How can MBO be an effective method for appraisal of performance motivation planning and controlling?

Management by objectives (MBO) is a strategic approach to increase company performance by aligning company and team objectives. In this article, we’ll explain how the MBO process works and some pros and cons of using the MBO model.

The idiom “It takes a village” refers to the idea that success stems from collaboration. As a project manager, you experience this first-hand. You rely on your village—or your team—to complete projects. Companies also rely on the collective whole to meet their objectives. But how do team members stay motivated to work toward the objectives of others? 

Management by objectives (MBO) is a strategic approach to increase company performance by aligning company and team objectives. In this article, we’ll explain how the MBO process works. We’ll also discuss the pros and cons of using the MBO model.

What is management by objectives (MBO)?

Management by objectives (MBO) aligns team member goals with company objectives so team members feel more motivated and included at work. First introduced by Peter Drucker in his 1954 book “The Practice of Management,” the MBO model also places focus on monitoring team member performance using reporting tools and performance reviews. 

MBO uses objective standards to measure team member and company performance. Objective standards outline what is fair, reasonable, or acceptable in an agreement. You can use these standards to assess team member productivity and identify opportunity areas within the team. MBO works because part of the MBO process involves management and team members aligning and agreeing on these objective standards.

The 5 step process for MBO

There are five steps to the MBO technique. Implementing this process involves creating organizational goals and turning those goals into a set of individual objectives that team members can follow. 

The first course of action is to define your organizational objectives. As a project manager, your job may be to co-create company objectives or translate company objectives to your team in an understandable way. You can use a business goals template to structure your specific goals in this stage.    

2. Translate objectives into goals

After you’ve defined the company’s objectives, use a top-down approach to translate the company objectives into individual goals for each team member. Make sure you’re using the SMART goals framework to ensure your team members’ goals are measurable and achievable.

When team members have personal goals that ladder up to larger company goals, they understand how they fit into the bigger picture. According to our research, only 26% of employees have a clear understanding of how their individual work relates to company goals and just 16% say their company is effective at setting and communicating goals.

3. Monitor performance

As your team members work toward their specific objectives, you’ll need to monitor their performance. You can monitor the performance of each team member by gathering success metrics from your project management tool and assessing whether objectives and key results (OKRs) are being met. Monitoring team member performance will also help you assess team member productivity.

4. Evaluate progress

You can evaluate team member progress by setting up performance appraisals. Performance appraisals will allow you to give personal feedback on what each team member is doing well and where they can improve on their individual goals so they can better serve the company as a whole. This step in performance management is crucial because it emphasizes effective communication between management and the team. Team members may look forward to performance evaluations because feedback can provide a boost in team productivity.

5. Reward accomplishments

The last step in the MBO system is rewarding the team for their achievements. This increases team morale and keeps teammates motivated to work hard during the next MBO process. 

You can reward your team in both intrinsic and extrinsic ways. You can promote intrinsic motivation by challenging team members, recognizing their hard work, ensuring they feel a sense of belonging, and offering team-building activities. With these actions, you’ll help team members develop self-confidence and self-motivation.  

Extrinsic rewards may include praise, a paid bonus, a salary increase, promotions, extra responsibility in their current role, or with paid time off. These rewards may be tangible or intangible, but they’ll likely incentivize team members to continue working toward their individual objectives and the company’s. 

The pros and cons of MBO

MBO became a popular management strategy in the 1960s and 1970s after it was first introduced by Drucker. However, widespread usage of the model has since decreased as companies tested out new styles of management. Some companies today still use MBO, but there are arguments for and against it.  

Supporters of MBO believe that using this form of management within a larger system creates a simpler management structure. Other benefits include:

• Increased team productivity: When team members have personal objectives, they have more clarity about why their work matters. As a result, their motivation and productivity increases. 

• Improved team communication: The MBO model can improve team communication and create a more open work environment because team members understand the objectives of the company and know that their personal goals align with those objectives. 

• Personalized team member objectives: Because the MBO system personalizes team member objectives and makes it a priority for team members to reach their highest potential, everyone in the company understands how their work makes an impact.

