The use of management objectives was first widely advocated in the 1950s by the noted management theorist Peter Drucker. MBO (management by objectives) methods of performance appraisal are results-oriented seeks to measure employee performance be examining the extent to which predetermined work objectives have been met.
Usually the objectives are established jointly by the supervisor and subordinate. An example of an objective for a sales manager might be: Increase the gross monthly sales volume to $250,000 by 30 June. Once an objective is agreed, the employee is usually expected to self-audit; that is, to identify the skills needed to achieve the objective. Typically they do not rely on others to locate and specify their strengths and weaknesses. They are expected to monitor their own development and progress.
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.
– Cascading of organizational goals and objectives
– Specific objectives for each member
– Participative decision making
– Explicit time period
– Performance evaluation and feedback
The objectives must be:
– Focused on a result, not an activity
– Related to time
MBO Strategy: Three Basics
– 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.
Six MBO Stages
1. Define corporate objectives at board level
2. Analyze management tasks and devise formal job specifications, which allocate responsibilities and decisions to individual managers
3. Set performance standards
4. Agree and set specific objectives
5. Align individual targets with corporate objectives
6. Establish a management information system to monitor achievements against objectives
Advantages of MBO
1. The MBO approach overcomes some of the problems that arise as a result of assuming that the employee traits needed for job success can be reliably identified and measured.
2. Instead of assuming traits, the MBO method concentrates on actual outcomes.
3. If the employee meets or exceeds the set objectives, then he or she has demonstrated an acceptable level of job performance. Employees are judged according to real outcomes, and not on their potential for success, or on someone’s subjective opinion of their abilities.
4. The guiding principle of the MBO approach is that direct results can be observed, whereas the traits and attributes of employees (which may or may not contribute to performance) must be guessed at or inferred.
5. The MBO method recognizes the fact that it is difficult to neatly dissect all the complex and varied elements that go to make up employee performance.
6. MBO advocates claim that the performance of employees cannot be broken up into so many constituent parts – as one might take apart an engine to study it. But put all the parts together and the performance may be directly observed and measured.
Disadvantages of MBO
1. MBO methods of performance appraisal can give employees a satisfying sense of autonomy and achievement. But on the downside, they can lead to unrealistic expectations about what can and cannot be reasonably accomplished.
2. Supervisors and subordinates must have very good “reality checking” skills to use MBO appraisal methods. They will need these skills during the initial stage of objective setting, and for the purposes of self-auditing and self-monitoring.
3. Unfortunately, research studies have shown repeatedly that human beings tend to lack the skills needed to do their own “reality checking”. Nor does training easily convey these skills. Reality itself is an intensely personal experience, prone to all forms of perceptual bias.
4. One of the strengths of the MBO method is the clarity of purpose that flows from a set of well-articulated objectives. But this can be a source of weakness also. It has become very apparent that the modern organization must be flexible to survive. Objectives, by their very nature, tend to impose certain rigidity.
5. Of course, the obvious answer is to make the objectives more fluid and yielding. But the penalty for fluidity is loss of clarity. Variable objectives may cause employee confusion. It is also possible that fluid objectives may be distorted to disguise or justify failures in performance.
6. The development of objectives can be time consuming, leaving both managers and employees less time in which to do their actual work.
7. 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.
Thus we can say that 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.
The MBO style is appropriate for knowledge-based enterprises when your staff is competent. It is appropriate in situations where you wish to build employees’ management and self-leadership skills and tap their creativity, tacit knowledge and initiative. MBO is also used by chief executives of multinational corporations (MNCs) for their country managers abroad.