CHAPTER ONE

INTRODUCTION
1.1 Background to the Study
In today’s highly competitive business environment, no organization’s manager can
effectively attain his or her predetermined goals and objectives with the exclusion of the
employees’ involvement in the goal planning, setting and implementation, (Staw & Epstein
2014). Thus, the collective effort of organization’s superiors and subordinates in the
identification of organizational goals and objectives, and the design of shared results through
operational guidelines gave impetus to the concept management by objective which has been
trending in management practices among firms. In the light of the aforesaid, management
needs a lot of tools to be able to administer effectively in the day to day running of the
business. Management by Objectives is one of such tools. It is a way of getting improved
results in managerial method whereby the superior and the subordinate managers in an
organization identifies major areas of responsibility, in which they will work. Set some
standards for good or bad performance and the measurement of results against those
standards (Derek 2005). Therefore, organizational performance could be dependent on the
degree at which management is able to ensure judicious application of Management by
Objectives (MBO) in her business life, effectively and efficiently. On the basis of the wide
applicability of MBO in both public and private firms particularly large service companies. It
is interesting to note that management by Objectives as mentioned (MBO) by Drucker is a
simple approach to help motivate managers through the goal setting (Antoni, 2005). In real
practice, Management by Objectives allows the superior and subordinates to jointly identify
objectives and work towards its achievement. In other words, it is a participative management
procedure that requires commitment and cooperation. Management by Objectives
concentrates on the output of the organization, evaluating people by assessing their
contribution to this output. There are many concepts and strategies of Management by
Objectives, however, the key concepts include joint goal setting, manager’s objectives, and
operational strategies, intermediate and final review. The applications of each of these MBO
strategies have their special ways of affecting various aspects of organizational performance
among service firms.
More so, service firms are everywhere. According to Mullins (2005) organizations are
designed by people to overcome individual limitations and achieve individually. Hence,
service firms become a means of survival for the people and exert an important daily
influence on the life of the people and the way they live.

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The major decider for the survival of any organization is the presence of capable men and
women with the right technique to combine the organization resources (Man, Machine,
materials and Money) to achieve organization goals.
According to Klein (2010), strategic goal setting prepares the stage for good organizational
performance of every organization. The next step in Management by Objectives is Manager’s
Objective Setting. Objectives are short term target with measurable results. Every manager in
the organization must now determine the objectives for his business department. Manager’s
objectives setting provide the blueprint of what the workforce in his department must achieve
and what they must do to achieve set objectives. This takes three stages: identifying result
areas, writing objectives, and negotiating with top management. After identifying the key
result areas, he needs to write out his objectives in specific, measurable, realistic, and result-
oriented forms.The concept of Management by Objectives demands that employees should be
active participants in the objective setting process and coming up with strategies for
achieving them. It is the responsibility of the manager to communicate the organizational
goals and what his workforce as a department is expected to do in orders to contribute to the
achievement of the overall set goals. Management by Objectives emphasizes the principle of
team spirit. Team spirit or team work expresses the philosophy that all hands must be on deck
to render quality service and achieve set targets. Team work enables organizations to record
great achievement all round especially in customer service. When employees understand the
goals of the business, and what they are expected to do in order to accomplish set objectives,
they are ready to make sacrifices and put in their best in order to achieve set goals. Manager’s
goal setting is properly done to provide focus for employees and enhance service delivery
(Aghan, 2011). Service is a component of business that defines the interaction between
providers and clients where the provider offers a service, whether information or task, and the
clients either finds value or loses value as a result. Good service delivery is characterized by
good product quality, relationship with customers, prompt delivery of service or product and
the ability to deliver exactly what is ordered or needed. Periodic review is another dimension
of Management by Objectives (Antoni, 2005). The principle of periodic review advocates
periodic assessment of operational progress in an interval of three or six months. Periodic
review enables an organization to monitor its progress in various departments and operational
targets. It is against this backdrop that this study evaluates the effects of MBO on the
performance of service firms in Port Harcourt.

