Management by objectives

How strategic and operational plans differ

The evolution of the concept of strategy
Levels of strategy: some key distinctions
The contents of a corporate strategy
Management by objectives
 Highlighted in 1954 by Peter F. Drucker
 Stressed upon the need for “management by objectives
and self control”
 MBO may be defined as a process in which a manager
and his subordinates jointly decide the targets and
results to be achieved keeping in view the overall
objectives of the organisation, jointly identify the key
result areas(KRAs) and periodically evaluate the actual
results in terms of results and agreed upon in advance.
SMART objectives
 S - Specific
 M – Measurable
 A – Achievable
 R – Realistic
 T – Time bound
MBO process
 Defining corporate objectives
 Goal of each section
 Fixing key result areas (KRA)
 Setting subordinate objectives or targets
 Matching resources with objectives
 Periodical review meetings
 Appraisal of activities / Evaluation of results
Advantages of MBO
 It focuses the attention of executives on the results to
be achieved rather than on activities or tasks.
 It creates a link between organisational objectives and
quantified targets for individuals.
 It develops a sense of involvement among subordinates
and improves their commitment to overall goals of the
enterprise.
 It provides definite performance standards for
meaningful and equitable appraisal of performance of
each employee.
 It facilitates self-evaluation and feedback for
improving efficiency of operations.
 It enables management to cope with environmental
changes through review of objectives in the light of
environmental demands.
Limitation of MBO
 It overstresses quantification and the managers may
overlook the qualitative aspects of subordinates’
performance.
 MBO is a very time consuming and pressure-oriented
approach.
 MBO requires a high degree of participation by the
subordinates which may not be feasible in every
organisation.
STRATEGY
 This word derived from greek word ‘stretegos’ which
means generalship.
 The strategy referes to main three aspects :
1. Determination of basic long term goals and
objectives
2. Adoption of courses of action to achieve these
objectives
3. Allocation of resources necessary for adopting the
courses of action
LEVELS OF STRATEGY
 Corporate level strategy
 Business level strategy
 Functional level strategy
Corporate level strategy
 It is concerned with over all scope of an organisation
and considers how value will be added to the different
parts of the organisation.
 It is based on the mission and goals of the organisation
and the role that each business unit of organisation
will play.
 It includes issues like diversity of products, services or
business units and how resources are to be allocated
etc.
 It is decided by executive officers, board of directors
and administrative officers.
Types of corporate strategy
 Growth strategy
 Stability strategy
 Renewal strategy
 Retrenchment strategy
 Turnaround strategy
Business level strategy
 It focused on how an organisation will compete in each
of its businesses.
 It describes how the company will compete in its
primary or main market.
 The corporate value, organisation chart, line of
authority, levels of hierarchy are dealt at this level.
 It is a combination of goals and action plans.
Functional level strategy
 It involves decision making with respect to specific
functional areas , say production, marketing,
personnel, finance etc.
 These decisions are guided by overall strategic
considerations and must be consistent with the frame
work of the business strategy.
 It is more concerned with implementation plans as
directed by the business level strategy.
How strategic and operational
plans differ
Strategic planning
 It typically focused on for
more than 3 years.
 It focuses at its wider scope
and looks after the entire
organisation.
 Planning at strategic level is
most complicate as it varies
for each type of industry.
Operational planning
 It usually focused on within 1
year in the future.
 It has comparatively narrow
scope.
 Up to certain extent it is
complex but at the same time
it is specific as it is focuses on
limited domain of
application.
Strategic planning
 It has potential to drastically
impact, both the ways –
positive and negative , the
fortunes and survival of the
organisation.
 It has to compulsorily take
into account all the resources
and capabilities as well as the
external environment. So it
has higher degree of
interdependence.
Operational planning
 It can affect specific business
but generally not the fortunes
and survivability of the entire
organisation.
 It has limited level of inter
dependence. But still it
should take into account the
resources and capabilities of
several units within a
business.