### What is Management by Objectives (MBO)?

Management by Objectives (MBO) is a strategic approach to enhance the performance of an

organization. It is a process where the goals of the organization are defined and conveyed by the
management to the members of the organization with the intention to achieve each objective.
An important step in the MBO approach is the monitoring and evaluation of the performance
and progress of each employee against the established objectives. Ideally, if the employees themselves
are involved in setting goals and deciding their course of action, they are more likely to fulfill their
obligations.

### Steps in Management by Objectives Process:

1. Define organization goals

Setting objectives is not only critical to the success of any company, but it also serves a variety of
purposes. It needs to include several different types of managers in setting goals. The objectives set by
the supervisors are provisional, based on an interpretation and evaluation of what the company can and
should achieve within a specified time.

2. Define employee objectives

Once the employees are briefed about the general objectives, plan, and the strategies to follow, the
managers can start working with their subordinates on establishing their personal objectives. This will
be a one-on-one discussion where the subordinates will let the managers know about their targets and
which goals they can accomplish within a specific time and with what resources. They can then share
some tentative thoughts about which goals the organization or department can find feasible.

3. Continuous monitoring performance and progress

Though the management by objectives approach is necessary for increasing the effectiveness of
managers, it is equally essential for monitoring the performance and progress of each employee in the
organization.

4. Performance evaluation
Within the MBO framework, the performance review is achieved by the participation of the managers
concerned.

5. Providing feedback
In the management by objectives approach, the most essential step is the continuous feedback on the
results and objectives, as it enables the employees to track and make corrections to their actions. The
ongoing feedback is complemented by frequent formal evaluation meetings in which superiors and
subordinates may discuss progress towards objectives, leading to more feedback.

6. Performance appraisal
Performance reviews are a routine review of the success of employees within MBO organizations.
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### Management by Objectives (MBO) in 5 Steps

MBO outlines five steps that organizations should use to put the management technique into practice.
 1. Either determine or revise organizational objectives for the entire company. This broad
overview should be derived from the firm’s mission and vision.
2. Translate the organizational objectives to employees. In 1981, George T. Doran used the
acronym SMART (specific, measurable, acceptable, realistic, time-bound) to express the
concept.
3. Stimulate the participation of employees in setting individual objectives. After the
organization’s objectives are shared with employees from the top to the bottom, employees
should be encouraged to help set their own objectives to achieve these larger organizational
objectives. This gives employees greater motivation since they have greater empowerment.
4. Monitor the progress of employees. In step two, a key component of the objectives was that
they are measurable for employees and managers to determine how well they are met.
5. Evaluate and reward employee progress. This step includes honest feedback on what was
achieved and not achieved for each employee.

### The pros and cons of MBO:

The management by objectives technique has several key strengths, including:

 Teamwork – As MBO drives each member of staff towards business-focused objectives, it can lead to
improved communication and teamwork.
 Clarity – MBO sets out straightforward business goals and gives each member of staff a clear set of
tasks to help meet them.
 Empowerment – Equipped with clear objectives related to the wider business strategy, staff at all
levels of the organization feel involved, empowered and indispensable.
 Efficiency – With staff goals geared towards business success, managers know all staff are facing the
same direction.
 Customization – Managers tailor each set of objectives to individual staff members — based on their
specializations, skills, qualifications and career goals.

However, MBO can present several disadvantages too:

 High-pressure – With a measurable, business-aligned set of goals, staff can feel under pressure.
 Impersonal – Though goals can be tailored to individual staff skills, they might omit personal and
career development considerations.
 Lack of context – MBO approaches don’t account for factors like motivation, resources and buy-in. It
also doesn’t reflect existing work culture, conditions or ethos.
 Overfocused – Focusing exclusively on business goals can detract from other important elements of
your operations.
 ###MBO best practices.

Goals: - Goals are set for sole contributors, team leaders, department executives, and the CEO. This
way everyone has a sense of what they are supposed to be contributing to the team, as well as how it
fits into the big picture.

Objectives:-

Objectives are essential to ensuring all contributors spend their time at work productively and are
working towards a concerted outcome. They also teach those at a company about how much they are
truly capable of accomplishing in a set amount of time.

If quarterly goals end up being too easy, they can be adjusted to be more ambitious, or vice versa,
during the review process. It is important to set goals that are aspirational, so employees are met with a
real challenge.

Overall, the MBO process consists of five steps:

1. Set company objectives

2. Cascade objectives to employees
3. Monitor
4. Evaluate performance
5. Reward performance

Quantify:-

Another rule is to quantify your objectives to provide a clear idea of success, which will be important
later in the review process. Rules like this are helpful guidelines but do not necessarily need to be
applied at all times.

Top company goals are sometimes non-quantifiable. Company culture, for instance, is a valuable asset
and one that deserves to be a high priority, though difficult to quantify.

Performance reviews:-

The performance review process helps identify mistakes and errors. It also allows for a brainstorming
session about what the company might need to change to meet its main objectives in the future.