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1.2 Statement of Problem
Virtually, the practicability of the concept Management by Objectives (MBO) among
organizations in the Nigerian economic society is too parochial, to the extent that
management do not collaborate with her subordinates in identifying goals, setting attainable
goals, assigning them to their respective end-operators and reviewing performance, for
corrective measures.
This can be as a result of misunderstanding the steps and principles of Management by
Objectives. When management fails to set attainable goals and channel available resources
accordingly, the end result is usually liquidity issues and losses because an organization that
does not adhere or does not have clear target will often misuse resource. This affects
employee performance and culminates in poor organizational performance. This makes
employees to work without target and at the end of the fiscal year, there is no review. Lack of
team work makes workers to do things their own way. This has led to poor service delivery
because there is no pool of ideas. Many organizations neglect periodic review. Their inability
to monitor progress and problems or challenges in the market makes it difficult for them to be
proactive so they end up losing large amount of their competitors.

1.3 Objectives of Study

The purpose of this study is to evaluate the impacts of management by Objectives on
organizational performance among service firms in Port Harcourt. Specifically, this research
is set to achieve the following objectives to:
l. Determine the extent to which goal setting affects firms’ organizational performance.
2. Determine the extent to which team spirit affects firms’ in the service sector.
3. Determine the extent to which periodic review affects firms’ organizational
performance.
1.4 Research Questions
The following research questions were formulated by the researcher to guide the study.
l. To what extent does goal setting affect the firms’ organizational performance?
2. To what extent does team spirit affect firms’ service?
3. To determine the extent to which periodic review affects firms’ organizational
performance?

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1.5 Statement of Hypotheses
The following null hypotheses were formulated at 0.05 level of significance, to test the
relationship between MBO and organizational performance, via the stated parameters:
Ho1: There is no significant relationship between goal setting and firms’ organizational
performance.
Ho2: There is no significant relationship between periodic review and firms’ organizational
performance.

1.6 Significance of the Study

This study has both the practical and theoretical significance. Practically, this study is
significant to managers of all business organizations in Nigeria. This study will help
managers to understand the principles of management by Objectives.
It will be also be of benefit to public sector managers where there is increasing need for
efficient management of resources and the attainment of public goals. By inculcating joint
goal setting in their organizations and communicating organizational policies and operational
strategies, managers will succeed in getting their workers more committed to their job and
also achieve more result. Engaging in periodic review will help managers to identify
problems that may militate against the successful completion of investment projects and
proffer remedial measures to them. The practice of MBO will help managers to achieve
organizational goals.
Theoretically, this study will provoke more theoretical debates on the use of MBO in service
sector and may even give rise to the development of robust theoretical framework on the use
of MBO in service sector. Scholars of Management Sciences and Business Education
generally will find this work a good companion. This work will help them to gain in-depth
knowledge of the concept of Management by Objectives and Organizational Performance.
For the purpose of academic assignment and research, this work will prove to be very useful
to students because it has local content and it is presented in simple language which aids
comprehension. It will expand the frontiers of knowledge and source of reference for further
research.
The public will also find this work very interesting and useful. Management by Objective is
not only applicable in the business environment. Individuals can learn from this work and
practice setting goals for themselves, and reviewing their performance from time to time to
determine their progress and what to do next.

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1.7 Justification of the Study
In every organization there has been concern of how to set goals and how to achieve such
goals within the framework of the available resources. This need has given rise to a new
budgetary system with emphasis on MBO. The application of the MBO in private
organizations mostly production oriented and service firms has been quite successful in the
70s and 80s, but MBO appears to have suffered a decline in popularity. Most public sector
organization which are service oriented and intending to apply the MBO; the need for it is
because of the various and conflicting goals of the organization and increasing decline in the
resources of the government. The question is how successful will it be as the system of
operation is not the same and the goals are not alike. The need to evaluate the applicability of
the MBO in the service sector beyond the service and production oriented organization is the
justification of this study.

1.8 Scope of Study

The content scope of this study is to evaluate how Management by Objectives affect
Organizational Performance in service firms in Port Harcourt.

The study was carried out geographically within selected service firms in Port Harcourt.

The content of analysis was limited to staffs in the selected service firms in Port Harcourt,
Rivers State.

1.9 Definition of Terms

The following terms are defined to reflect their contextual meaning for the purpose of this
work:
MBO: Management by Objectives.
Management by Objectives: The process of defining objectives within an organization that
management and employees agree to the objectives and understand what they are expected to
do to achieve set objectives.
Goal Setting: The process of deciding what the organization is set to achieve.
Review: Monitoring and appraisal of operational performance.