Cons of MBO

Opponents of MBO believe that the model risks overlooking company ethics and values by placing so much focus on individual goals. Other drawbacks include:

• Prioritization of goal-setting over strategic planning: Prioritizing personal objectives for team members may come at the expense of long-term strategic planning. Companies that spend so much time setting goals may have less time to focus on company culture, operational issues, and other areas of involvement. 

• Increased strain on team members to meet goals: Because MBO focuses on the individual, team members may feel too much pressure to reach their goals. This can be a drawback of MBO because team members may become overworked in this type of work environment, which can lead to low retention and low morale. 

• Competition between team members: The extrinsic-focused reward system incorporated in MBO may promote competition between team members, which may get in the way of creating a healthy work environment. Healthy team dynamics in the workplace should include teamwork and supporting one another to reach personal and company goals. 

Management by objectives example

An example of MBO in action would be a company that has a quarterly objective to earn 30% of overall revenue from their marketing efforts. To achieve this objective, they break it down into personal objectives for each team member. 

• For the digital marketers on the team, their personal objectives are to secure three new marketing clients for the quarter. 

• Managers monitor team member performance over the quarter to identify how each team member plans to achieve their personal goal and whether they’re making progress toward the goal. 

• If a team member reaches their goal at the end of the quarter, they are rewarded with a paid bonus.

Set goals and achieve company objectives with MBO

MBO is most effective when used as one part of a more comprehensive management plan. When team members have goals that connect to the company mission, they’ll feel more motivated to collaborate. With goal-tracking software, you can help your team members stay on track with their goals and help them meet those goals in real time.

MBO Definition: A strategic or managerial model that defines clear and concise objectives that are accepted by management and employees to improve the performance of the organization is called MBO or management by objectives. There are 6 steps in the process of MBO that we are going to discuss in detail in this article.

To achieve greater efficiency and performance, employee motivation is really important to have and Management by Objectives (MBO) is the best approach to do so.

This approach was first proposed by Peter Drucker in 1954, and by definition, the process of management by objectives show a personnel management system, where the organization set, plan, monitor and achieve specific objectives with the mutual cooperation of both high level and low-level employees.

Understanding the Concept of MBO?

Note: If you are looking for steps of the process of MBO then you can skip this part and jump to the MBO process steps. But I would recommend reading the complete article because MBO is a term that is, sometimes, confused by some people. For example, some people take MBO as an assessment tool, some take it as a planning and controlling technique, while the others take it as a motivational technique.

That’s why I recommend reading the full article to understand the concept of MBO fully.

Let’s get back to the topic and define management by objectives.

None of the organizations or companies can sustain for a longer time if they don’t define clear and achievable goals. Defining objectives is not enough, an organization also needs a mechanism to implement and monitor those objectives while keeping their employees motivated and a channel of communication always opened.

Fortunately, we have this framework called MBO (Management by Objectives).

In management by objective, also known as management by planning or management by results, approach employees and managers work together to set realistic and achievable organizational goals for a specified period of time.

During this time, managers evaluate the actual performance by comparing it against the defined objectives to see how far their employees have performed. In MBO, superiors reward employees rather than punishment.

It means the central idea of MBO is that it helps the employee to grow their skills while increasing the performance of the organization. Through this approach, managers can keep their employees motivated and committed to the work by rewarding them.

In the MBO approach, employees get feedback on daily basis rather than at the end of the work. This method ensures that employees and managers have a good channel of communication.

This channel of communication is very vital for the success of the organization because employees can perform better only when they get clear and achievable objectives direct from the top management. Then trained managers are appointed over those employees to implement those defined objectives.

The most important part of MBO that makes it successful is monitoring and evaluating the progress against the objectives.

Information: MBO focuses on effectiveness rather than the efficiency of an organization. In other words, quality of performance rather than speed. This makes MBO a result-oriented framework.

In this approach, the work is divided into smaller units to make employees comfortable while finishing them.

Let me present this whole concept in simpler words.

