Management by Objectives(MBO) | Meaning, Objective, Features, Advantages and Limitations

What is Management by Objectives (MBO)?

Management by Objective is a process whereby the superior and the subordinate managers of an enterprise jointly identify its common goals. It is a rational and systematic approach to management wherein measurable goals are set up in consultation with subordinate managers and the contribution of each individual is judged in terms of such goals. This concept was originated by “Peter F. Drucker” in the year 1954 in his book – The Practice of Management and he is also known as the Father of MBO (Management by Objectives). MBO guides the subordinates to fulfil the specified objectives within the given time deadline. It critically reviews organizational performance on a regular basis.

As many changes have come about due to the new economic world so, the demands and expectations from subordinates working in the organization have been modified extremely. So, the old techniques got redundant to deal with the changes. As a result, new techniques originated and Management by Objectives is one of that new techniques. Management by Objectives is considered to be an important process because it makes it easy for the organization to achieve its objectives and enhance its productivity.

According to Koontz and Weihrich,“Management by Objectives is a comprehensive managerial system that integrates many key managerial activities in a systematic manner and it consciously directed toward the effective and efficient achievement of organizational and individual objectives.”

According to George Odiorne“MBO is a process whereby the superior and subordinate managers of an organization jointly identify its [the organization’s] common goals, de- fine each individual’s major area of responsibility in terms of the results expected of an individual, and use these measures as guides for operating the unit and assessing the contribution of each of its members.”

Features of Management by Objectives (MBO)

1. Goal-oriented: MBO is goal-oriented rather than work-oriented as it focuses on what must be accomplished rather than on how it is to be accomplished.
2. Participation of all: It involves the participation of subordinate managers in the goal-setting process. It requires all key personnel to contribute the maximum to achieve the overall objectives.
3. Focuses on KRAs: MBO focuses on measurable and verifiable goals in the key result areas. It helps to balance the goals of all the key personnel.
4. Dynamic: MBO is a dynamic system which integrates company’s needs to achieve the objective.
5. Managerial philosophy: Management by Objectives is a managerial philosophy and not just a simple technique or method. Because a philosophy directs and influences every element of management, whereas a technique is only useful in certain areas. MBO is an approach involving different techniques to more finest management.
6. Serve as a criterion: To evaluate the complete performance of the organization, corporate, functional and personal goals under Management by Objectives serve as a criterion. Managers will be able to assess the efficiency of subordinates through the comparison of goals and actual results, and in some ways, the top level can assess the efficiency of other managers too.
7. Continuous process: MBO is a continuous process of goal setting, periodic appraisals and modification of goals and performance.   

Objectives of Management by Objectives (MBO)

The objectives of Management by Objective are:

1. To aid employees in realizing their responsibilities at work. Each employee has key result areas customized to their interest, areas of expertise, and academic background. The staff members are aware of what is required of them because of MBO.
2. To make employees feel valuable in the organization. Every employee plays a unique role in helping the company achieve its goals and objectives. Each employee plays a different role at work. Each person eventually begins to feel devoted to the group and feels valuable in the organization. They typically stay with the company for a longer period and provide significant contributions.
3. To guarantee the effectiveness among employees. It fosters an encouraging atmosphere at work, allowing people to appreciate their jobs rather than viewing them as an obligation. Employees who use the MBO process are extremely enthusiastic and dedicated.
4. To produce clearly specified hierarchies. It guarantees open-mindedness on all fronts. The Managing Director is not approachable directly by any superior in any company. First, he or she would communicate with their reporting boss, who would then convey the information to the senior, and so on. Each person understands where they fit within the company.
5. To set a benchmark for every employee. For each member of the team, the managers establish different organizational and personal goals. Detailed job lists are provided to each employee. Eventually, it eliminates unnecessary complications and works incompatibility.
6. To serve as a device for organizational control and integration.
7. To serve as a basis for judgements about salary and promotions.