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Organizational Performance: The measure of goals achieved by an organization in terms of
organizational performance, and customer service.
Service firms: a business that generates income by providing services instead of selling
physical products
Performance: the act of performing; of doing something successfully; using knowledge
Team spirit: collaborative effort of a group to achieve a common goal or to complete a task
in the most effective and efficient way.
Organizational performance: the ability of an organization to reach its goals and optimize
results.

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 CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter presented the views of various authors and researchers on the variables under
investigation. The essence of this chapter is to review available scholarly materials and
research works that are related to the concept of MBO and organizational performance in
order to provide insight into the bulk of existing knowledge on the variables under
investigation. The chapter was discussed under sub-headings reflecting the overall purpose of
the study and research questions. This chapter is arranged in the following broad sub-
headings:
 Conceptual Framework
 Theoretical Framework
 Literature on the subject matter
 Empirical Review.

Fig. 2. 1: Schematic Conceptual Presentation of MBO and Organizational Performance

MANAGEMENT BY OBJECTIVES ORGANIZATIONAL PERFORMANCE

GOAL SETTING FINANCIAL PERFORMANCE

TEAM SPIRIT FIRMS

PERIODIC REVIEW CUSTOMER SERVICE

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2.1.1 Concept of Management by Objective
By conception, management is getting things done through others (Nwachukwu 1988). If so,
things can effectively be done by management when all hands are on deck. Hence,
Management by Objective is pivotal if organizations’ top leaders and subordinates must
accomplish their predetermined goals and objectives. This is in consonance with the
definition of management as defined by Koontz and Daniel (1968:485), as “a technique of
system or method of management whereby the superior and subordinate managers of an
organization agreed on its broad goal, translate these goals into a chain of specific short term
goals, defined each individual’s major areas of responsibility in terms of result expected,
continually reviewed the accomplishment as the sole basis of assessing and rewarding them”.
Gaurav (2010), described Management by Objectives as a participative and democratic style
of management. Here, ample scope is given to subordinates and is given higher status and
positive/participative role in both the goal setting process and the implementation stage. In
short, MBO is both a philosophy and approach to management. MBO concept is different
from Management by Control (MBC) and is also superior in many respects. In classical
theory of management, top management is concerned with objectives setting, directing and
coordinating the efforts of middle level “managers and lower level staff. However,
achievement of organizational objectives is possible not by giving orders and instructions but
by securing cooperation and participation of all persons (Sarin, 2011). This implies that even
the lower level staff should be associated with the management process.
The purpose of MBO is to ensure that all predetermined goals and objectives of firms are
attained collectively, effectively and efficiently. This is why top management identifies areas
of concern for the wellbeing of the firm, collectively design means amongst managers and
employees in their area of technocracy, so as to enable the assignee perform justifiably to the
growth and development of the organization, (Jacobson, 2015).

Wan and Hoskisson, (2003), posited that management by objective is vital for every
prospective business oriented organization, as such if employed rationally, yields fruition in
the firms’ operations (investment, production, and returns).These include: goal setting, team

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spirit, periodic review (MBO parameters), organizational performance, customer service,
(Organizational performance parameters).
According to George (2011), MBO is "some process whereby superior and subordinate
managers of an organization jointly define its common goals, define each individual’s major
areas of responsibility in terms of results expected of him and use these measures as guides
for operating the unit and assessing the contribution of each of its members." This definition
emphasizes the fact that MBO involves joint goal setting and close monitoring of the
implementation process to track the input of individual workers.
According to John (201l), MBO is "a dynamic system which seeks to integrate the company's
needs to clarify and achieve its profits and growth goals with the manager's need to contribute
and develop himself. It is a demanding and rewarding style of managing a business. “The
concept of Management by Objectives is not just about setting goals; goal setting must take
cognizance and reflect the needs of the organization, and must be aligned to the mission
statement.
The systems-oriented conceptualization of management by Objectives, but sees this as only
one compound incomplete organization. The entire organization is perceived as being a goal-
seeking mechanism (Ugwu 2012). It is important that all such outcomes be identified,
classified and expressed in measurable terms. Management by Objectives becomes the main
device in the overall planning and control of all dimensions of the organization. The
relevance, clarity, measurability and feasibility of the statement of objectives are all
important to such management systems (Ugwu 2012). It is not only top management that
operates in this mode but also the commitment extends to all administrative levels, from
organization goals to division objectives to operational objectives down to the very
specifically targeted objectives. Management by Objectives is a participative management
style. The manner in which objectives are arrived at can be as important as their quality and
reliance. Objectives can and should be jointly determined with full participation from all
administrators and other appropriate professional at all levels in the hierarchy.

