Quiz.

1a) Management by Objectives (MBO)

The concept of MBO is very important in terms of its managerial implications. Besides being a
philosophy of management, it is a system which helps in synchronizing the objectives of the individuals
with the objectives of the organization.

Management by Objectives (MBO)

When implemented properly, systematically and consciously, the MBO has the following advantages:

 Improved Performance: MBO is basically a result oriented process. Its main focus is on setting
and controlling goals. Managers are encouraged to do detailed planning. They concentrate on
the important task of improving performance by reducing the costs and harnessing the
opportunities. Improved planning will lead to improved productivity arid more profits.
 Greater Sense of Identification: The individual members of the organization have a greater
sense of identification with the company goals. With MBO, the subordinates feel proud of being
involved in the organizational goals. This improves their morale and commitment to the
organizational objectives.
 Maximum Utilization of Human Resources: Since the goals are set in consultation with the
subordinates, these are more difficult to achieve and more challenging than if the superiors had
imposed them. In addition, since these goals are fixed according to the particular abilities of the
subordinates, it obtains maximum contribution from them and thus it leads to maximum
utilization of human resources.
 No Role Ambiguity: There is no role ambiguity or confusion in the organization, because specific
and clear goals are set for the organization, for the division for the departments and for the
individual members. Both the managers and the subordinates know what they have to do and
what is expected of them.
 Improved Communication: In MBO, there is improved communication between the
management and the subordinates. This continuous two way communication helps in clarifying
any ambiguities, refining and modifying any processes or any aspects of objectives.
 Improved Organizational Structure: In MBO, the whole of organizational structure is redesigned
because of the revision of job descriptions of various positions as a result of resetting of the
individual goals. All this helps in improving the organizational structure as a result of location of
the problem and weak areas of the organization.
 Device for Organizational Control: MBO serves as a device for organizational control and
integration. If there are any deviations discovered between the actual performance and the
goals, these can be regularly and systematically identified, evaluated and corrected.
 Career Development of the Employees: MBO provides a realistic means of analyzing training
needs and opportunities for growth for the employees. The management takes keen interest in
the development of skills and abilities of subordinates and provides an opportunity for
strengthening those areas which need further refinement, thus, leading to career development
of employees.
 Result Based Performance Evaluation: The system of periodic performance evaluation lets the
subordinates know how well they are doing. In MBO, strong emphasis is put on measurable and
quantifiable objectives. As a result, the appraisal tends to be more objective specific and
equitable. As these appraisal methods are based on result and not on some intangible
characteristics, there are considered to be superior to the trait evaluation methods of appraisal.
 Stimulating the Motivation of the Employees: The system of MBO stimulates the employees
motivation. First of all, they feel motivated because of their participation in goal setting. They
take keen interest in the implementation of the goals which they themselves have set. Secondly
the appraisal system, being very objective and specific can be highly morale boosting.
 Effective Planning and Decision Making. MBO is one of the new and effective models of
planning and decision-making that includes the participation of both employees and
management. Planning and decision to be effective require a combination of suggestions that
carefully analyze what will happen if the plan is made and executed. MBO ensures the
participation of employees in such processes where the expertise, skills, and knowledge of both
subordinates and management result in a better choice. It believes two heads are better than
one.
 Clear Roles and Responsibilities. One of the advantages of management by objectives is that it
offers no ambiguity in the roles and responsibilities of employees. MBO is characterized by
providing clear roles and responsibilities to each member of the organization where they are
aware of what the company objectives are and what they should have to do. Further, the clarity
in given tasks also ensures the timely achievement of the desired results.
 Ensure Team Spirit. From setting effective goals and objectives to successfully implementing
them the role of great teams is desirable. MBO also expresses the importance of team spirit
while setting and executing the process to reach the targets.
 Employee Morale and Commitment. While setting objectives in the MBO process the
participation of employees is greatly valued. The goal is set with the mutuality of both managers
and employees. The objective is set by combining the personal objectives of employees and the
objectives of the organization. When employees know their concerns are included in the overall
organizational goals they take it as their personal goals. This increases the motivation of
employees towards the company and shows their greater commitment.
 Employees Learn Leadership and Decision-Making Skills. Employees are great learners when
they have helpful and skillful coaches (managers). For MBO to be successful managers need to
have skill sets that successfully manage the employee’s diverse opinions.. Since in the process of
MBO, employees regularly participate in important meetings and discussions they are likely to
imitate or learn new skill sets that further improve their performance. From such skills,
leadership, and decision-making are two common skills employees learn through the MBO
program.
 Greater Goal Achievement. MBO is a strategic management tool that is mostly focused on
setting goals & targets and achieving them as soon as possible. Usually, it makes short-term
goals that are quantifiable. MBO ensures the making of effective plans and decisions. With
effective utilization of resources, clear roles & responsibilities, and ensuring commitment from
 the employees along with increased performance the desired goals are also achieved in the
stipulated time under MBO.

