0)Amend(0)
Hi Leo,
This was very good. Here, we are also doing the same stuff but are also working on self-evaluation and then the performance review by the manager. Setting up self-evaluation steps is not a very easy task. Can you help me with that?
Thanks anyways.
Regards,
Geeta
From India, Mumbai
Acknowledge(0)Amend(0)
This was very good. Here, we are also doing the same stuff but are also working on self-evaluation and then the performance review by the manager. Setting up self-evaluation steps is not a very easy task. Can you help me with that?
Thanks anyways.
Regards,
Geeta
From India, Mumbai
Acknowledge(0)Amend(0)CiteHR is an AI-augmented HR knowledge and collaboration platform, enabling HR professionals to solve real-world challenges, validate decisions, and stay ahead through collective intelligence and machine-enhanced guidance. Join Our Platform.
Using Bi-directional Performance Management.doc
Performance Management GUIDEBOOK.zip