Management by

Objectives
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.
Objectives of MBO
 To measure and judge performance;
 To relate individual performance to organizational
goals;
 To clarify both the job to be done and the expectations
of accomplishment;
 To foster the increasing competence and growth of the
subordinates;
 To enhance communications between superior and
subordinates;
 To serve as a basis for judgments about salary and
promotion;
 To stimulate the subordinates motivation and
 To serve as a device for organizational control and
integration.
Steps in a Typical MBO
Program
1. The organization’s overall objectives and strategies are formulated.
2. Major objectives are allocated among divisional and departmental
units.
3. Unit managers collaboratively set specific objectives for their units
with their managers.
4. Specific objectives are collaboratively set with all department
members.
5. Action plans, defining how objectives are to be achieved, are
specified and agreed upon by managers and employees.
6. The action plans are implemented.
7. Progress toward objectives is periodically reviewed, and feedback is
provided.
8. Successful achievement of objectives is reinforced by performance-
based rewards.
Advantages of MBO
 Improved Planning: MBO produces clear and measurable
performance goals. A network of goals is created and
appropriate action plans are formulated for goal
achievement. There is effective matching of goals and
resources. Clear goals and action plans generate concrete
thinking and lead to result-oriented and forward planning.
MBO forces managers to plan for results rather than plan for
work. It ensures that goals of each department are
consistent with the overall objectives of the organization.

 Team Work: MBO results in better communication between

superior and subordinates which reduces conflict. The
whole management team is actively involved in goal setting.
There is integration of lower level goals with organizational
goals. Different individuals are fused into a co-operative
team. MBO clarifies the job assignment and responsibility of
each individual.
 Advantages of MBO
 Objective Appraisal: MBO permits impartial appraisal because
employee performance is evaluated against verifiable and mutually
agreed criteria. The performance of every individual is evaluated in
terms of the mutually agreed targets. Under MBO the superior does
not evaluate the subordinate but his performance. MBO also allows
employees to monitor and control their own performance. Such self-
appraisal facilitates personal development. MBO helps to develop
managers who have potential for growth.

 Motivation and Morale: MBO leads to better interpersonal relations

through involvement and recognition of people at all levels. It
provides greater opportunities to make personal contribution and to
accept more responsibility. Participative goal setting and two-way
communication improve the commitment and morale of employees.
Superior managers assume a supportive role and subordinates are
allowed to exercise self-direction and self-control. This results in
innovation and creativity on the part of subordinate managers.
 Limitations of MBO
 Goal-setting Problems: Very often it is very difficult to set truly
verifiable and measurable goals. Over-emphasis on quantifiable and
easily measurable goals may result in neglect of crucial qualitative
goals like job satisfaction. Similarly, over-emphasis on short-term
goals may be at the cost of long-term goals. Goals once set may be
followed rigidly leading to inflexibility in the organization.

 Time Consuming: MBO requires a great deal of time in setting

measurable goals through consensus. In the initial stage several
meetings may have to be held to bring confidence in subordinates.
The formal periodic reviews and final appraisal sessions also
consume a lot of time.

 Increased Paperwork: MBO results in a plethora of newsletters,

instruction booklets, training manuals etc. Subordinates have to fill in
forms and submit detailed reports on their performance.
Limitations of MBO
 Participation Problem: MBO requires mutual goal-setting
by the superior and the subordinate. In many cases, the
goals are set by the superior because he has no time to
discuss it with the subordinate or he is not willing to
share power with the subordinate. In other cases, the
subordinate may not be willing to set goals for himself
because he is incompetent or he fears criticism from the
superior.

 Inflexibility: MBO may introduce inflexibility in the

organization. Once goals are set down, the superior may
not like to modify them due to fear of resistance from the
subordinates.