B). Limitations of MBO:

A system of MBO has certain weaknesses and limitations. Some of these are inherent in the system
while some arise when introducing and implementing it.

Some of the problems and limitations associated with MBO are as explained below: Along with
providing numerous advantages to the company MBO also has its drawbacks that can negatively affect
the company’s performance.

Over-Focused on Goals. One of the main disadvantages of MBO is that it is over-focused on

organizational goals and targets only. It frequently disregards other aspects of a business, such
as corporate culture, worker conduct, a positive work environment, environmental concerns,
and opportunities for involvement and social work in the community.

Pressure on Team Members. As MBO has set goals that are short-time employees may feel
strained to meet those goals in the required time. Employees are asked to meet those goals as
soon as possible for this they might take shortcuts, as shortcuts are not always a viable option
this might degrade the quality of work.

Short-Term Focused .It can also be said that management by objectives is the management tool for
short-term goals. Usually, the goals and objectives that fall under MBO are not more than one year.
Although the MBO is efficient in achieving those short period goals – for the sustainable development of
the company consideration of long-term goals is necessary.

Acceptance At All Levels. For a successful MBO program acceptance from all levels of management is
required. If one of these levels shows a negative attitude toward the MBO program it can’t be done.
From these three levels, acceptance or interest from top-level management in MBO is mostly required.

Requires skill set. Coaching and counseling are the two most essential skills managers need for an
effective MBO program. A successful MBO relies on the manager’s skills, and any gap in these skills the
MBO may not provide the expected benefits. MBO relies significantly on leadership to establish a sense
of direction, despite its deep roots in teamwork. The potential advantages of the MBO program model
won’t be achieved if a manager lacks the necessary skill set.

Power Imbalance. Though MBO is deep-rooted in collaboration, there could also be a power clash
between managers and subordinates. In order to define goals, supervisors, and employees collaborate.
However, because of the supervisor’s position of power within the organization, there are occasional
tensions between the two parties.

Lack of Support of Top Management: In traditional organizations, the authority is vested in the top
management and it flow from top to bottom. In MBO, subordinates are given an equal opportunity of
participation, which is resented by the top management. This system cannot succeed without the full
support of top management.

Resentful Attitude of Subordinates: The subordinates can also be resentful towards the system of MBO.
Sometimes, while setting the goals, they may be under pressure to get along with the management and
the objectives which are set may be unrealistically high or far too rigid. The subordinates, generally, feel
suspicious of the management and believe that MBO is another play of the management to make them
work harder and become more dedicated and involved.

Difficulties in Quantifying the Goals and Objectives: The MBO will be successful only if the goals can be
set in quantifiable terms. But if the areas are difficult to quantify and difficult to evaluate, it will not be
possible to judge the performance of the employees. Moreover MBO does not have any subjectivity in
performance appraisal. It rewards only productivity without giving any consideration to the creativity of
the employees.

Costly and Time Consuming Process: MBO is quite costly and a time consuming process. There is a lot of
paper work involved. Moreover, there are a lot of meetings and too many reports to be prepared, which
add to the responsibilities and burden of the managers. Because of these reasons managers generally
resist the MBO.

Lack of Adequate Skills and Training: Most of managers lack adequate skills, knowledge and training
required in interpersonal interaction which is required in the MBO. Many managers tend to sit down
with the subordinate, dictate the goals and targets with no input permitted from the subordinates and
then demand that the goals be achieved in a specified time. Whether the goals are realistic or not does
not enter the picture. In this type of environment, two way communication is not there and objectives
are imposed on the subordinates. This destroys their morale, initiative and performance.

Poor Integration: Generally, the integration of the MBO with the other systems such as forecasting and
budgeting is very poor. This lack of integration makes the overall functioning of the system very poor.

Lack of Follow Up: Under the system of MBO, the superior must get in touch with the subordinate at the
appropriate time and at that time, the subordinate will inform the boss exactly what has been
accomplished and how. If the superior delays the meeting, it will create hurdles in the successful
implementation of MBO as the subordinate will also start taking the programme casually.

