Management by objective

Introduction

The concept Management by Objectives was coined by Peter Drucker in 1954. As per this concept, the organizational goals are broken down to different level objectives and assigned to individuals at different level in order to have the organizational goal. It is a technique and philosophy of management based on converting an organisational objective into a personal   objective on the presumption that establishing personal objectives makes an employee committed, which leads to better performance.

Koontz defined MBO as follows: “MBO is a comprehensive managerial system that integrates many key managerial activities in a systematic manner, consciously directed towards the effective and. Efficient achievement of organisational objectives.”

According to George Odiome,  “MBO is a process whereby superior and subordinate managers of an Organisation jointly define its common goals, define each individual's major areas of responsibility in terms Of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each of its members."

According to John Humble, “MBO is a dynamic system which seeks to integrate the company's needs to clarify and achieve its profits and growth goals with the manager's need to contribute and develop himself. It is a demanding and rewarding style of managing a business."

A careful study of the above definitions brings out the following features of MBO.

a.       Management by Objectives is a philosophy or a system, and not merely technique.

b.      It emphasizes participative goal setting.

c.       It clearly defines each individual responsibility in terms of results.

d.      It focuses attention on what must be accomplished (goals) rather than on how it is to be accomplished.

e.      It converts objective needs into personal goals at every level in the organization.

f.        It establishes standards or yardsticks (goals) as operation guides and also as basis of performance evaluation.

g.       It is a system intentionally directed toward effective and efficient attainment of organizational and personal goals.

h.      Periodic review of performance is an important feature of MBO.

i.         MBO provides the means for integrating the organisation with its environment, its sub- systems and people.

j.        Employees are provided with feedback on actual performance as compared to planned performance.

Process of MBO

                MBO is a process for accomplishing enterprise objectives, enhancement of employee’s commitment and participation. This process consists of a number of steps. They are:

1.       Setting of organisational objectives: The first step in MBO is to set verifiable objectives for the organisation. The objectives that are set also indicate the measures for achieving the objectives. The objective setting usually commences at the top level of the organisation and moves downwards to the lowest managerial levels. It goes in sequence like this:

        (a) Defining the purpose of the organisation

        (b) Long-range and strategic objectives

        (c) Short-range organisational objectives

        (d) Departmental objectives

        (e) Individual manager’s objectives.

2.       Setting of subordinates’ objectives: Since organisational objectives are accomplished through individuals, each individual manager should know in advance what he is expected to accomplish. The objectives of the subordinates are set by the superior with their consultation and agreement. This process makes them committed.

3.       Matching resources with objectives: When objectives are set, there should be a connection between objectives and resources. This helps the organisation in allocating the resources in an economical manner.

4.       Appraisal: Appraisal is the periodical review of performance to measure whether the subordinate is accomplishing his objective or not. If not, what are the problems and how these problems can be overcome?

5.       Recycling: The process of objective setting involves recycling. It means that first of all objectives are set in consultation with the subordinates, and then the subordinates set objectives for their subordinates, and so on. Thus, objective setting is a joint process through interaction between the superior and the subordinates. The three aspects involved in the recycling process consist of setting of objectives at various levels, action planning in the context of those objectives, and performance review. Each of these aspects provides the base for others.

The main benefits of MBO are as follows:

1.       Improved Planning: MBO involves participative decision-making which makes objectives explicit and plans more realistic. It focuses attention on goals in key result areas. MBO forces managers to think in terms of results rather than activities. It encourages people to set specific pleasurable goals instead of depending on hunches or guesswork. An integrated hierarchy of objectives is created throughout the organization. Precise performance objectives and measures indicating goal accomplishment are laid down. There is a time bound programme.

2.       Co-ordination: MBO helps to clarify the structure and goals of the organization. Harmony of objectives enables individuals at various levels to have a common direction. Every individual knows clearly his role in the organization, his area of operation and the results expected of him. MBO result in clarification of organizational roles and structure. It promotes and integrated view of management and helps interdepartmental co-ordination.

3.       Motivation and Commitment: Participation of subordinates in goal setting and performance reviews tend to improve their commit­ment to performance. The corporate goals are converted into personal goals at all levels to integrate the individual with the organization. Timely feedback on performance creates a feeling of accomplishment Job enrichment and sense of achievement help to improve job satisfac­tion and morale. Improved communication and sense of involvement provides psychological satisfaction and stimulates them for hard work. MBO ensures perfor­mance by converting objective needs into personal goals and by providing freedom to subordinates.