2.1.2 Concept of Service firm

Service firm is a business that makes its facilities available to others for a fee; achieves
economy of scales (vocabulary.com/dictionary/service firm).Service firms that provide
vocational training and experience are termed professional service firms. Professional
services have been among the fastest growing sector in the past decades and it is described as
‘innovative by their nature’ (Hargadon and Bechky 2006; Nikolova 2012). This is manifested

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in the establishment of new firms but often takes place within existing firms, where it is
observable through the creation of new services, markets, and processes (traditionally
referred to as intrapreneurship or corporate entrepreneurship). Service firms include Human
Consultancies, Information and Communication Technology firms, legal service firms,
education service firms, oil service firms, accounting firms, insurance firms’, entertainment
service firms, real estate brokerage firms, graphic design firms, Saloons, etc. (Jacobson
2015). All these firms render services to clients. Therefore, when management employs
rational MBO mechanisms in their service firms, performance is enhanced.

2.1.3 Concept of periodic review

George (2010), noted that periodic review is important to ensure that action plans are
working, thus when right plans are put to work effectively, organizational performance are
attained via organizational performance, service delivery and reputation. George (2010),
noted that periodic review is important to ensure that action plans are working. The review
can occur informally between managers and the subordinates, or the organization may wish
to conduct three and six month periodic reviews. It might be arranged monthly or quarterly.
Review enhances the achievement of set objectives as it makes every employee and
department to work hard towards the accomplishment of their objectives (Tulia, 2009).
By reviewing its performance periodically, an organization is re-strategizing on how to win
more customers or improve the quality of its products so that they can keep their place in the
competitive market (Anderson & Meyer, 2009).

2.1.4 Goal Setting

Setting goals is another important element, and in this matter, Hahn (2007) makes the point
that every manager must be able to clearly define the objectives for his/her function in the
company. These goals must be viewed as supporting the organization's overall goals.
Managers are less likely to be influenced if objectives are set that do not require their
assistance. Barton (1981) agreed with Drucker (1954) that managers at all levels should be
involved in setting the goals for the next higher level of management. The most important
thing is to make sure that everyone's goals are aligned with the overall goal. Brim (2004)
proposes five steps for putting forth objectives, as follows: 1. Create a hierarchy of
organizational goals and objectives supported by lower-level definitive objectives and action
plans; 3. Create a mission statement for the organization as a whole, as well as specific
objectives and action plans for each individual; this would usually involve participatory

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decision making. 4. For each aim, establish key results and/or performance standards; and 5.
Measure or assess the status or outcome of the goals and objectives on a regular basis. Once
top management has decided the general organizational objectives in cooperation with other
managers, these should be made known to all members of the organization, and key outcome
areas should be extensively promoted (Akrani, 2010). Carroll and Tosi (1973) also suggest
that the objectives should be separated among each level of management to clarify their
hierarchical character and that they should be appropriate for each level to attain. The created
goals can only be achieved if they are assigned to all levels and those levels are qualified to
complete them. In this regard, Locke and Latham (1990) argue that increased specificity of
objectives leads to better results since the requirements are apparent, and that commitment
from the various parties involved has a significant impact on achieving the goals in practice.
Such dedication is mostly determined by the importance placed on the goal by people in
charge of accomplishing it, in addition to the amount of feedback they receive from superiors
along the route (Odiorne, 1965). Different organizations in MBO classify their objectives in
view of the time it will take to attain them or the administrative level to which they refer. The
goals are classified into long-term, medium-term, also, momentary objectives in light of the
time period (Al Noah, 2011). They are assembled into three classifications at the
administrative level: the organization's overall goals, departmental and sectional objectives,
and employee behavior goals (Robbins, 2001).