MBO is a management system where managers, subordinates, and employees work together to define clear and achievable objectives for an entity to make it successful.

According to Peter Drucker’s theory, when employees are involved in setting the organization’s goals, they participate fully and it keeps them motivated because they get a clear action plan with a clearly defined target to chase.

This is how the concept of MBO works in simple words.

But it doesn’t end here. We still have to explore a lot about MBO and the steps in the process of MBO. We will also cover the advantages and disadvantages of MBO, types of objectives, and real-life examples, etc. So, keep reading.

Elements of Management by Objectives

Note: These are general elements of MBO, not the steps of MBO. We will cover the steps in the process of MBO shortly.

1. Goals

Goals are the most important and fundamental elements of the MBO management process. They are set for all contributors of the organization including managers, employees, CEO, team leaders, and other contributors.

They make them all responsible for their part of contribution and everybody in the organization has a sense of what he/she is supposed to do to fit into the big picture. It means that there is no confusion left and everybody knows their responsibilities.

2. Objectives

Objectives are also the most important elements of the MBO process. They are set for the organization or we can say for work. Objectives are the target that each contributor has to chase by using his/her goals.

Objectives also help evaluate the performance of contributors. If contributors have easily achieved the objectives in a defined period of time, then managers try to make them challenging yet motivating to further improve their performance.

3. Performance Reviews

Performance reviews help managers to evaluate the weaknesses and strengths of their employees so they can open a channel of communication to appreciate the performance or fix the errors. This element also opens up brainstorming sessions for both managers and employees so they can fix the problems or modify the objectives (if possible).

Principles of MBO

The following are the most important principles of the MBO process.

1. Focus on growth and development instead of failure and punishment.
2. Open a channel of regular feedback instead of static weekly or monthly reports.
3. Make objectives more challenging but motivating as well for better results.
4. Employees must involve while setting objectives for a particular entity.
5. Make performance-oriented reviews rather than speed-oriented. It means it is the performance that counts.
6. Focuses on goals rather than methods.

Features of MBO

After defining MBO, the principles of MBO, and how it works, we are now able to list out the main features of the MBO system. Following are the most important features of the MBO.

1. MBO is a philosophy, not a technique that provides a path to organizational success. It means MBO is not just limited to a certain area, but it is a philosophy that fits every aspect of management.
2. Managers and employees define the objectives of the organization or individuals by working together to set a target that is to be chased later.
3. Later, these defined objectives become the scale of evaluation on which managers evaluate the performance of their employees.
4. Every contributor has a clear sense of what he/she is supposed to do.
5. MBO defines what is to be achieved instead of how it is to be achieved.
6. It is a result-oriented managerial approach.

MBO Objectives

Although, we define objectives are the different steps in the process of MBO but following are the general types of objectives that we must know before involving in the MBO process. The 3 types of objectives are:

1. Strategic Objectives – Board Related: These are the top-level objectives defined by superior management of the organization. They are at the top of the pyramid from where the flow of objectives starts.You can say strategic objectives define the bigger picture of the company and describe what the company is going to do to achieve its mission. Some examples of strategic objectives are:
   1. Launching new product
   2. Increasing sales of existing product
   3. Increase profitability
   4. Grow market shares
2. Tactical Objectives – Team Related: These types of objectives work within the organization. These objectives are set by a group of people or a team that is going to work together to achieve a common goal.
3. Operational Objectives – Individuals Related: Operational objectives are defined by an individual employee during objectives setting meetings. The employee sets these objectives according to his/her competencies and the available resources. As these objectives are set by individuals, therefore, these objectives vary from person to person. A department can also set operational objectives for its operational staff.

Now finally we are ready to discuss the steps in the process of MBO in detail.

Management by Objectives Process – Steps in the process of MBO

Process of Management by Objectives – Step by Step Infographic

The process of MBO involves 6 key steps that incorporate managerial plans in such a systematic way, which is directly influenced by the efficient and effective achievement of individuals and organizational objectives.

