MBO known as management by objectives is a familiar field in the managing field. No one person can be called the originator of an approach that emphasizes objectives.

Peter F. Drucker. In 1954 he acted as a catalyst by emphasizing that objectives must be set in all areas where performance affects the health of the enterprise. He laid down a philosophy that emphasizes self-control and self-direction. About the same-time, if not earlier, the General Electric Company was using elements of MBO in its reorganization efforts to decentralize managerial decision making. The company implemented this philosophy of appraisal by identifying key result areas and undertaking considerable research on the measurement of performance

In 1957, in his classic article in the Harvard Business Review Douglas McGregor, a major contributor to the behavioral sciences criticized traditional appraisal programs that focused on personality trait criteria for evaluating subordinates.

Performance is then evaluated against the present objectives, primarily by subordinates themselves

The active involvement of subordinates in the appraisal process leads to commitment and creates an environment for motivation.

University of Maryland found that performance was higher when people had specific objectives than when they were simply asked to do their best.

In MBO programs that emphasize performance appraisal and motivation, the focus tends to be on short-term objectives many organizations now include long-range and strategic planning in MBO programs.

Please give realistic comments on this topic and how to implement MBO's in organizations.

From Australia, Adelaide

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LIZ,

HERE IS SOME CONCEPTS / KNOWLEDGE ON MBO.

ONCE YOU READ/DIGEST, YOU CAN SET UP MBO WITHIN YOUR ORGANIZATION.

BUT IF YOU NEED FURTHER CLARIFICATION, PLEASE COME BACK.

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What is MBO?

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.

This enables managers to "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 :

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.

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Managerial Focus

MBO managers focus on the results , not the activity. They delegate tasks by "negotiating a contract of goals" with their subordinates without dictating a detailed roadmap for implementation. MBO is about setting yourself objectives and then breaking these down into more specific goals or key results.

Main Principle

The principle behind 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

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Where to Use MBO

The MBO style is appropriate for organizations when your staff is competent. It is appropriate in situations where you wish to build employees' management and self management skills and tap their creativity , tactit knowledge and initiative. MBO is also used by chief executives of multinational corporations (MNCs) for their country managers abroad.

Setting Objectives

In MBO systems, 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. This presupposes that organization's programs and methods have been fully considered. If they have not, start by constructing team objectives and ask team members to share in the process."6

"The one thing an MBO system provide is focus". So, have your objectives precise and keep their number small. Most people disobey this rule, try to focus on everything, and end up with no focus at all.

For MBO to be effective, individual managers must understand the specific objectives of their job and how those objectives fit in with the overall company objectives set by the board of directors. "A manager's job should be based on a task to be performed in order to attain the company's objectives... the manager should be directed and controlled by the objectives of performance rather than by his boss."1

The managers of the various units or sub-units, or sections of an organization should know not only the objectives of their unit but should also actively participate in setting these objectives and make responsibility for them.

The review mechanism enables leaders to measure the performance of their managers, especially in the key result areas: marketing; innovation; human organization; financial resources; physical resources; productivity; social responsibility; and profit requirements.

However, in recent years opinion has moved away from the idea of placing managers into a formal, rigid system of objectives. Today, when maximum flexibility is essential, achieving the objective rightly equally is more important.

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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:

settings objectives,

organizing the group,

motivating and communicating,

measuring performance , and

developing people , including yourself.

These MBO operations are all compatible with empowerment, if you follow the main principle of decentralization: telling people what is to be done, but letting them achieve it their own way. To make the principle work well, people need to be able to develop personally. Further, different people have different hierarchy of needs and, thus, need to be managed differently if they are to perform well and achieve their potential.

Empowerment recognizes "the demise" of the command-and-control system, but remains a term of power and rank. A manager should view members of his or her team much as a conductor regards the players in the orchestra, as individuals whose particular skills contribute to the success of the enterprise. While people are still subordinates, the superior is increasingly dependent on the subordinates for getting results in their area of responsibility, where they have the requisite knowledge. In turn, these subordinates depend on their superior for direction and "above all, to define what the 'score' if for the entire organization, that is, what are standards and values, performance and results."

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Managing for Results

The only place where meaningful management results can be won is the outside world. Managing for results is expansion of MBO into the marketplace. It is the theory and practice of how to produce results on the outside, in the market and economy.

To achieve these results, you should develop a solid, sound, customer-focused, and entreprenurial strategy, aimed at market leadership, based on innovation, and tightly focused on decisive opportunities.

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Individual Responsibility

MBO creates a link between top management'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 organizations where all members have to be able to control their own work by feeding back from their results to their objectives.

Management by objectives is achieved through self-control, the tool of effectiveness. Today the employee 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?

