Introduction
The concept Management by Objectives was coined
by Peter Drucker in 1954. As per this concept, the organizational goals are
broken down to different level objectives and assigned to individuals at
different level in order to have the organizational goal. It is a technique and
philosophy of management based on converting an organisational objective into a
personal objective on the presumption
that establishing personal objectives makes an employee committed, which leads
to better performance.
Koontz defined MBO as follows: “MBO is a
comprehensive managerial system that integrates many key managerial activities
in a systematic manner, consciously directed towards the effective and.
Efficient achievement of organisational objectives.”
According to George Odiome, “MBO is a process whereby superior and
subordinate managers of an Organisation jointly define its common goals, define
each individual's major areas of responsibility in terms Of results expected of
him and use these measures as guides for operating the unit and assessing the
contribution of each of its members."
According to John Humble, “MBO is a dynamic
system which seeks to integrate the company's needs to clarify and achieve its
profits and growth goals with the manager's need to contribute and develop
himself. It is a demanding and rewarding style of managing a business."
A careful study of the above
definitions brings out the following features of MBO.
a.
Management
by Objectives is a philosophy or a system, and not merely technique.
b.
It
emphasizes participative goal setting.
c.
It
clearly defines each individual responsibility in
terms of results.
d.
It
focuses attention on what must be accomplished (goals) rather than on how it is
to be accomplished.
e.
It
converts objective needs into personal goals at every level in the
organization.
f.
It
establishes standards or yardsticks (goals) as operation guides and also as
basis of performance evaluation.
g.
It is
a system intentionally directed toward effective and efficient attainment of
organizational and personal goals.
h.
Periodic
review of performance is an important feature of MBO.
i.
MBO
provides the means for integrating the organisation with its environment, its
sub- systems and people.
j.
Employees
are provided with feedback on actual performance as compared to planned performance.
Process of MBO
MBO
is a process for accomplishing enterprise objectives, enhancement of employee’s
commitment and participation. This process consists of a number of steps. They
are:
1.
Setting of organisational
objectives: The first
step in MBO is to set verifiable objectives for the organisation. The
objectives that are set also indicate the measures for achieving the
objectives. The objective setting usually commences at the top level of the
organisation and moves downwards to the lowest managerial levels. It goes in
sequence like this:
(a) Defining the purpose of the
organisation
(b) Long-range and strategic objectives
(c) Short-range organisational
objectives
(d) Departmental objectives
(e) Individual manager’s objectives.
2.
Setting of subordinates’
objectives: Since
organisational objectives are accomplished through individuals, each individual
manager should know in advance what he is expected to accomplish. The
objectives of the subordinates are set by the superior with their consultation
and agreement. This process makes them committed.
3.
Matching resources with
objectives: When
objectives are set, there should be a connection between objectives and
resources. This helps the organisation in allocating the resources in an economical
manner.
4.
Appraisal: Appraisal is the periodical review of
performance to measure whether the subordinate is accomplishing his objective
or not. If not, what are the problems and how these problems can be overcome?
5.
Recycling: The process of objective setting involves
recycling. It means that first of all objectives are set in consultation with
the subordinates, and then the subordinates set objectives for their
subordinates, and so on. Thus, objective setting is a joint process through
interaction between the superior and the subordinates. The three aspects
involved in the recycling process consist of setting of objectives at various
levels, action planning in the context of those objectives, and performance
review. Each of these aspects provides the base for others.
The main benefits of MBO are as
follows:
1.
Improved Planning: MBO involves participative decision-making which makes objectives
explicit and plans more realistic. It focuses attention on goals in key result
areas. MBO forces managers to think in terms of results rather than activities.
It encourages people to set specific pleasurable goals instead of depending on
hunches or guesswork. An integrated hierarchy of objectives is created
throughout the organization. Precise performance objectives and measures
indicating goal accomplishment are laid down. There is a time bound programme.
2.
Co-ordination: MBO helps to clarify the structure and
goals of the organization. Harmony of objectives enables individuals at various
levels to have a common direction. Every individual knows clearly his role in
the organization, his area of operation and the results expected of him. MBO
result in clarification of organizational roles and structure. It promotes and
integrated view of management and helps interdepartmental co-ordination.
3.
Motivation and Commitment: Participation of subordinates in goal
setting and performance reviews tend to improve their commitment to
performance. The corporate goals are converted into personal goals at all
levels to integrate the individual with the organization. Timely feedback on
performance creates a feeling of accomplishment Job enrichment and sense of
achievement help to improve job satisfaction and morale. Improved
communication and sense of involvement provides psychological satisfaction and
stimulates them for hard work. MBO ensures performance by converting objective
needs into personal goals and by providing freedom to subordinates.
