MANAGEMENT BY

OBJECTIVES (MBO)

By Alzira Xavier
Assistant Professor
Assistant TPO
 Objectives
• Objectives are defined as the important
ends toward which organizational and
individual activities are directed.

• An objective is verifiable when at the end

of the period one can determine whether
or not it has been achieved.
A specific result that a person or system
aims to achieve within a time frame and with
available resources.
 Management by Objectives
(MBO) (Definition)
• MBO is a comprehensive managerial
system that integrated many key
managerial activities in a systematic
manner and is conciously directed toward
the effective and efficient achievement of
organisational and individual objectives.
 Management by Objectives

(MBO) is a process of agreeing upon objectives

within an organization so that management

and employees agree to the objectives and

understand what they are in the organization.

The essence of MBO

 Participative goal setting

 Choosing course of actions and decision making

An important part of the MBO

It is the measurement and the comparison of the

employee’s actual performance with the standards set.

Ideally, when employees themselves have been involved

with the goal setting and the choosing the course of action

to be followed by them, they are more likely to fulfill their

responsibilities.
The Nature of Objectives

Hierarchy of Objectives
•Objectives form a hierarchy ranging from the broad
aim to specific individual objectives.

•Key result areas – An area in which performance is

essential for the success of the enterprise.
Objectives can be set in all domains of activities

Domains and levels

production services sales R&D

information
HR finance
systems

Some objectives are collective, for a whole department or the

whole company, others can be individualized
 The MBO Process

Better
Motivation Clarity of goals
communication
 Motivation
• Involving employees in the whole process
of goal setting and increasing employee
empowerment increases employee job
satisfaction and commitment.
 Better communication and
Coordination
• Frequent reviews and interactions
between superiors and subordinates helps
to maintain harmonious relationships
within the enterprise and also solve many
problems faced during the period.
 Clarity of goals
• With MBO, came the concept of SMART
goals i.e. goals that are:

1. Specific
2. Measurable
3. Achievable
4. Relevant, and
5. Time bound.
 CORPORATE OBJECTIVES
• First, companies need to set corporate
objectives. Some goals are then set for
the employees to meet those objectives.

• The employee performance is then

measured through the performance cycle,
and evaluated at the end. Finally, the
employee is rewarded for his or her
performance, and we repeat the cycle.
 EMPLOYEE OBJECTIVES
• Setting good objectives is very important;
that’s at the core of MBOs.

• Depending on the level of sophistication of

the MBO solution, some help with
objective setting, but most solutions
simply help out to manage them.
 MONITOR PERFORMANCE
• A big aspect of MBO solutions is the
performance monitoring. Traditionally,
that’s an activity performed at the end of a
performance cycle. With an MBO solution,
managers can usually record some
feedback about how employees performed
on a certain milestone at anytime. This
way, the employee’s contribution is not
forgotten when it’s time to evaluate them.
 EVALUATE PERFORMANCE
• The performance evaluation is another big piece of
MBO management. It is related to performance
monitoring but records final observations.

• For example, during the performance monitoring phase,

a manager could record that an employee performed a
certain task well, handled another sitation very well, and
attained a certain objective.

• The performance evaluation phase is when the manager

will quantify and finalize how well an employee
performed against his or her goals. That’s usually
recorded in form of a numeric scale (1 to 10) or a
percentage.
 REWARD EMPLOYEE
• Input from spreadsheets traditionally ends
with performance evaluation. However,
MBO solution typically makes it easier to
reward employees for their
performance. Many solutions allow
managers to assign a number of rupees,
within a certain range, for each set of
objectives.
 How to set Objectives
• Verifiable Objectives

• Non-verifiable Objectives
 Benefits of MBO
• Improvement of managing through results-
oriented planning

• Clarification of organisational roles and

structures

• Development of effective controls that

measure results.
 Weaknesses of MBO
• Failure to give guidelines to goal setters

• Difficulty of setting verifiable goals with the

right degree of flexibility.

• Failure to teach philosophy