Management by Objectives (M.B.O)
Management by Objectives (M.B.O)- Meaning
Peter F. Drucker, brain behind MBO thought, stressed every branch of an organization and every job should be directed towards the objectives of the business as a whole.
The management must decide the successfulness of each job (manager) on how far it, has achieved its set objectives. It is also called ‘Management by Results‘ or ‘Goals Management. Making the meaning of MBO more clear Mc Coney has said, “Management by Result may be defined as an approach to management planning and evolution in which specific targets for a year or some other length of time, are established for each manager, if overall objectives of the company are to be realized”.
Features of Management by Objectives (M.B.O.)
M.B.O. is based on the basic premise that all human activities are goal-oriented and so the organizations, too, are goal oriented. This technique, therefore, emphasizes on goal setting for effective management.
M.B.O. focuses on the attention of the organization on goals and their achievement. It stresses on the integration of individual goals of managers and employees with those of the organization. Both these goals should be set, integrated and achieved. Likewise, M.B.O. tries to integrate long-range goals of the organization with short-range goals, overall goals with those of the departments (or of subsystems) and organizational goals with thus of the society. In this way, M.B.O. provides an integrative approach of management by welding goals of individuals departments organization and the society.
M.B.O. not only emphasizes on setting and integration of goals but also effective performance and tangible results. Goals at every level are sought to be translated into quantifiable and verifiable action plans to be implemented on a time bound basis. A systematic effort is made to relate goals with the tasks, resources and efforts required, so the goals are not lost in mere activity; resources are effectively utilized and tasks are not mistaken as goals themselves.
Views Organization as a Dynamic System-
The philosophy of M.B.O views organization as an open and dynamic system. It recognizes the internal as well as external, forces and their dynamic nature. Consistent attention is therefore given on refining, modifying improving goals and on the approaches to achieve them in view of dynamic forces.
The technique of M.B.O. believes in effective participation of the members of the organization. It sees mobilize the entire talents available at various levels of the organization for the purpose of setting goals. The goals set by participation are more pragmatic, better understood, rightly communicated, easily accepted and willingly adhered to in the organisation.
Process of MBO
Management by objective is a system for achieving objectives of the organization and enhancement of commitment and participation of employees. The MBO process includes the following steps process.
Defining and Setting of Organization Objectives:
It is the first step in MBO process. Defining objectives is based on the questions like “Why does the organization exist? What business are we in ? or “What should be our business?” The possible answers of these basic questions provide the guidelines for setting; organizational goals. This objective setting starts at the top level of management and flows down to lowest level.
Identification of key Areas:
According to Peter F Drucker the key areas are, profitability market standing productivity, workers performance, financial and physical resources, manager’s performance and public responsibility. Organizational objectives and planning premises will help to identify the relevant key areas.
Setting Targets (Objectives) for Subordinates:
The organizational objectives are achieved through manpower under the leadership of a manager. Every sectional manager, therefore, must know in advance what he and his subordinates are expected to achieve. The process of targets setting is finalized by mutual negotiations between superior and subordinates. In the beginning easily achievable objectives are settled.
Providing Resources with Objectives:
Naturally the objectives are achievable only when there is availability of matching, resources. Proper matching, therefore, between, objectives and resources is very essential.
Appraisal or Evaluation of Results:
This step of MB O measures whether the subordinate is achieving his objectives or not. It is done by holding periodical meetings between superior and subordinates. Appraisal is an on-going process with a view to find out deficiency in the working, if any and to remove it promptly.
The outcome of appraisal (satisfactory or dissatisfactory) is recycled to check if the objectives have been set properly at the level concerned and also at the next higher level. The recycling process involves first setting of objectives for various levels, secondly action planning and finally the performance review.
How to make MBO programme successful?
Some of the more specific prerequisites of a successful MBO programme are presented briefly as under-
- The purpose behind an MBO programme must clearly be defined and explained to those involved in its working.
- The MBO programme should get a sizable commitment of time and effort on the part of the management group in the enterprise, from the chief executive down to the first-line supervisor.
- There should be a fundamental change in the organizational culture and environment so as fit into the MBO programme.
- Managers involved in an MBO programme should be given training so as to acquaint them with the concepts, philosophy and relevance of MBO.
- The MBO programme should be woven into an entire pattern and style of managing. It cannot work as a separate technique standing alone. It must, indeed be a part of the whole managing process.
- Efforts should be made to elicit high / degree of commitment from people involved in the MBO programme.
- An effective feedback system for self-direction and self-control should be established. This should enable each manager to know where he stands on an overall performance basis, and encourage superiors to evaluate progress to identify problems, and to offer suggestions periodically.
- The MBO programme should be implemented at lower levels of the organization, as far down as possible. This ensures a high degree of success of the MBO programme.
- The system of remunerating employees should be tied to the MBO programme so as to establish a judicious system of rewards and penalties.
- Those responsible for installing the MBO programme should ensure that objectives set form a network: they are not competing and inconsistent with each other.
Benefits of MBO
Following are the benefits of MBO:
Better management of organizational resources and activities:
Resources and activities in the organization are put in such a way through MBO that they result into better performance.
Clarity in organizational operations :
MBO identifies the areas where more attention is needed since the objective setting is based on the environment in which the organization operates any change in environmental factors is given due consideration for smooth planning and working.
Because MBO involves two important aspects participation in objective setting and rational performance appraisal, it provides highest personnel satisfaction as they feel that they are given importance and their performance will truly and actually measured.
Base for organization change:
MBO encourages organization changes and it provides a framework for planned change. Properly applied MBO helps to make easy the change process by handling suitably the resistance to change.
Limitations of MBO
MBO suffers from a number of weaknesses. As will be seen in the following discussion, most of the weaknesses are due to faulty application of MBO concepts:
Failure to teach the philosophy of MBO-
For MBO to be Successful it is necessary that managers who would put it into practice understand and appreciate a good deal about it. They in turn must explain to subordinates what it is, how it works, why it is being adopted, what part it will play in appraising performance, and above, all, how participants can benefit. The MBO philosophy is built on concepts of self-control and self-direction aimed at making managers professional.
Failure to give guidelines to goal setters-
Failure to give needed guidelines to goal setters works as another limitation of MBO. If those responsible for goal setting are not about organizational objectives, planning premises, major policies, programmes, etc. a fatal vacuum in planning would be inevitable.
Problems of goal setting-
It is a highly difficult task to set truly verifiable goals, particularly if they are to be formidable but attainable. If goals are too thigh requiring too much effort and placing too much emphasis on economic results, they are likely to put pressure on individuals that may encourage questionable behaviour, including selection of unethical means for achieving results.
Emphasis on short run goals-
In their anxiety to set precise verifiable goals and improve performance, many a manager often sets short run goals under MBO programme. There is always a danger that managers emphasize the short-run, perhaps at the expense of the longer range. It is important that superiors remember that current objectives, like any other short-run plan are designed to serve longer-range goals.
Danger of Inflexibility-
Managers working under as MBO programmers often adopt a rigid attitude on the question of a change in goals even though corporate objectives, premises, policies, strategies, etc., might have changed drastically, thereby rendering these goals irrelevant. This inflexibility on the part of managers may adversely affect the attainment of organizational objectives.
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