MANAGEMENT

BY OBJECTIVES

What Is an Objective?
Objectives are goals, aims or purposes that organisation wish over varying periods of time

Management By Objectives (MBO)

A method whereby managers

and employees define objectives for every department, project, and person and use them to monitor subsequent performance.

WHAT IS MBO ?

MBO is a system in which specific performance

objectives are jointly determined by subordinates and their superiors, progress toward objectives is periodically reviewed, and rewards are allocated on the basis of this progress. Is a systematic and organized approach that allows management to focus on achievable goals and attain the best possible results from available resources
Management

By Objectives term was first popularized by Peter Drucker, in 1954 in his book 'The Practice of Management'.

Core Concepts of MBO

According to Drucker managers should "avoid

the activity trap", getting so involved in their day to day activities that they forget their main purpose or objective. Instead of just a few top mangers , all managers should: participate in the strategic planning process, in order to improve the implementability of the plan, and implement a range of performance systems, designed to help the organization stay on the right track.

 MBO involves subordinate managers participation

Concepts

in planning and controlling activities. It is a fact that more of their involvement will result in more commitment, which will lead to more and better results. One of the concepts of MBO was that instead of just few top managers, all managers of the firm should participate in the strategic planning process, in order to improve the implement ability of the plan. Aims to increase individual and organizational effectiveness by aligning organizational goals and subordinate objectives Clarifies and quantifies objectives to allow for monitoring, evaluation, and feedback throughout the hierarchy of objectives
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IN SIMPLE WORDS, MBO IS

MBO emphasises the importance

of objectives as a tool to be used by managers in fulfilling their managerial roles (accomplish their tasks)
Divide problem into manageable,

bite-size chunks

Main Principle of MBO

The principle behind Management by Objectives

(MBO) is to make sure that everybody within the organization has a clear understanding of the aims, or objectives, of that organization
As

a awareness of their own roles responsibilities in achieving those aims.

and

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.

Where to Use MBO

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 selfleadership skills and tap their creativity, tacit knowledge, and initiative. Management by Objectives (MBO) is also used by chief executives of multinational corporations (MNCs) for their country managers abroad.

Settingsystems, objectives are Objectives In MBO

written down for each level of the organization, and individuals are given specific aims and targets. what the organization is trying to achieve, what their part of the organization must do to meet those aims, and how, as individuals, they are expected to help. This presupposes that organization's programs and methods have been fully considered. If they have not, start by constructing team objectives and ask team members to share in the process. says Andy Grove who ardently practiced MBO at Intel. So, have your objectives precise and keep their number small. Most people disobey this rule, try to focus on everything, and end up with no focus at all.

"The principle behind this is to ensure that people know

"The one thing an MBO system should provide is focus",

Setting Objectives
For MBO to be effective, individual managers must understand the

specific objectives of their job and how those objectives fit in with the overall company objectives set by the board of directors.
"A manager's job should be based on a task to be performed in

order to attain the company's objectives... the manager should be directed and controlled by the objectives of performance rather than by his boss."
The

review mechanism enables leaders to measure the performance of their managers, especially in the key result areas: marketing; innovation; human organization; financial resources; physical resources; productivity; social responsibility; and profit requirements.

OBJECTIVE SETTING
MBO is often achieved using set targets.

MBO introduced the SMART method for checking

the validity of the objectives which should be SMART

Specific Measurable, Agreed / Achievable Realistic, and Result Oriented

Time-Specific or Time related

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In an MBO, good goals are SMART goals:

specific

S
U C

M measurable
WORK

A achievable

HAVE

C E

R result oriented
T
time-related

S
S

GUIDELINES FOR SETTING OBJECTIVES:

SMART Criteria - Specific, Measurable, Achievable, Relevant, Time-Specific Clear and Realistic Results oriented Established before the fact Verifiable Agreed both by managers and the associates Written Consistent with focus

COMMON ERRORS TO AVOID WHEN DEVELOPING OBJECTIVES:

Too many objectives Too complex objectives Too high or too low standards Too long or too short time period Objectives that are not measurable Objectives for which the cost is too high

MBO; PLAN VIEW

Vision

MBO; CROSS SECTION

Top Managers
Vision Mission

Middle Managers

Tactical Plans

Management by Objectives Single-Use Plans

First-Level Operational Plans Managers

Standing Plans

Single-use Plans are developed to achieve objectives that are not likely to be repeated in the future. Single-use plans include both programs and projects. Standing Plans are used to provide guidance for tasks performed repeatedly within the organization. The primary standing plans are organizational policies, rules, and procedures. Operational Plans are used to identify specific results to be accomplished within a given short term time period. Contain detailed information used in the lower levels in an organization.

FEATURES OF MBO Peter Drucker also stated that: For the business to succeed, the managers and employees must work towards a common goal Managers must identify and agree targets for achievement with subordinates Managers must negotiate the support needed to achieve the targets with subordinates Evaluate the objectives over time

MBO AIM
Short and long-term planning Optymalization of organization structure

Better work and collaboration quality

Appraisal based on objective results

BONUSES

MBO PRINCIPLES
1.Cascading of organizational goals and objectives 2.Specific objectives for each team member

3.Participative decision making

4.Explicit time period 5.Performance evaluation & feedback

CASCADING OF OBJECTIVES

IS MBO SUITABLE FOR EVERY BUSINESS?