In case you want to analyze the practical importance of Management by Objectives, then it is good to summarize all the objectives of the organization together with individual goals.

The 6 steps involved in the process of MBO are determining organizational goals, determining employees’ objectives, constantly monitoring progress and performance, performance evaluation, providing feedback, and MBO performance appraisal.

The 6 steps of the MBO process are:

1. Determining Organizational Goals
2. Determining Employees’ Objectives
3. Constant Monitoring Progress and Performance
4. Performance Evaluation
5. Providing Feedback
6. The Performance Appraisal

Let’s now go into the depth of each step of MBO and find out what the process of MBO is actually?

1. Determining Organizational Goals – Setting Organizational Purpose

In this picture: Top management working together

The very first step in the MBO process is defining organizational goals. These goals must be clear and concise and different kinds of managers must involve when settings goals. Goals can be either long-term goals or short-term goals.

These goals are concerned with organizational growth, profit, and production, etc.

The entire development of an organization depends on the set goals. A goal is the most critical and necessary factor behind the effectiveness and efficiency of an organization, so it is important to effectively manage set goals either single or many different kinds.

Before working on the set goals, the managers should determine organizational goals by aiming to create potential management that must be capable of handling various kinds of goals easily.

Determining goals don’t mean creating goals, as the preliminary goals are set by the top-level supervisors based on in-depth analysis and judgment about what should be accomplished and how to do so in a certain period.

Organizational goals transmit through different goal-setting sessions where all the contributors have agreed upon. For example, first of all, the supervisor defines his goal and action plan. Then he/she meets his/her subordinates and tells them the action plan and the goals.

Once subordinates agree upon the objectives and action plan of their supervisor, they then meet their workers and operating staff to explain the objectives and action plan.

George Odiorne says an MBO program is successful only when it effectively converts organizational goals into the organization’s unit-oriented goals.

The characteristics of an ideal organizational goal must be:

1. Clear, concise, and without any confusion
2. Challenging yet motivating for the works and operational staff
3. Within the skills and competence of the operational unit
4. Consistent throughout the goal-setting sessions

While defining organizational objectives, it is mandatory that you also do resources analyses so that the goals are realistic and achievable. Once goals are determined by supervisors or top management, then these goals must be communicated through all channels to subordinates, operational staff, and all other levels.

Note: Organizational objectives or goals should not be imposed or forced on subordinates or operational staff. Rather they must equally participate when establishing objectives and they must agree upon as well. This will make the subordinates committed to the goals.

In short, the objective setting must be according to the mnemonic S.M.A.R.T which means:

1. Specific: The objective must clearly state the area of the organization that needs improvement s
2. Measurable: Organizational goals must be set in a way that later they can be measured by some kind of performance indicator.
3. Agreed-Upon: It’s important that the objectives are communicated to all levels and all levels must agree upon those objectives. It means the objectives must be accepted by two levels, those who created the objectives and those who are going to work and achieve objectives.
4. Realistic: Objectives must be realistic meaning that objectives are set by keeping the available resources in mind and what can possibly be achieved.
5. Time-Bound: There must be an end period when the performance can be measured or when the objectives must be fulfilled.

In short, while defining the objectives of the organization, a statement of purpose (SOP) must be clear by knowing the answer to the following questions:

• Why does the organization exist?
• What are the goals?
• What product or services does this organization offer?
• Which domain this organization is going to deal with?

2. Determining Employees’ Objectives – Developing Action Plans

In this picture: Woman employee working on a laptop

After determining the organizational goals, the next step Is to set the individual’s goals or more clearly employees’ goals. It is the responsibility of the manager to ask employees about what goals they can accomplish within a specific period and what resources will they use to achieve those goals.

If needed, managers and employees can prioritize the goals from the most important to the least important ones to make the goal chasing process easy and in favor of the organization.

Basically, this step is an action plan for employees or this phase sets up performance objectives. This action plan clearly states what is to be done, how is it to be done, and what is the path to achieving these goals?