Advantages of Management by Objectives (MBO)

The following are the certain advantages regarding Management by Objectives (MBO):

1. More Clarity towards Objectives: MBO aids in defining organizational structures and responsibilities. According to the demands of the job given, authority and responsibility are allocated. Setting objectives without giving the necessary people the necessary power is useless. The organizational roles should be designed around the primary outcomes predicted by those holding them. Adopting Management by Objectives in the organization will help the organization in identifying its shortcomings.
2. Better Management: MBO leads to enhanced and superior management. Setting goals for each action and person, and ensuring that they are met, are necessary for better management. In addition to assisting in goal-setting, MBO also makes sure that goals and resources are coordinated. Better and more goal-oriented preparation is required for setting goals. MBO encourages strategic planning as opposed to simply scheduling tasks or activities. Managers will come up with strategies for accomplishing goals. The goals also serve as performance standards and controls.
3. Enhanced Individual Commitment: The primary advantage of MBO is that it motivates employees to dedicate themselves to achieving predetermined goals. People typically just complete the tasks that have been given to them. They carry out their job as usual and adhere to the directives of their superior. But in the case of MBO, each individual’s goal is well stated and with their own agreement. Individuals in the organization get the chance to present their own thoughts to employers, debate the benefits and drawbacks of different recommendations, and take part in determining the ultimate goals. 
4. Establishing Controls: MBO system aids in the creation of efficient controls. Setting standards and determining any variations from those standards are necessary steps in establishing controls. Verifiable targets are established in MBO, and overall performance will help in determining any shortcomings in the outcomes. Everyone knows what is required of them, these yardsticks serve as unambiguous checks. In order to achieve control, MBO must be observed.
5. Improved Communication: Managers and staff members establish and manage goals collectively, so they get to communicate more frequently to discuss these goals’ progress. This provides employees with more choices to communicate issues or ask queries from managers. Success requires effective communication, which can lead to increased productivity, improved interpersonal relationships, and work satisfaction. It is for this reason that it is said communication is the key.
6. Motivation and Morale: Because of MBO interpersonal relations are better as there is involvement and recognition of people at all levels. It provides greater opportunities to make personal contributions and accept more responsibility. Commitment and morale of the employees are high because of participative goal setting and two-way communication.

Disadvantages of Management by Objectives (MBO)

The following are some of the disadvantages/limitations related to the Management by Objectives:

1. Goal-setting problem: The primary focus of the MBO technique is to set targets or goals. Setting goals is not a simple process. To reach the findings, a lot of knowledge is needed. In order to assess the performance, the goals must be provable. Some goals might not be able to be verified, so caution should be observed while identifying them. The targets should not be established immediately otherwise MBO could hold the company accountable.
2. Time-consuming: As MBO requires a great deal of time in setting measurable goals through consensus, it is a time-consuming process. Several meetings have to be held to instil confidence in subordinates.  
3. More focus on short-term objectives: Short-term goals are frequently established in the majority of MBO programs. The tendency of managers to establish goals for a year or less is to place an excessive emphasis on short-term objectives at the expense of long-term objectives. They should accomplish their short-term objectives in a manner that also aids in the accomplishment of their long-term objectives. It’s possible that a specific issue will make short-term and long-term goals incompatible. Therefore, both short-term and long-term targets should be properly prioritized.
4. Incapable to provide guidelines to goal setters: MBO will not be successful if the people who set goals aren’t provided with the right instructions for doing so. The managers who will assist in establishing goals should be aware of the key organizational policies and the position they are placed at. They should be knowledgeable about future planning theories and assumptions. If these crucial elements are not understood, this method or this new technique will actually fail.
5. Inflexibility: MBO may introduce inflexibility in the organization. Once the goals are set down, the superior may not like to modify them due to fear of resistance from the subordinate.  
6. Increased paperwork: MOB requires lots of newsletters, booklets, manuals, reports, etc., Employees have to fill in forms and submit detailed reports on their performance, which reduces the effectiveness of MBO.