2.1.5 Concept of Organizational performance

According to Allen and Helms (2006), productivity is characterized as the rate at which an
employer, organization, or country produces items and the amount produced corresponding to
the amount of time, effort, and money required to generate them. The ability of humans to
join assets like unrefined components, work, abilities, capital, hardware, land, protected
innovation, administrative capacity, and monetary funding to create labour and products is
known as productivity. A company's prospective success is determined by its organizational
productivity, or its capacity to effectively implement methods to meet institutional goals
(Randeree and Al Youha, 2009). The capacity of an organization's executives to implement
initiatives has a significant sway on the organization's productivity. According to Cho and
Dansereau (2010), organizational productivity refers to a company's productivity
corresponding to its points and goals. Furthermore, Tomal and Jones (2015) define
organizational productivity as an organization's genuine outcomes or production as compared
to its planned results.

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Organizational performance comprises the actual results of an organisation as measured
against its intended outputs (or goals and objectives). Organisational performance involves
analyzing a company's performance against its objectives and goals. In other words,
organizational performance comprises real results or outputs compared with intended outputs.
According to Richard et al., (2009) organizational performance encompasses three specific
areas of firm outcomes: Financial performance (profits return on assets, return on investment,
etc.); Product market performance (sales, market share, etc.); Shareholder return (total
shareholder return, economic value added, etc.).
2.2 Theoretical Framework
The theoretical framework upon which this study is anchored is the goal theory and the
system theory. This theory was made popular by Lock (1975). The basic premise of goal
theory is that people’s goals or intentions play an important part in determining behavior.
Locke accepts the importance of perceived value, as indicated in expectancy theories of
motivation, and suggests that these values give rise to the experience of emotions and desires.
People strive to achieve goals in order to satisfy their emotions and desires. Goals guide
people’s responses and actions. Goals direct work behaviour and performance, and lead to
certain consequences or feedback. Locke subsequently pointed out that ‘goal-setting is more
appropriately viewed as a motivational technique rather than as a formal theory of
motivation.’ The combination of goal difficulty and the extent of the person’s commitment to
achieving the goal regulate the level of effort expended. People with specific quantitative
goals, such as a defined level of performance, or a given deadline for completion of a task,
will perform better than people with no set goal or only a vague goal such as ‘do the best you
can’. People who have difficult goals will perform better than people with easier goals.
Gratton (2000) refers to ‘Stretch goals’ which are ambitious, highly targeted opportunities for
breakthrough improvements in performance. These goals should stem from critical success
indicators and come from deep discussions within the company, and from collaboration
within and across task forces, and lead to development of activities and tactics to achieve the
goals. People lacking positive motivation at work May also help gain improved results and a
better sense of achievement by setting themselves specific goals, and identifying tasks
directly related to their work and measurable targets of time and performance.
Goal theory has a number of practical implications for the manager.
■ Specific performance goals should systematically be identified and set in order to direct
behavior and maintain motivation.

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■ Goals should be set at a challenging but realistic level. Difficult goals lead to higher
performance. However, if goals are set at too high a level, or are regarded as impossible to
achieve, performance will suffer, especially over a longer period.
■ Complete, accurate and timely feedback and knowledge of results is usually associated
with high performance. Feedback provides a means of checking progress on goal attainment
and forms the basis for any revision of goals.
■ Goals can be determined either by a superior or by individuals themselves. Goals set by
other people are more likely to be accepted when there is participation. Employee
participation in the setting of goals may lead to higher performance (Miner, 1980). Much of
the theory of goal-setting can be related to the system of Management by Objectives. MBO is
often viewed as an application of goal-setting, although MBO was devised originally before
the development of goal setting theory.
Hannagan (2002) goes so far as to suggest that: ‘at present goal-setting is one of the most
influential theories of work motivation applicable to all cultures’
. Management by Objectives (MBO) is the most widely accepted philosophy of management
today. It is a demanding and rewarding style of management. It concentrates attention on the
accomplishment of objectives through participation of all concerned persons; i.e., through
team spirit. MBO is based on the assumption that people perform better when they know
what is expected of them and can relate their personal goals to organizational objectives
(Stoner, 2000). When employees understand the set objectives of the organization and what
they are supposed to do in order to facilitate the objectives of the organization, they perform
much better.
However, if the employees do not understand what the organization wants to achieve, they
will not be able to relate the task assigned to them to organizations; they might be working
but not having clear organizational target in mind so they might achieve much. Superior
subordinate participation, joint goal setting and support and encouragement from superior to
subordinates are the basic features of MBO. It is a result-oriented philosophy and offers many
advantages such as employee motivation, high morale, effective and purposeful leadership
and clear objectives before all concerned persons (Philip, 2010).

