MBO

Objective is to Learn
What Is Managements By Objectives Features of MBO Process of MBO Benefits of MBO Limitation of MBO MBO in Practice

What Is MBO? MBO 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 and others have 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. Thus, MBO is a system for integrating managerial activities. As depicted in Figure A, the organizations overall objectives are translated into specific objectives for each succeeding level (that is, divisional, departmental, individual) in the organization. But because lower-unit managers jointly participate in setting their own goals, MBO works from the bottom up as well as from the top down. The result is a hierarchy of objectives that links objectives at one level to those at the next level. And for the individual employee, MBO provides specific personal performance objectives. Each person, therefore, has an identified specific contribution to make to his or her units performance. If all the individuals achieve their goals, then their units goals will be attained and the organizations overall objectives will become a reality. There are four ingredients common to MBO programs: goal specificity, participative decision making, an explicit time period, and performance feedback. The objectives in MBO should be concise statements of expected accomplishments. It is not enough, for example, merely to state a desire. to cut costs, improve service,- or increase quality. Such desires have to be converted into tangible objectives that can be measured and

evaluated. To cut departmental costs by 7 percent, to improve service by ensuring that all telephone orders are processed within 24 hours of receipt, or to increase quality by keeping returns

Figure A: Cascading of Objective

Each objective has a specific time period in which it .is to be completed. Typically that period is 3 months, 6 months, or 1 year. So managers and employees have not only specific objectives but also stipulated periods in which to accomplish them. The final ingredient in an MBO program is feedback on performance. MBO seeks to give continuous feedback on progress toward goals so that individuals can monitor and correct their own actions. Continuous feedback, supplemented by more formal periodic managerial evaluations, takes place at the top of the organization as well as at the bottom. The vice president of sales, for instance, has objectives for overall sales and for each of his or her major products. He or she will monitor ongoing sales reports to determine progress toward the sales divisions objectives. Similarly, district sales managers have objectives, as does each salesperson in the field. Feedback in terms of sales and performance is provided to let all these people know how they are doing. At formal appraisal meetings, managers and their employees can review progress toward goals and further feedback can be provided. Features of MBO

In the light of the above definitions of MBO, the following features of it can be identified. 1. It is a technique and philosophy of management. 2. Objective setting and performance review are made by the participation of the concerned managers. 3. Objectives are established for all levels of the organisation. 4. It is directed towards the effective and efficient accomplishment of organisational objectives. 5. It is concerned with converting an organisational objective into a personal objective on the presumption that establishing personal objectives makes an employee committed which leads to better performance. 6. The basic emphasis of MBO is on objectives. MBO tries to match objectives with resources. 7. Objectives in MBO provide guidelines for appropriate systems and procedures. 8. Periodic review of performance is an important feature of MBO. 9. MBO provides the means for integrating the organisation with its environment, its subsystems and people. 10.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 employees 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 managers objectives. 2. Setting of subordinates objectives. Since organisational objectives are accomplished through individuals, eachindividual manager should know in advance what he is expected to accomplish. The objectives of the subordinates are set by the superior with their onsultation 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, 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 (Figure B). Each of these aspects provides the base for others. Figure B: Recycling aspects of MBO.

Benefits of MBO An effective system of MBO leads to the following results in the organisation. 1. MBO helps in improving productivity as the management team concentrates on the important task of reducing costs. 2. MBO helps in making a more systematic evaluation of performance. 3. It provides greater opportunity to managers for personal satisfaction on account of participation in objective setting and rational performance appraisal. 4. It helps in locating weak and problem areas because of improved communication and organisation structure. 5. It serves as a device for organisational control integration. 6. It stimulates the subordinates motivation. 7. It is the basis for organisational change as there is a constant process of interaction between the superiors and the subordinates. 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 emphasises 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. MBO in Practice Youll find MBO programs in many business, health care, educational, government, and nonprofit organizations. Most organizations, in fact, make some use of MBO features because managers find that goals give people direction and it doesnt make sense to establish goals and then fail to evaluate whether or not theyre being achieved. MBOs popularity should not be construed to mean that it always works. There area number of documented cases in which MBO was implemented but failed to meet managements expectations. A close look at those cases, however, indicates that the problems rarely lie with MEOs basic components. Rather, the culprits tend to be factors such as unrealistic expectations regarding results, lack of commitment by top management, and an inability or unwillingness by management to allocate rewards based on goal accomplishment. Nevertheless, MBO provides managers with the vehicle for implementing goal-setting theory.