Managers and subordinates or employees join to develop this action plan. This helps managers to set a progress monitoring indicator to see actual performance. Not only this, but the action plan also helps to identify the most efficient methods to achieve the feasible goals.

This step ends the planning phase of MBO because, after this reviews, monitoring, feedback activities start.

In simple words, this step of MBO is a two-way process rather than one-way. It means superiors don’t impose or forces these objectives on employees. Rather, superiors suggest these goals to employees and employees accept them or ask for changes if available resources are not feasible for certain objectives.

In simple words, this step of MBO is a two-way process rather than one-way. It means superiors don’t impose or forces these objectives on employees. Rather, superiors suggest these goals to employees and employees accept them or ask for changes if available resources are not feasible for certain objectives.

In simple words, this step of MBO is a two-way process rather than one-way. It means superiors don’t impose or forces these objectives on employees. Rather, superiors suggest these goals to employees and employees accept them or ask for changes if available resources are not feasible for certain objectives.

3. Constant Monitoring Progress and Performance

The process of MBO is not just set for providing additional effectiveness to managers across the organization, but it is also equally important for constantly monitoring the progress and performance of the employees.

Some of the important things that can help managers to monitor performance and progress are:

• Checking less-effective or ineffective programs by performing a comparison of performance with already prepared objectives
• Using ZBB (Zero Based Budgeting)
• For measuring plans and individuals, implementing MBO concepts
• Defining short term and long term plans, objectives, and goals
• Installing efficient and effective controls
• Eventually, composing the completely sound structure of the organization with all things at appropriate places such as responsibilities, decision making, and so on

In this phase, subordinates and superiors regularly conduct meetings to see the progress and performance.

In case, if the employees are not performing well according to the original action plans then immediate remedial actions are taken to fix the problems. Not only current problems are fixed, but future weaknesses are also identified.

Another benefit of monitoring is that it makes employees conscious that superiors are regularly monitoring their performance for the action plan they agreed upon earlier. As a result, they work towards achieving the defined objectives more efficiently.

4. Performance Evaluation

As per the basic concept of MBO, the performance evaluation comes under the responsibility of concerned managers and is made by their participation. Keep in the mind, performance evaluation is one of the most important factors of the organization that can help to operate certain objectives smoothly.

5. Providing Feedback – Performance Review

The psychologically influential factor of MBO is providing continuous feedback to employees regarding their performance and individual goals so that they can monitor, correct, and extra improve their skills and mistakes.

Mostly, the feedback is provided in periodic meetings held by supervisors and their subordinates to review the performance and progress towards the achievement of goals. At one point, feedback helps individuals know their weaknesses.

While on the other hand, it also motivates already potential individuals to enhance and develop their performance additionally.

The main purpose of feedback is to identify the deviations and shortcomings to improve the quality rather than focusing on criticism.

Feedback is provided in a face-to-face meeting held by superiors for the subordinates. These feedback meetings are held at different intervals like 3 months, 6 months, or 9 months depending on the organization’s structure.

Feedback not only reviews the performance of subordinates but also checks if the objectives are still valid or if any modifications are required to make the objectives valid.

6. The Performance Appraisal – Recycling

In this picture: Woman holding a page of feedback

Performance appraisals are the final step of the process of Management by Objectives. By definition, a day-by-day review of the employee’s performance across the organization can be called a performance appraisal.

Performance appraisal is associated with the term performance evaluation, but in some cases, both differ from each other.

At this step, rewards of MBO appraisal are decided for individuals based on their performance. This helps motivate employees to work with more passion.

Not only appraisal but at the step new objectives are set or current objectives are modified (if needed) along with their approaches to improve the overall performance. This phase helps employees identify their areas of excellence and weaknesses.

It means MBO helps employees and superiors in career advancement, skill improvement, and self-improvement.

After this phase, the whole cycle repeats itself with clear feedback for the next steps. This reward or review gives a clear message to all employees that the hard work and goal achievement has been valued so that they can also put their heart into the work. This works not only for employees but also for all levels of the organization.