2.3 Literature Review

2.3.1 Overview of Management by Objective
MBO is a collaborative process whereby the manager and each subordinate jointly determine
objectives for that subordinate. To be successful, MBO programs should include commitment

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and participation in the MBO process at all levels, from top management to the lowest
position in the organization. MBO begins when the supervisor explains the goals for the
department in a meeting. The subordinate takes the goals and proposes objectives for his or
her particular job. The supervisor meets with the subordinate to approve and, if necessary,
modify the individual objectives. Modification of the individual's objectives is accomplished
through negotiation since the supervisor has resources to help the subordinate commit to the
achievement of the objective. The supervisor gives feedback and may authorize modifications
to the objectives or their timetables as circumstances dictate. Finally, the employee's
performance is measured against his or her objectives, and the employees are rewarded
accordingly. It includes: emphasis on results rather than activities, objectives for specific
managerial positions, participatory or joint objective setting, identification of key result areas,
and establishment of periodic review system. MBO is a supervised and managed activity so
that all of the individual goals can be coordinated to work towards the overall organizational
goal. You can think of an individual personal goal as one piece of a puzzle that must fit
together with all of the other pieces to form the complete puzzle: the organizational goal.
Goals are set down in writing annually and are continually monitored by managers to check
progress. Rewards are based upon goal achievement. Management by Objectives (MBO) is a
personnel management technique where managers and employees work together to set,
record and monitor goals for a specific period of time. Organizational goals and planning
flow top-down through the organization and are translated into personal goals for
organizational members.
The benefits company gains from the implementation of MBO are not limited only to the
increased productivity but also cause the increase in employees' motivation and job
satisfaction. The Management by Objectives in principle helps the workers become a real
team focused on both individual and organizational goals. Many of them show interest in
improving professional skills, some even undertake specialist training. The more the
employees are willing to work in groups, the greater the benefits for the company as they
learn their skills from each other (Luft 2014, p. 25). It must be stressed that the Management
by Objectives is effective only when it is supported by the existing motivation system. The
bonus system cannot function as an autonomous incentive scheme. For the MBO system to
have a proper effect on motivation, it should work separately from the existing bonus scheme.
Gratifications ought to be awarded, as it were, during periodic reviews. Furthermore, when
the Management by Objectives system does not bring the expected results, then an additional
bonus system may not improve its effectiveness. All benefits should derive from the good

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results produced by the Management by Objectives, the only system solely responsible for
awarding the employees. Any use of discretionary factors in the evaluation and awarding of
the employees is unacceptable. It may lead to pathology in the functioning of the system
(Reinfuss 2009, p. 156). In the MBO system, excessive concentration on the tangible
measurable goals and the underestimation of the abstract ones can become an obstacle to the
evaluation of an employee's performance. This problem results from the SMART goal-setting
criteria, according to which every objective should be e.g. measurable. In practise there are
many situations, when the parameters to be achieved are difficult to determine in advance. It
can be problematic to assess the quality of the transactions executed by a company, because
such values as the level of trust between the parties of a contract or the employees' influence
on the atmosphere in the workplace are hard to measure (Bieniok 2001, p. 171; Barska and
Łychmus 2007, pp. 39-40). The Management by Objectives makes managers concentrate
primarily on their own, current objectives, which directly affect their results (and
consequently, the corresponding bonuses) instead of the prospective goals of the whole
organization. They avoid taking a firm and clear stance on current, unpredictable issues as
any wrong decision may adversely influence their bonuses and any right decision will not be
awarded anyway. Thus, MBO may exonerate the employees from caring for the condition of
the overall organization (Blikle 2014, p. 112).