4.       Accurate Appraisal: MBO replaces trait based appraisal by per­formance based appraisal. Quantitative targets for every individual ena­ble him to evaluate his own performance. Performance under MBO is innovative and future oriented. It is positive, more objective and par­ticipative. Emphasis is on job requirements rather than on personality. MBO provides an objective criterion for evaluation of actual performance. "Indeed one of the major contributions of MBO is that it enables us to substitute management by self-control, for management by domina­tion.

5.       Executive Development: The MBO strategy is a kind of self-discipline whereby shortcomings and development needs are easily iden­tified. It stresses upon a long term perspective and self-development. MBO releases potential by providing opportunities for learning, innova­tion and creativity. It encourages initiative and growth by stretching capabilities of executives.

6.       Organizational Change and Development: MBO provides a frame­ work for planned changes. It enables managers to initiate and manage change. It helps to identify short-comings in organizational structure and processes. In this way, MBO improves the capacity of the organization to cope with its changing environment. When an organization is managed by objectives, it becomes performance-oriented and socially-useful.

                Originally MBO was developed for business organizations but now it is being used by social welfare organizations also. But MBO might not be very successful in welfare organizations because of the abstract nature of the values to be measured in specific and quantified terms, general unwillingness on the part of personnel to subject their efforts to precise evaluations and lack of measuring instruments which could generate valid and reliable data. MBO has special significance in the areas of long range planning and performance appraisal.

Limitations of MBO

Although MBO is generally taken as the panacea for all the problems of an organisation, it is not without weaknesses or limitations. The following are the limitations of MBO:

1. MBO cannot be implemented effectively on account of difficulty in setting verifiable    objectives.

2. Open atmosphere for appropriate objective-setting is absent because of differences in the status of subordinates.

3. Managers may not get time to do even their normal work as MBO involves much paperwork and holding of many meetings.

4. There is a tendency on the part of the managers to emphasis’s short-term objectives and to become more precise in objective setting and accomplishment.

5. MBO is a philosophy of managing an organisation in a new way. However, many managers fail to understand and appreciate this new approach.

6. MBO represents the danger of inflexibility in the organisation, particularly when the objectives need to be altered. In a dynamic environment, a particular objective may not be valid for ever.

                 In spite of all these weaknesses, MBO is considered as one of the unique techniques of managing the organisation. However, the full benefits of it can only be derived if the following basic requirements are taken into account.

Essential Conditions for Successful Implementation of MBO

a)      Support from all: In order that MBO succeeds, it should get support and co-operation from the management. MBO must be tailored to the executive's style of managing. No MBO programme can succeed unless it is fully accepted by the managers. The subordinates should also clearly understand that MBO is the policy of the Organisation and they have to offer cooperation to make it successful. It should be a programme of all and not a programme imposed on them.

b)      Acceptance of MBO programme by managers: In order to make MBO programme successful, it is fundamentally important that the managers themselves must mentally accept it as a good or promising programme. Such acceptances will bring about deep involvement of managers. If manages are forced to accept NIBO programme, their involvement will remain superfluous at every stage. The employees will be at the receiving-end. They would mostly accept the lines of action initiated by the managers.

c)       Training of managers: Before the introduction of MBO programme, the managers should be given adequate training in MBO philosophy. They must be in a position to integrate the technique with the basic philosophy of the company. It is but important to arrange practice sessions where performance objectives are evaluated and deviations are checked. The managers and subordinates are taught to set realistic goals, because they are going to be held responsible for the results.

d)      Organizational commitment: MBO should not be used as a decorative piece. It should be based on active support, involvement and commitment of managers. MBO presents a challenging task to managers. They must shift their capabilities from planning for work to planning for accomplishment of specific goals. Koontz rightly observes, "An effective programme of managing by objective must be woven into an entire pattern and style of managing. It cannot work as a separate technique standing alone."

e)      Allocation of adequate time and resources: A well-conceived MBO programme requires three to five years of operation before it provides fruitful results. Managers and subordinates should be so oriented that they do not look forward to MBO for instant solutions. Proper time and resources should be allocated and persons are properly trained in the philosophy of MBO.

f)       Provision of uninterrupted information feedback: Superiors and subordinates should have regular information available to them as to how well subordinate's goal performance is progressing. Over and above, regular performance appraisal sessions, counseling and encouragement to subordinates should be given. Superiors who compliment and encourage subordinates with pay rise and promotions provide enough motivation for peak performance.