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Management by Objectives (MBO) is a process of agreeing upon objectives within an

organization so that management and employees agree to the objectives and understand
what they are in the organization.

The term "management by objectives" was first popularized by Peter Drucker in his 1954
book 'The Practice of Management'.[1]

The essence of MBO is participative goal setting, choosing course of actions and decision
making. An important part of the MBO is the measurement and the comparison of the
employee’s actual performance with the standards set. Ideally, when employees
themselves have been involved with the goal setting and choosing the course of action to
be followed by them, they are more likely to fulfill their responsibilities.

Unique features and advantage of the MBO process

The principle behind Management by Objectives (MBO) is basically for employees to

have clarity of the roles and responsibilities expected of them. They then understand the
objectives they must do and the over all achievement of the organization. They also help
with the personal goals of each employee.

Some of the important features and advantages of MBO are:

1. Motivation – Involving employees in the whole process of goal setting and

increasing employee empowerment increases employee job satisfaction and
commitment.
2. Better communication and Coordination – Frequent reviews and interactions
between superiors and subordinates helps to maintain harmonious relationships
within the enterprise and also solve many problems faced during the period.
3. Clarity of goals
4. Subordinates have a higher commitment to objectives that they set themselves
than those imposed on them by their managers.
5. Managers can ensure that objectives of the subordinates are linked to the
organisation 's objectives.

MBOMBO STRATEGY: Three Basic Parts5

1. All individuals within an organization are assigned a special set of objectives that they try
to reach during a normal operating period. These objectives are mutually set and agreed upon by
individuals and their managers.
 2. Performance reviews are conducted periodically to determine how close individuals are to attaining
their objectives.
3. Rewards are given to individuals on the basis of how close they come to reaching their goals.

The Concept Of Management By Objectives (MBO)

The concept of MBO is closely connected with the concept of planning. The process of
planning implies the existence of objectives and is used as a tool/technique for achieving
the objectives. Modern managements are rightly described as 'Management by
Objectives' (MBO). This MBO concept was popularized by Peter Drucker. It suggests
that objectives should not be imposed on subordinates but should be decided collectively
by a concerned with the management. This gives popular support to them and the
achievement of such objectives becomes easy and quick.

Management by Objectives (MBO) is the most widely accepted philosophy of

management today. It is a demanding and rewarding style of management. It concentrates
attention on the accomplishment of objectives through participation of all concerned
persons, i.e., through team spirit. MBO is based on the assumption that people perform
better when they know what is expected of them and can relate their personal goals to
organizational objectives. Superior subordinate participation, joint goal setting and
support and encouragement from superior to subordinates are the basic features of MBO.
It is a result-oriented philosophy and offers many advantages such as employee
motivation, high morale, effective and purposeful leadership and clear objectives before
all concerned per-sons.

MBO is a participative and democratic style of management. Here, ample a scope is

given to subordinates and is given higher status and positive/participative role. In short,
MBO is both a philosophy and approach to management. MBO concept is different from
MBC (Management by Control) and is also superior in many respects. According to the
classical theory of management, top management is concerned with objectives setting,
directing and coordinating the efforts of middle level managers and lower level staff.
However, achievement of organizational objectives is possible not by giving orders and
instructions but by securing cooperation and participation of all persons. For this, they
should be associated with the management process. This is possible in the case of MBO
and hence MBO is different from MBC and also superior to MBC.

MBO is an approach (to planning) that helps to overcome these barriers. MBO involves
the establishment of goals by managers and their subordinates acting together, specifying
responsibilities and assigning authority for achieving the goals and finally constant
monitoring of performance. The genesis of MBO is attributed to Peter Drucker who has
explained it in his book 'The Practice of Management'.

FUNCTIONAL APPROACH TO ORGANIZATION

In this approach, different people are organized in such a way that they work together in groups
to form departments. The focus is common skill and synchronized work activities, such as
marketing, engineering maintenance, accounting, etc. This is the most commonly adopted form of
organization structure. In same aspects, it exists in most organizations. A key characteristic of
functional organization is specialization by functional area:

LINE STRUCTURE ORGANIZATION

This is the oldest and most conventional type of relationship, which is also called as scalar or
military type. This is simple and represents a military organization, where relationships are based
on relative rank, authority and responsibility rather than the activity or operations that an
individual performs. Immediate supervisor is the boss. Authority flows downwards while
responsibility flows upwards. The relationships are more at vertical levels. No service or support
units are possible in an ideal line-type structure. The principle of unit of command is strictly
followed.

LINE AND STAFF STRUCTURE ORGANIZATION

Staff authority is used to support the line authority. Line authorities are more involved in the core
activities of the business. They have little time to analyze all information for many decisions. They
do not have expertise in all technical areas. Staffs are specialists, who help line authority in
discharging their duties. For example, a production manager (a line authority) does not have
enough time and experience to handle labor relation problems. Staffs (who are specialists) help
them in doing so.
Line and staff organizations have both line and staff executives. Line executives are assisted by
staff specialists in R & D, planning, distribution, quality, legal, audit, public relations, etc. The job
of staff is mainly advisory and guidance. Line executives maintain the supervisory power and
control over the execution of work.