2.3.2 Features of Management by Objectives (MBO)

Michael (2010), identified the following as the features of Management By Objectives.
l. Superior-subordinate participation: MBO requires the superior and the subordinate to
recognize that the development of objectives is a joint project/activity. They must jointly
agree and write out their duties and areas of responsibility in their respective jobs. When
goals and strategies are documented, it provides focus and becomes very easy to refer to them
in case of confusion.
2. Joint goal-setting: MBO emphasizes joint goal-setting that are tangible, verifiable and
measurable. The subordinate in consultation with his superior sets his own short-term goals.
However, it is examined by both the superior and the subordinate that goals are realistic and
attainable. In brief, the goals are to be decided jointly through the participation of all.
In the view of Jerry (2012), the second step or feature of Management by Objectives is
known as Manager Objective Setting. He explained that each individual manager in the
organization must now determine the objectives for his business department after the
organizational goals have been determined. This procedure takes place in the three general

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steps: identifying key result areas, writing objectives, and negotiating with the boss. First, the
manager must identify the key result areas of responsibility that are assigned to this unit. In
other words, just as the commander reviewed the whole organization in order to set
objectives, the manager reviews his part of the organization to set his objectives. In doing
this, he consults with his subordinates up to the least worker in his department. It is important
for the individual manager to identify the areas of his unit where most of the results are
obtained. He will usually find that 20 percent of his area of responsibility will produce 80
percent of his results. It is important that he identify and zero in on these key result areas for
management by objective to be effective.
After a manager has identified his key areas of responsibility, he is ready to sit down and
write his objectives. After the manager’s objectives have been written, he enters the
participative management phase of this technique (Lamie, 2009). The subordinate manager
sits down with his boss and they agree on the subordinate’s objectives. The agreement on the
objective signifies the approval of the expected results (output) required of the subordinate.
Progress toward these results can now be pursued by the subordinate until the requirement is
reached or the goal changed. When an agreement has been reached, the managers gets down
to subordinates and discusses who handles which task and how (Gray, 2012).
3. Joint Decision on Methodology: Michael (2010), called the third feature of Management
by Objectives joint decision on methodology. MBO focuses special attention on what must be
accomplished (goals) rather than how it is to be accomplished (methods). The superior and
the subordinate mutually devise methodology to be followed in the attainment of objectives.
They also mutually set standards and establish norms for evaluating productivity.
4. Makes Way to Attain Maximum Result: MBO is a systematic and rational technique
that allows management to attain maximum results from available resources by focusing on
attainable goals. It permits lots of freedom to subordinate to make creative decisions on his
own. This motivates subordinates and ensures good productivity from them.
5. Support from superior: When the subordinate makes efforts to achieve his goals,
superior's helping hand is always available. The superior acts as a coach and provides his
valuable advice and guidance to the subordinate. This is how MBO facilitates effective
communication between superior and subordinates for achieving the objectives/targets set.
Steps in Management by Objectives
Effective Management by Objectives involves some basic steps. Chafee, (2010), outlined and
explained the steps as follows:

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l. Goal setting: The first phase in the MBO process is to define the organizational objectives.
These are determined by the top management and usually in consultation with other
managers. Once these goals are established, they should be made known to all the members.
In setting objectives, it is necessary to identify "Key-Result Areas' (KRA).
2. Manager-Subordinate Involvement: After the organizational goals are defined, the
subordinates work with the managers to determine their individual goals. In this way,
everyone gets involved in the goal setting.
3. Matching Goals and Resources: Management must ensure that the subordinates are
provided with necessary tools and materials to achieve these goals. Allocation of resources
should also be done in consultation with the subordinates.
4. Implementation of Plan: After objectives are established and resources are allocated, the
subordinates can implement the plan. If any guidance or clarification is required, they can
contact their superiors.

5. Review and Appraisal of Productivity: This step involves periodic review of progress
between managers and the subordinates. Such reviews would determine if the progress is
satisfactory or the subordinate is facing some problems. Productivity appraisal at these
reviews should be conducted, based on fair and measurable standards.

2.3.3 Merits of Management by Objectives (MBO)

1. Planning: Develops result-oriented philosophy, MBO is a result-oriented philosophy. It
does not favor management by crisis. Managers are expected to develop specific individual
and group goals, develop appropriate action plans, properly allocate resources and establish
control standards. It provides opportunities and motivation to staff to develop and make
positive contribution in achieving the goals of an organization.
2. Formulation of Clearer Goals: Goal-setting is typically an annual feature. MBO
produces goals that identify desired/expected results. Goals are made verifiable and
measurable which encourage high level of productivity. They highlight problem areas and are
limited in number. The meeting is of minds between the superior and the subordinates.
Participation encourages commitment. This facilitates rapid progress of an organization. In
brief, formulation of realistic objectives is a benefit of MBO.
3. Facilitates Objective Appraisal: MBO provides a basis for evaluating a person's
productivity since goals are jointly set by superior and subordinates. The individual is given
adequate freedom to appraise his own activities. Individuals are trained to exercise discipline

