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Management by Objectives

Updated on May 3, 2014

Peter Drucker formulated the term “Management by Objectives” in 1954 in his book ‘The Practice of Management’. In the early 1960s, Management by Objectives (MBO) became the fieriest topic in the world of management promising to bring about accountability, profitability and productivity. It became a popular strategic planning tool leading to a proper allocation of resources of all kinds.
The term MBO (Management by Objectives) was actually coined for the first time by Alfred P. Sloan in the early 1950s, though; Drucker was the one flesh out the term and bring it to the central position by comparing and contrasting managerial actions over supervision of activities.
Peter, however, himself decreased its significance in the 90’s when he said: “It’s just another tool. It is not the great cure for management inefficiency. Management by Objectives (MBO) works if you know the objectives, 90% of the time you don’t”.
According to Drucker, managers should “avoid the activity trap” i.e. forgetting their objectives or major purpose due to massive involvement in their regular activities. Rather all managers (not just few top managers) should:

  • Participate in the strategic planning process, in order to improve the implementation of the plan
  • Implement a range of performance systems, designed to help the organization stay on the right track.

Management by Objectives (MBO):
A system in which specific performance objectives are jointly determined by subordinates and their supervisors, progress toward objectives is periodically reviewed and rewarded are allocated on the basis of that progress[Robbins and Decenzo, Fundamentals of Management].
Management by Objectives is a specific type of goal setting process similar to SMART [Management, Michael A. Hitt, J. Stewart Black, Lyman W. Porter].
Management by Objectives (MBO) is a systematic application of goal setting and planning to help individuals and firms be more productive [Essentials of Management, Andrew J. Management, 7th edition].
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Common Elements of Management by Objectives (MBO) :

Source: Robbins and DeCenzo, Fundamentals of Management, Sixth edition.

1. Goal Specificity: Firstly specific goals are set which when achieved should bring forward the results that support organizational, operational, tactical, strategic objectives and plan.

2. Participative Decision Making: Goals when set by the participation of subordinates allows them to achieve goals that are difficult. However the goals set must be accepted by the subordinates as it impacts positively from motivation to performance of the employee.

3. Explicit Performance Period: Time period must be set so as to ensure everything works out within the specified time frame. Explicit time period also allows employees to carry out actions in a proper planned manner so as to meet the deadline.

4. Performance Feedback: Periodic performance feedback helps employees evaluate whether they are on target or off target so that they can retain or adjust their behaviour. Their performance is greatly affected in accordance to the quality of feedback provided.

Industrial management in the early stages primarily used Management by Objectives (MBO) at higher management level. But, it is used at ground level these days to insure productivity. It encompasses clear objective at a group level and periodic measurement of employee’s performance. Due to fierce competition prevailing not only at a national level but at a global level, quality management has surged to its peak. Hence, emanate the need for implementation of effective MBO (Management by Objectives) system which is in fact an effective goal setting technique for management.

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Literature Review on Management by Objectives (MBO):
Antoni, C. (2005) study supported Management by Objectives (MBO) by stressing on commitment of group toward attainment of their goal so as to promote employee satisfaction and boost productivity of job. In fact job satisfaction was all because of group planning and group productivity. These results thus promote Management by Objectives (MBO) as a tool to influence teams that are self-regulated. The team must however be competent enough to carry out the notch of goal attainment by carrying out designated tasks as well as goal requirements.
While setting the goal factors affecting the achievement of goal should also be taken into account. Else employees might blame these factors as an excuse to the goal attainment and simply not endeavour for their accumulation. Managers are greatly induced by the MBO (Management by Objectives) in order to come up with a competent goal with the interaction with the employees present in the organization. However these goals should be fragmented on each level of management to finalize hierarchical clarity of goals so as to make them attainable at each level and finally make them the goal of the organization as a whole (Carroll and Tosi, 1973).
Research by O’Leary-Kelly et al, 1994 suggested that higher goal specificity brings about better results. Group commitment is highly influential in order to practically attain the goal. If the group is not putting their efforts to achieve what they have set themselves to do for then every action is in vain (Locke and Latham, 1990). Goal commitment is the degree of the significance of the goal as sited by the group members and the effort that they put forward to attain it and which is greatly influenced by the associated feedback (DeShon and Landis, 1997).
Each and every group member determination is what influence goal commitment (Klein et al, 1999). The only crucial variable for goal setting at an individual or group level is through strong determination and commitment (Tubbs, 1993). Extensive research concludes only direct and no reasonable effects of goal commitment (Donovan and Radosevich, 1998; Erez and Zidon, 1984; Hollenbeck and Klein, 1987).