4.
Accurate Appraisal: MBO replaces trait based appraisal by performance
based appraisal. Quantitative targets for every individual enable him to
evaluate his own performance. Performance under MBO is innovative and future
oriented. It is positive, more objective and participative. Emphasis is on job
requirements rather than on personality. MBO provides an objective criterion
for evaluation of actual performance. "Indeed one of the major
contributions of MBO is that it enables us to substitute management by
self-control, for management by domination.
5.
Executive Development: The MBO strategy is a kind of
self-discipline whereby shortcomings and development needs are easily identified.
It stresses upon a long term perspective and self-development. MBO releases
potential by providing opportunities for learning, innovation and creativity.
It encourages initiative and growth by stretching capabilities of executives.
6.
Organizational Change and
Development: MBO provides
a frame work for planned changes. It enables managers to initiate and manage
change. It helps to identify short-comings in organizational structure and
processes. In this way, MBO improves the capacity of the organization to cope
with its changing environment. When an organization is managed by objectives,
it becomes performance-oriented and socially-useful.
Originally
MBO was developed for business organizations but now it is being used by social
welfare organizations also. But MBO might not be very successful in welfare
organizations because of the abstract nature of the values to be measured in
specific and quantified terms, general unwillingness on the part of personnel
to subject their efforts to precise evaluations and lack of measuring
instruments which could generate valid and reliable data. MBO has special
significance in the areas of long range planning and performance appraisal.
Limitations of MBO
Although MBO is generally taken as the
panacea for all the problems of an organisation, it is not without weaknesses
or limitations. The following are the limitations of MBO:
1. MBO cannot be implemented
effectively on account of difficulty in setting verifiable objectives.
2. Open atmosphere for
appropriate objective-setting is absent because of differences in the status of
subordinates.
3. Managers may not get time
to do even their normal work as MBO involves much paperwork and holding of many
meetings.
4. There is a tendency on the
part of the managers to emphasis’s short-term objectives and to become more
precise in objective setting and accomplishment.
5. MBO is a philosophy of
managing an organisation in a new way. However, many managers fail to
understand and appreciate this new approach.
6. MBO represents the danger
of inflexibility in the organisation, particularly when the objectives need to
be altered. In a dynamic environment, a particular objective may not be valid
for ever.
In spite of all these weaknesses, MBO is considered
as one of the unique techniques of managing the organisation. However, the full
benefits of it can only be derived if the following basic requirements are
taken into account.
Essential Conditions for Successful Implementation of MBO
a) Support from all: In order that MBO succeeds, it should get support and co-operation
from the management. MBO must be tailored to the executive's style of managing.
No MBO programme can succeed unless it is fully accepted by the managers. The
subordinates should also clearly understand that MBO is the policy of the
Organisation and they have to offer cooperation to make it successful. It
should be a programme of all and not a programme imposed on them.
b) Acceptance of MBO programme by managers: In order to make MBO programme
successful, it is fundamentally important that the managers themselves must
mentally accept it as a good or promising programme. Such acceptances will
bring about deep involvement of managers. If manages are forced to accept NIBO
programme, their involvement will remain superfluous at every stage. The
employees will be at the receiving-end. They would mostly accept the lines of
action initiated by the managers.
c) Training of managers: Before the introduction of MBO programme, the managers should be
given adequate training in MBO philosophy. They must be in a position to
integrate the technique with the basic philosophy of the company. It is but
important to arrange practice sessions where performance objectives are
evaluated and deviations are checked. The managers and subordinates are taught
to set realistic goals, because they are going to be held responsible for the
results.
d) Organizational commitment: MBO should not be used as a decorative piece. It should be based on
active support, involvement and commitment of managers. MBO presents a
challenging task to managers. They must shift their capabilities from planning
for work to planning for accomplishment of specific goals. Koontz rightly
observes, "An effective programme of managing by objective must be woven
into an entire pattern and style of managing. It cannot work as a separate
technique standing alone."
e) Allocation of adequate time and resources: A well-conceived MBO programme requires
three to five years of operation before it provides fruitful results. Managers
and subordinates should be so oriented that they do not look forward to MBO for
instant solutions. Proper time and resources should be allocated and persons
are properly trained in the philosophy of MBO.
f) Provision of uninterrupted information feedback: Superiors and subordinates should have
regular information available to them as to how well subordinate's goal
performance is progressing. Over and above, regular performance appraisal
sessions, counseling and encouragement to subordinates should be given.
Superiors who compliment and encourage subordinates with pay rise and
promotions provide enough motivation for peak performance.