When reviewing or appraising, superiors must keep the following points in mind:

1. As MBO objectives are measurable, attainable, and time-bound, the performance of an employee must be evaluated based on these criteria and it should be straightforward.
2. As MBO goals are different for each employee based on his/her competencies, therefore, the evaluators evaluate their performance according to their competency and goals. One scale of performance evaluation can’t work for all employees.
3. Feedback or appraisal must be clear, accurate, and fair. Otherwise, there is no benefit of MBO after the whole MBO cycle.
4. Feedback or appraisal must be based on performance and results not based on failures or excuses. However, the manager must note the failures and excuses so they can fix them in the future with appropriate corrective actions.

There are various performance appraisal instruments that superiors can use to keep their employees motivated. Some tools performance appraisal tools are:

1. Ranking Method
2. Confidential Reports
3. Checklists
4. BARS
5. Paired Comparison
6. Forced Distribution
7. Performance Test

Note: We will cover the details of each tool in another article.

MBO Examples

So far, we have discussed MBO, steps in the process of MBO, pros, and cons of MBO, principles, elements, and features of MBO in terms of theory. Let’s now have a look at some of the real-life examples of MBO to make this concept even clearer and see the effectiveness of MBO in business.

MBO Examples for Marketing

Some of the marketing examples for MBO are:

1. Increasing unique organic traffic for a website
2. Generating 500 new qualified leads per month
3. Trying to increase marketing ROI by 10%
4. Double social media followers
5. Implementing A/B testing of landing pages of a service or product
6. Increasing newsletter subscription

MBO Examples for Sales

Some of the sales examples for MBO are:

1. Doubling the number of sales in the next 6 months
2. Increasing the average sale price to $1000
3. Increasing hotel bookings to 50 per month

MBO Examples for Human Resources

Some of the HR examples for MBO are:

1. Increasing employee satisfaction rate to 90%
2. Increasing employee retention rate to 80%
3. Introducing internal training programs
4. Get 20% hiring from employee’s references

MBO Examples for Customer Service

Some of the customer service examples for MBO are:

1. Providing excellent support to premium customers
2. Introducing a storage mechanism for customer feedback
3. Eliminating or reducing managers’ intervention in customer support
4. Increasing customer support capacity (maybe by building new customer service)

MBO Examples for Finance

Some of the finance examples for MBO are:

1. Trying to increase share value by 3% in the next 6 months
2. Increasing financial process automation by 15%
3. Introducing a procedure to conduct completely independent financial audits.

MBO Examples for Operations

Some of the operations examples for MBO are:

1. Hire an independent operational consultant
2. Generate one independent operational consulting report quarterly
3. Increasing product delivery on time by 50%
4. Reducing product sources logistic expenditures
5. Reducing product failure rates

Advantages and Disadvantages of MBO

Like any other management technique and approach, MBO has also its pros and cons. Some critiques say MBO works only for short terms while others say it is beneficial for long terms as well.
The truth is MBO has both advantages and disadvantages depending on various situations. Let’s have a look at both of them.

Advantages of MBO

Advantages of MBO – Infographic

The major benefits of MBO are:

1. Personalized Objectives: MBO allows employees to set their personal objectives according to their competencies, skillset, and strengths. This allows self-growth and skill development.
2. Responsibility: As each working staff sets his/her objectives, it makes them responsible to achieve their goals as they have set their own goals. This sense of responsibility also brings royalty to the organization.
3. Communication: MBO opens a communication channel between the top management and the employees. This communication channel allows to remove any ambiguities and makes the objectives crystal clear.
4. Efficiency: As the MBO objectives are clear and time-bound, it helps improve productivity and the efficiency of the operational units.
5. Continuous Support: Unlike other management techniques, MBO provides a mechanism of continuous support throughout the MBO cycle. Mangers continuously provide feedback, reviews, guidance, and monitoring to remove any issue that arises in the working environment.
6. Sense of Importance: Through proper appraisal and reward process, MBO gives the employees a sense of importance and realizes them that the organization values their work and they are an important asset to the firm.
7. Unity of Goals: MBO introduces a common goal throughout the organization which means unity of goals.
8. Measurement of Performance: MBO provides a mechanism for the measurement of performance for each individual in the organization.
9. Resource Optimization: MBO process helps resource optimization because only those who are competent use only required resources. It means resources are allocated according to the goals.
10. Clear Expectations: As the objectives are measurable, attainable, and time-bound, it means end goals and expectations are clear-cut from day one when goals are set.