MBO could be suitable for a medium to

large business, using a democratic approach to management and operating in a stable market The overriding issues therefore are size of the business, the leadership style it uses and the rate of change in the market it operates.

HOW MBO WORKS

Jointly identify common goals. Define major areas of responsibility

in terms of results expected. Use measurements as guides for operating and assessing contributions of members.

UNDERLYING PURPOSES OF MBO

1. Clarify organizations goals and

plans at all levels. 2. Gain better motivation and participation from organizations members.

MBO; FRAMEWORK CONCEPT

Supervisor

Jointly plan Setting objectives Setting standards Choosing actions

Individually act Performing tasks (subordinate) Providing support (supervisor)

Jointly control Reviewing results Discussing implications Renewing MBO cycle

and

Subordinate

PHASES OF MBO
1. Top management team studies

system. 2. Team sets up methods of measuring performance. 3. Goal-setting sessions are held at all levels of organization.

Essential Steps for MBO

Set Goals
The most difficult step.

Develop Action Plan

For both workgroups and individuals.

Review Progress/ Take corrective action

Periodic during the year.

Appraise Overall Performance.

Review Annual Goals.

STEPS FOR MBO

STEP 1: SET GOALS Corporate Strategic goals Departmental goals Individual goals
Course of action For both workgroups and individuals

STEP 2: DEVELOP PLANS Action Plans

Review Progress & Take Corrective Action Appraise Performance STEP 3: REVIEW PROGRESS

STEP 4: APPRAISE How are we doing? OVERALL PERFORMANCE Do we need to restate our goals?

ESSENTIAL STEPS FOR MBO

Set Goals (The most difficult

step) What are we trying to accomplish? Develop Action Plans What do we need to do to get there? Groups and individuals Review Progress How are we doing? Periodically (How Often?) Does plan need to be tweaked? Appraise Performance Rewards?

Six MBO Stages

Define corporate objectives at board level Analyze management tasks and devise formal job specifications, which allocate responsibilities and decisions to individual managers Set performance standards Agree and set specific objectives Align individual targets with corporate objectives Establish a management information system to monitor achievements against objectives

The Five-Step MBO Process

e.g. HOW TO SET CORPORATE OBJECTIVES

Mission statement
Corporate objectives Departmental objectives
To become the leading supplier of computers in London To increase sales in London by 10% in the next 5 years e.g. (marketing department) to achieve a 10% share of the computer market in London within the next 5 years e.g. to design questionnaires as part of market research

Individuals and team targets

SOURCES OF MBO FAILURES

1. Lack of top management commitment and follow through on MBO. 2. Employees negative beliefs about managements sincerity in its efforts to include them in the decision-making process.

ADVANTAGES OF MBO
Improves employee motivation Improves communication in the organisation Flags up and highlights training needs required

to achieve objectives Improves overall performance and efficiency Attainment of goals can lead to the satisfaction of Maslows higher order needs MBO programs continually emphasize what should be done in an organization to achieve organizational goals. A basis for promotion and compensation Better managerial planning and use of employee MBO process secures employee commitment to attaining organizational goals.

ADVANTAGES OF MBO
The employee has knowledge of the

managers goals, priorities and deadline He has a greater understanding of where he stands with the manager in relation to relative progress There is a basis for better evaluation than personality It stimulates higher individual performance and morale

DISADVANTAGES OF MBO
May demotivate staff if targets are too high and unrealistic,

also if imposed rather than agreed Requires the cooperation of all employees to succeed The development of objectives can be time consuming, leaving both managers and employees less time in which to do their actual work. 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. Can be bureaucratic and time consuming (meetings, feedback) Can encourage short-term rather a more focused longterm growth Objectives may go out of date and can restrict staff initiative and creativity Setting targets for certain specialised employees may be difficult

DISADVANTAGES OF MBO
Difficulty in setting agreed, harmonized goals
Danger of inflexibility Individual over collective effort It underemphasizes the importance of the environment in

which the goals are set It did not address the importance of successfully responding to obstacles and constraints as essential to reaching the goal

MAKING MBO PROCESS EFFECTIVE

If MBO is to be successful, it must start at

the top of the organization

Employees must be educated about what MBO is and what their role in it will be. Managers must implement MBO in a way that is consistent with overall organizational goals.

Managers tell their subordinates what organizational and unit goals and plans top management has established.
Managers meet with their subordinates on a one-to-one basis to arrive at a set of goals for each subordinate that both develop and to which both are committed. Goals are refined to be as verifiable as possible
and achievable within a specified period of time.

 Goals must be written and very clearly stated. Managers must play the role of counselors in the goal-setting and planning meeting. The meeting should specify the resources that the subordinate will need Conducting periodic reviews The employee is rewarded on goal attainment.

MASLOWS NEEDS THEORY

We each have a hierarchy of needs that ranges from "lower" to "higher." As lower needs are

fulfilled there is a tendency for other, higher

needs to emerge.
2004 Daniels,

Maslows theory maintains that a person does not feel a higher need until the needs of the current level have been satisfied. Maslow's basic needs are as follows:

MASLOWS NEEDS THEORY

Achieve full potential, SelfActualization Fulfillment
Esteem Needs Social Needs
(Love & Belonging)

Self-Respect, Self-Esteem, Respected by Others

Affection, Acceptance, Inclusion Protection, Stability, Pain Avoidance, Routine/Order Food, Air, Water, Clothing

Safety Basic Human Needs

(Physiological)