Management by

objectives(MBO)
MEANING AND DEFINITION

 It was PETER F. DRUCKER who first gave the concept of MBO to the world way
back in 1954 when his “the practice of management” was first published.
 The MBO concept, as was conceived by DRUCKERR,reflects a management
philosophy which values and utilized employee contributions.
 Application of MBO in the field of performance appraisal is a recent thinking.
MEANING AND DEFINITION

 Management by objectives (MBO) is a process of defining objectives within

an organizations so that management and employees agree to the objective
and understand what they are in the organization.
 MBO aims to increase organizational performance by aligning goals and
subordinate objectives throughout the organization.
 MBO includes on-going tracking and feedback in the process to reach
objectives.
 According to prof. REDDIN, “MBO is the establishment of effectiveness
areas and effectiveness standards for managerial positions and the periodic
conversions of these into measurable time bound objectives linked
vertically and horizontally and with future planning”
FEATURES OF MBO

 An attempt is made by the management to integrate the goals of an organization and

individuals. This will lead to effective management.
 MBO tries to combine the long range goals of organization with short range goals.
 Management tries to relate the organization goals with society goals.
 MBO’S emphasis is not only on goals but also on effective performance.
 It pays constant attention to refining, modifying and improving the goals and
changing the approaches to achieve the goals on the basis of experience.
FEATURES OF MBO

 It increases the organizational capability of achieving goals at all levels.

 A high degree of motivation and satisfaction is available to employees through MBO.
 Recognizes the participation of employees in goal setting process.
 Aims at replacing the exercise of authority with consultations.
 Encourages a climate of trust, goodwill and a will to perform.
PROCESS OF MBO

Set of organizational goal

Joint goal setting

Performance review

Set check posts

feedback
PROCESS OF MBO

 SET ORGANIZATIONAL GOAL

 First step is to establish the goals each subordinate is to attain .
 In some organizations superiors and subordinates work together to establish goals.
 In other, superior establish goals for subordinates.
 The goal typically refers to the desired outcome to be achieved.
 These goals can then be used to evaluate employee performance.
PROCESS OF MBO

 Joint goal setting

 Joint goal setting , i.e., establishment of short term performance targets between the
senior and the subordinate in a conference between them.
 The individual manager must clarify in his own mind the responsibilities of their
subordinates
 Organization charts and job descriptions may be used .
 The manager may ask each subordinate to write down his personal goals, while in
turn the manager writes out the goals he thinks subordinates should have.
 The manager and subordinate then discuss them, reach an agreement about them,
and put them in writing.
PROCESS OF MBO

 Performance review
 This involves the performance standard for the subordinates in previously arranged
time period.
 As subordinates perform, they know fairly well what there is to do, what has been
done, and what remains to be done.
PROCESS OF MBO

 Set check posts

 In this the actual level of goal attainment is compared with the goals agreed upon.
 The evaluator explores reasons or the goals that were not met and for the goals that
were exceeded.
 This step help determine possible training needs.
 It also alerts the superior to conditions in the organizations that may affect a
subordinate but over which the subordinate has no control.
PROCESS OF MBO

 Feedback
 The employees who receive frequent feed-back concerning their performance are
highly motivated than those who do not get feedback that is specific, relevant and
timely feedback helps satisfy the need most people fell about knowing where they
stand.
Significance of MBO

 1)MBO helps and increase employee motivation

 It is so because MBO relates overall goals to the individual’s goals; and helps to
increase employee’s understanding of where the organization is and where it is
heading.
 2)managers are more likely to compete with themselves than
with other managers
 This kind of evaluation can reduce internal conflicts that often arise when managers
compete with each other to obtain scarce resources.
Significance of MBO

 MBO results in a “means ends” chain

 Management at lower levels in the organizations establishes targets which are
integrated with those at the next higher level.
 Thus ,it can help insure that everyone's activity is ultimately aimed toward
organization's performance.
 MBO PROVIDES MORE OBJECTIVE APPRAISAL
CRITERIA
 the targets that emerge from the MBO process provide a sound set of criteria for
evaluating the manager’s performance.
Significance of MBO

 MBO forces and Aids in planning

 By forcing top management to establish a strategy and goals for the entire organizations; and
by requiring other managers to set their targets and plan how to reach them.
 MBO identifies problem better than early
 Frequent performance review sessions make this possible.
 MBO identifies performance deficiencies
 IT identifies performance deficiencies and enables the management and the employees to set
individualized self-improvement goals and thus proves effective in training and development
of people.
 Helps the manager to develop personal leadership
 MBO helps the individual manager to develop personal leadership, especially
the skills of listening, planning ,counselling ,motivating and evaluating.
LIMITATIONS OF MBO

 pressure oriented
 MBO may prove to be self defeating in the long-run since it is tied with a reward punishment
psychology.
 it is a clear violation of integrity of subordinate’s personality.
 MBO programs sometimes, discriminate against superior performers.
 Time consuming
 MBO demands a great deal of time to set objectives carefully at all levels of the organizations.
 initially to instill confidence in subordinates in the ‘new system’ superiors may have to hold
many meetings.
 the formal ,periodic progress and final review sessions also consume time.
LIMITATIONS OF MBO

 INCREASED PAPERWORK
 MBO programs introduce a tidal wave of newsletters, instruction booklets, training
manuals , questionnaires, performance data, and reports into the organizations.
 To stay abreast of what is going on in the organization managers may demand
regular reports and data in writing resulting in “gruelling exercise in filling out
forms”.
LIMITATIONS OF MBO

 Goal setting problems

 MBO works when important measurable objectives are jointly agreed upon.
 It works less when ;verifiable goals are difficult to set; goals tend to take precedence
over the people who use it; goals are inflexible and rigid; there is over emphasis on
quantifiable and easily measurable results instead of important results;
overemphasis on short-term goals at the expenses of long –term goals.
LIMITATIONS OF MBO

 ORGANISATIONAL PROBLEMS
 MBO IS NOT A SOOTHING FOR ALL ORGANISATIONAL ILLS.
 IT IS it is not for everybody.
 MBO creates more problems than it solves when:
 1)there is failure to teach the philosophy to all participants. Too often MBO is introduced across the
organization with little explanation, training or help;
 2)there is failure to limit objectives. Too many objectives obscure priorities and create a sense of fear and
panic among subordinates;
 The program is used as a ‘whip’ to control employee performance;
 It leads to a tug of war in which the subordinate tries to set the lowest possible targets and superior the highest;
 Management turn MBO into a fraud and start ‘playing games’.