Disadvantages of MBO

Disadvantages of MBO – Infographic

The major limitations of MBO are:

1. Goal Settings and Organizational Culture: Sometimes MBO seems limited when it comes to goals settings. For example, what should be the nature of goals? Long-term or short-term? Quality-oriented or quality-oriented? Moreover, MBO focuses only on goals and objectives rather than the culture of the organization.
2. Time Consuming: The whole process of goal settings, appraisal, reviews, monitoring, and evaluation takes a lot of time and paperwork.
3. Goals-Oriented: MBO focuses more on goals and objectives rather than the actual action plan and a course of action.
4. Faulty Evaluation Process: Sometimes managers try to evaluate employees from their perspective and competencies rather than the employees’ skillset. It means there are chances that an incompetent manager may involve in the evaluation process.
5. Too Much Expectation: Sometimes managers expect too much from the employees and treat employees like ideal employees without leaving any room for mistakes. This may lead to several issues and clashes between management and the working unit.
6. Limited Growth: As the employees play a part to set goals as per their skill set. It leaves little room for self-growth because the employees, sometimes, are not willing to try out new and creative ideas rather they stick to old methodologies.
7. Negative Competition: Although superiors reward employees for their efforts and goals achievement, it may create negative competition among the other employees where everyone tries to the best by hook or by crook.

Summary

Thus MBO (Management by Objectives) is an important managerial tool that helps organizations to align their employee’s competencies with the objectives and goals of the organization so they can work to their fullest potential. The 6 steps in the process of MBO are:

1. Determining Organizational Goals
2. Determining Employees’ Objectives
3. Constant Monitoring Progress and Performance
4. Performance Evaluation
5. Providing Feedback
6. The Performance Appraisal

More and more companies are trying to implement the process of MBOs to their operations and other departments to improve the productivity and efficiency of their working unit because every individual plays an important role in objectives settings and then in the achievement of those measurable goals.

Like any other management tool, MBO has also some limitations and advantages. If used effectively, MBO is a great tool to improve the overall performance of the organization.

FAQs

1. What is MBO?

MBO stands for Management by Objectives, it is a management approach or technique used to set clear, measurable, and attainable goals jointly by involving superior and employees in goals settings process.

2. What is the Management by objectives Steps?

Management by objectives involves 6 steps that are:

1. Determining Organizational Goals
2. Determining Employees’ Objectives
3. Constant Monitoring Progress and Performance
4. Performance Evaluation
5. Providing Feedback
6. The Performance Appraisal

Here the management objectives are set at the very first step by passing through various managerial activities and then pass through a communication channel to the employees.

3. What is the main purpose of MBO?

The purpose of management by objectives is to increase the productivity and efficiency of employees by setting result-oriented, time-bound, and achievable objectives. It means MBO’s purpose is to motivate the employees rather than controlling them. In other words, to manage by objectives.

4. Which companies use MBO?

Some of the companies that use MBO as their management tool are:

1. Hewlett-Packard (HP)
2. Intel
3. DuPont
4. Xerox

5. What are the MBO goals examples?

Some of the MBO goals examples include:

1. Increasing ROI by 10% in X number of months
2. Increase sales by 50% in X number of months
3. Getting more social media followers of a company
4. Improving employees satisfaction index

6. What is the difference between MBO and MBE?

The main difference between MBO (Management by Objectives) and MBE (Management by Exception) is that MBO is a management tool that devises the objectives that need to be chased. While the MBE comes into play when the employees deviate from the path while chasing those objectives set by MBO. MBE deals with the time and resources lost in the deviation.

Richard DanielsAuthor at Business Study Notes

Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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