Difficulty in Achievement of Group Goals: When goals of one department depend upon the goals of
another department, cohesion is difficult to maintain. In such cases, the achievement of goals will also
become very difficult.
Inflexibility: MBO may make the organization rigid. As the goals are set after every six months or one
year, the manager may not like to revise the goals in between, even if the need arises, due to fear of
resistance from the subordinates. The managers must learn to handle this situation, because sometimes
revision of short term goals is necessary for the achievement of long range objectives.

Limited Application: MBO is useful largely for the managerial and professional employees. It is not
appropriate for all levels and for everyone because of the heavy demands made by it. It can be made
applicable only when both the subordinates and manages feel comfortable with it and are willing to
participate in it.

Long Gestation Period It takes a lot of time, sometimes 3-5 years to implement the MBO programme
properly and fully and some research studies have shown that these programmes can lose their impact
and potency as a motivating force over a long period of time. Employees are asked to meet those goals
as soon as possible for this they might take shortcuts, as shortcuts are not always a viable option this
might degrade the quality of work.

Quiz 2). Management by Exception:

It is a system of identification and communication that signals the manager as to when and where his
attention is needed. The main object of this system is to enable the manager to identify and isolate the
problems that call for decision and action, and avoid or ignore or pay less attention to less critical
problems which better be handled by his subordinates.

Under this system the manager should receive only condensed, summarised and invariable comparative
reports covering all the elements, and he should have all the exceptions to the past averages or
standards pointed out, both the specially good and the specially bad exceptions.

This gives him a full view of the progress in a few minutes of time. Thus by using the experience in a
systematic way (i.e., having the knowledge of past attainments), a careful analysis is made with
reference to existing records and standards of performances.

Advantages of Management by Exception:

 It saves time. Manager attends to real problems at a particular point of time.

 Concentrated efforts are possible, as this system enables the manager to decide when and
where he should pay his attention. It identifies crisis and critical problems.
 Lesser number of decisions is required to be taken, which enables the manager to go into detail.
 This enables to increase span of control and increase the activities for a manager.
 Use of past trends, history and available data can be made fully.
 It alarms the management about the good opportunities as well as difficulties.
 Qualitative and quantitative yardsticks are provided for judging the current position.
 It prevents management from over managing.
Limitations of Management by Exception: Management by exception is not a solution to all
management problems; it has its limitations as well. Some of them are:

 It requires a comprehensive observing and reporting system.

 It increases paper work.
 The system is silent till the problem becomes critical.
 Some important factors, like human behaviour, are difficult to measure.

System of Management by Exception can be evolved in following phases:

Measurement Phase: In this phase, facts of operational situation are collected and assessed, i.e., use of
performance of its whole range inputs such as efforts contributing to the goals of the organisation; its
productivity, money flow, effectiveness of financial resources being used to produce goods, services and
profits; availability and wastage of material and its economy from its purchase through processing and
storing to delivery for finished products utilisation, capability and productivity of the machines.

The information about all these factors are utilised by way of quantitative measurements like using time
standards, balance sheet data, inventory data, inspection results of finished products, inventory
accumulation for sales, current assets, equipment utilisation data.

Projection Phase: In this phase, analysis of those measurements which are meaningful to the objectives
of the organisation for future outlook or expectations is carried out. Past and present data are projected
by using the statistical concept like probability, standard deviation, confidence, correlation, sample size,
significance etc. Examine the potential effect of changes expected as per forecast. Then the projections
are modified by the forecasts to decide the ‘goals’. At this stage complete planning is thoroughly looked
at from the angle of existing policies and procedures, organisation structure, adequacy and capability of
the existing staff and equipment. If need arises necessary changes are made.

Selection Phase: In this phase, those vital and economical available measures are selected, which will
best indicate the progress towards its objectives. Thus the criteria are selected, which the management
would like to use to follow the progress or performance towards predicted objectives.

Observation Phase: In this phase, current status of performance is periodically observed and measured.
The system should be reliable, automatic and adequate. Adequate means of observations should neither
be too less nor too more, and only necessary information at desired frequency is obtained.

Comparison Phase: In this phase, comparison is made between the actual and expected performance
and progress in order to identify the exception, analyse causes and report the need for action to the
appropriate authority about the exceptions that required priority of attention.
Action Phase: This is the phase, where decisions are taken and implemented with a view to bring the
performance to the desired level or adjust in anticipations to reflect changing conditions or take full
advantage of better performance or opportunity.

Thus the Management by Exception compromise as systematic approach of handling the management
problems and free the manager from the demands of routine work, which enables him to devote more
time for creative efforts directed towards “improving the overall efficiency of the organisation”. This also
provides necessary information readily available, for taking timely and qualitative decisions, which
would require lot of time.