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Research Methodology:
Generating high productivity factors with superior performance is a challenging task. However, employees are the most valuable resource of the organization, as claimed by the corporate world delights the significance of Management by Objectives (MBO). Some of the organization overlooks the value of MBO (Management by Objectives). This research focused the importance of Management by Objectives (MBO) directly and covers how it brings about the difference in employee pledge, performance and organizational productivity on the whole. It also examined the degree by which MBO (Management by Objectives) brings about staff satisfaction their commitment toward the attainment of the goals.

Managerial Focus of Management by Objectives (MBO):
Managers in the process of MBO (Management by Objectives) just focus on the result rather than on the activity. They just negotiate goals by interacting with their subordinates without any detailed procedure on its implementation.

Where to use Management by Objectives (MBO):
Management by Objectives (MBO) style is must suited for knowledge based enterprises where the staffs should be competent. This is appropriate employee’s management is based on self-leadership skills and initiative is taken to tacit knowledge and creativity.

Advantages of Management by Objectives (MBO):
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Disadvantages of Management by Objectives (MBO):
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Research proves that there exists direct positive relationship between effective Management by Objectives (MBO) approach and employee performance and organizational productivity. Proper goal specificity with participative decision making bounded by the time frame and finally backed by feedback encourages employee performance and promotes job satisfaction thereby enhancing organizational productivity.
MBO (Management by Objectives) is gaining popularity on a global basis as both managers as well as employee want to get rid of stereotype of management practices. Today is the age of new revolutionary way of management style i.e. Management by Objectives (MBO).

Andrew J. Management, Essentials of Management, 7th Edition.

Antoni, C. (2005), Management by objectives – an effective tool for teamwork? International Journal of Human Resource Management, Vol. 16

Carroll, S.J. and Tosi, H.L. (1973) Management by Objectives. New York: Macmillan.

Drucker, P.F. (1955), The Practice of Management, Butterworth-Heinemann, London

Hollenbeck, J.R. and Klein, H.J. (1987) ‘Goal Commitment and the Goal Setting Process: Problems, Prospects, and Proposals for Future Research’, Journal of Applied Psychology

Locke, E.A. and Latham, G.P. (1990), A Theory of Goal Setting and Performance, Englewood Cliffs, NJ: Prentice Hall.

Michael A. Hitt, J. Stewart Black, Lyman W. Porter, Management, Pearson Education

Robins and Decenzo, Fundamentals of Management, Sixth Edition

Tubbs, M.E. (1993) ‘Commitment as a Moderator of the Goal–Performance Relation: A Case for Clearer Construct Definition’, Journal of Applied Psychology


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    • profile image

      saba naheed 5 years ago

      its very helpful

    • Durga Prasad Sah profile image

      Durga Prasad Sah 5 years ago from London, United Kingdom

      Thanks Saba :)

    • profile image

      HARIOM 5 years ago

      Very Nice

    • Durga Prasad Sah profile image

      Durga Prasad Sah 5 years ago from London, United Kingdom

      Thankx Hariom !!!

    • profile image

      Arum macmoses 4 years ago

      Tnx 2 Robbin n Decenzo,more grease 2 their very much impressed.

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      adellah mlay 4 years ago

      So what are the major activities of m.b.o?

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