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CORPORATE STRATEGIC PLANNING / MBO

In most companies, senior management.

makes contribution to the development of

-corporate mission statement

-corporate objectives

-corporate strategy.

Normally the senior management team or TOP management would

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[a]

TOP management would

-evaluate the current [ last 12 months] performance against the

objectives / target set previously, which includes return on investment,

profitability , etc and also the performance of various departments

like marketing, sales, HR, manufacturing, etc etc.

STEP 1 [b]

TOP management will also evaluate the current mission,objectives,

strategies and policies.

-----------------------------------------------

STEP 2[a ]

CEO or MD will take the summary of the evaluation of the current

performance to the board for review.

STEP 2 [ b ]

Based on the review plus the external environmental factors,

the board will make decisions on

-new mission statement

-new corporate objectives

-new corporate governance

-------------------------------------------------------------

STEP 3 [ a ]

TOP management will scan and assess the company's

external environment --political/ economic/social/ technology.

to determine the strategic factors that pose as

OPPORTUNITIES / THREATS.

STEP 3 [ b ]

TOP management will scan and assess the company's

internal environment --structure/ culture/resources etc

to determine the strategic factors that pose as

OPPORTUNITIES / THREATS.

STEP 3[ c ]

TOP MANAGEMENT will analyze the the strengths / weaknesses

of the organization and pinpoint the problems areas that needs

attention and the strengths that could be exploited.



STEP 4

Based on the above analyses, TOP management will generate,

evaluate, and select the best strategic factors.

STEP 5

TOP management will review and revise [ if necessary ] the

mission statement and corporate objectives.

STEP 6

TOP management will generate and evaluate strategy alternatives

and objectives.

STEP 7

This final corporate mission statement, objectives and strategies

becomes the foundation information for the various departments

to work out their departmental objectives/strategies/plans.

STEP 8

After working out their respective objectives/strategies/plans

and the budgets , the departmental managers send their

respective information to the TOP management for

approval.

STEP 9

On receiving the approved package from the TOP management,

the departmental managers develop the implementation plan.

STEP 10.

NOW you have mission/objectives/strategies/plans/budget/schedules.

================================================== ====

MBO SETTING IS CASCADED DOWNWARDS

SAY FOR EXAMPLE,

1. TOP MANAGEMENT SET 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 SETS THE TERRITORY SALES OBJECTIVES.

5. THE TERRITORY SALES MANAGERS SETS THE CUSTOMER SALES OBJECTIVES.

IN THE SAME MANNER, MANUFACTURING DIRECTOR, SUPPLY CHAIN DIRECTOR

ETC 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?)

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TYPES OF OBJECTIVES

Routine objectives

INNOVATION objectives tainable

IMPROVEMENT objectives

The objectives must beinable

THE OBJECTIVES MUST BE

-FOCUSED ON RESULTS

-CONSISTENT

-SPECIFIC

-MEASURABLE

-RELATED TO TIME

-ATTAINABLE

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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 on the basis of how close they come to reaching their goals.

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6 MBO STAGES

Define CORPORATE OBJECTIVES at board level

Analyze management tasks and devise formal job specifications, which 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

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KEY RESULT AREAS WHERE MANAGEMENT MUST PURSUE CLEAR OBJECTIVES

MARKETING

INNOVATION

HUMAN RESOURCES

Financial resources

Physical resources

PRODUCTIVITY

Social responsibility

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PERSONNEL EMPOWERMENT

The Four Powers you need to do an excellent job:

Freedom to challenge everything and anything

Continuous training and development on the job

Knowledge of, and faith in, the organization's MISSION

The ability to achieve and see results

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MBO 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.

The elaborate written goals, careful communication of goals, and detailed performance evaluation required in an MBO program increase the volume of paperwork in an organization.

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MANAGING THE RESULTS - YOU SHOULD NOTE THAT

Resources and results exist outside, not inside, the business

Results come from exploiting opportunities, not solving problems

For results, resources must go to opportunities, not to problems

"Economic results" do not go to minor players in a given market, but to leaders

Leadership, however, is not likely to last

What exists is getting old

What exists is likely to be misallocated

To achieve economic results, concentrate

================================================== =========

REGARDS

LEO LINGHAM

From India, Mumbai
Dear Leo
Thanks a lot for your very much valued suggestions and for the pains taken in typing the full lot in..
I was so thankful so that I thought of giving some points for the supremo '
but I never knew my points would be taken away from me
now I have null points but its ok, actually what's the benefit in gaining points
Thanks
liz

From Australia, Adelaide
thanks Leo,
This was very good.
here we are also doing the same stuff but also working on self evaluation and then the performance review by the manager.
Setting up self evaluation steps is not very easy task.
can you help me on that.
Thanks anyways
Regards,
Geeta

From India, Mumbai

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