Management by Objective (MBO)

Management by objective or MBO is a management philosophy which was developed and recommended by the leading management guru, Mr Peter Drucker. MBO aims to improve the performance of an organization by clearly defining objectives that are agreed to by both management and employees. MBO is effectively applied to achieve organizational goals by meaningfully involving the employees of the entire organization to achieving these goals. 

One of the challenges organizations used to face was inadequate buy-in and involvement of employees in realizing the company goals which are generally set by senior management. There used to be a lack of connection between the senior management and the employees. Employees do not show enough ownership and commitment to achieve these new goals. This used to lead to not realizing the organizational goals as expected. 

Peter Drucker suggested a new way of achieving the organizational goals. He suggested that the organizational goals should be defined and agreed jointly by the senior management and the employees. The management should involve the employees wholeheartedly in this process of defining new goals. This will provide the employees a sense of belonging and a greater sense of ownership.  Organizational goals identified jointly will have complete buy-in of the entire organization. 

Once the new organization level goals are defined jointly, then this goal should be translated into specific goals to be achieved by each of the employees. Once such goals are established and also translated into employee level goals, then a method for managing and tracking these goals at an employee level can be established. This way the chances of achieving the organizational goals increases manifold as every employee will be contributing in achieving the bigger organization goal. 

The mnemonic S.M.A.R.T. is associated with the process of setting objectives in this paradigm. "SMART" objectives are:

• Specific - Target a specific area for improvement.
• Measurable - Quantify or suggest an indicator of progress.
• Agreed-upon – Between the two sides (who sets it and who will achieve this)
• Realistic - State what results can realistically be achieved, given available resources.
• Time-bound - Specify when the result(s) can be achieved 

The aphorism "what gets measured gets done", is aligned with the MBO philosophy

Steps in practicing MBO

The following steps are followed to practice MBO.

1. Define organizational goals and objectives
2. Define employee goals and objectives.
3. Continuous monitoring of performance and progress of employee level goals 
4. Performance evaluation
5. Providing feedback
6. Performance appraisal

Conclusion

More and more companies are adopting MBO. MBO can be applied in various areas of organisation such as performance appraisal, organisational development, long range planning, and integration of individual and organisational objectives and so on.

MBO requires joint ownership all employees and management for achieving goals. Every individual will be taking some responsibility in achieving the overall organizational goal. Hence it will be important to have employees who are highly capable and who show a good sense of responsibility.