17
and self-control. Management by self-control replaces management by domination in the
MBO process. Appraisal becomes more objective and impartial.
4. Raises Employee Morale: Participative decision-making and two-way communication
encourages the subordinate to communicate freely and honestly. Participation, clearer goals
and improved communication will go a long way in improving morale of employees.
5. Facilitates Effective Planning: MBO programmes sharpen the planning process in an
organization. lt compels managers to think of planning by results. Developing action plans,
providing resources for goal attainment and discussing and removing obstacles demand
careful planning. In brief, MBO provides better management and better results.
6. Acts as Motivational Force: MBO gives an individual or group, opportunity to use
imagination and creativity to accomplish the mission. Managers devote time for planning
results. Both appraiser and appraisee are committed to the same objective. Since MBO aims
at providing clear targets and their order of priority, employees are motivated.

2.3.4 Limitations of Management By Objectives (MBO)

1. Time-consuming: MBO is a time-consuming process. Objectives at all levels of the
organization are set carefully after considering pros and cons which consumes lot of time.
The superiors are required to hold frequent meetings in order to acquaint subordinates with
the new system. The formal, periodic progress and final review sessions also consume time.
2. Reward-Punishment Approach: MBO is pressure-oriented programme. It is based on
reward-punishment psychology. It tries to indiscriminately force improvement on all
employees. At times, it may penalize the people whose productivity remains below the goal.
This puts mental pressure on staff since reward is provided only for superior productivity.
3. Increases Paper-Work: MBO programmes introduce ocean of paper-work such as
training manuals, newsletters, instruction booklets, questionnaires, productivity data and
reports into the organization. Managers need information feedback, in order to know what is
exactly going on in the organization. The employees are expected to fill in a number of forms
thus increasing paper-work. In the words of Howell, "MBO effectiveness is inversely related
to the number of MBO forms.
4. Creates Organizational Problems: MBO is far from a panacea for all organizational
problems. Often MBO creates more problems than it can solve. An incident of tug-of-war is
not uncommon. The subordinates try to set the lowest possible targets and superior the
highest. When objectives cannot be restricted in number, it leads to obscure priorities and

18
creates a sense of fear among subordinates. Added to this, the programme is used as a 'whip'
to control employee productivity.
5. Develops Conflicting Objectives: Sometimes, an individual’s goal may come in conflict
with those of another e.g. marketing manager's goal for high sales turnover may find no
support from the production manager's goal for production with least cost. Under such
circumstances, individuals follow paths that are best in their own interest but which are
detrimental to the company.
6. Problem of Co-ordination: Considerable difficulties may be encountered while
coordinating objectives of the organization with those of the individual and the department.
Managers may face problems of measuring objectives when the objectives are not clear and
realistic.
7. Lacks Durability: The first few go-arounds of MBO are motivating. Later it tends to
become the old hat. The marginal benefits often decrease with each cycle. Moreover, the
programme is deceptively simple. New opportunities are lost because individuals adhere to
rigidly to established goals.
8. Problems Related to Goal-setting: MBO can function successfully provided measurable
objectives are jointly set and it is agreed upon by all. Problems arise when: (a) variable goals
are difficult to set (b) goals are inflexible and rigid (c) goals tend to take precedence over the
people who use it (d) greater emphasis on quantifiable and easily measurable results instead
of important results and (e) over- emphasis on short-term goals at the cost of long-term goals.
9. Lack of appreciation: Lack of appreciation of MBO is observed at different levels of the
organization. This may be due to the failure of the top management to communicate the
philosophy of MBO to entire staff and all departments. Similarly, managers may not delegate
adequately to their subordinates or managers may not motivate their subordinates properly.
This creates new difficulties in the execution of MBO programme.
Factors influencing Organizational productivity are:
Organizational policies: Mazerolle and Eason (2013) argue that some policies established by
organizations are somewhat unsupportive of employees. Katou & Budhwar (2010) are of the
opinion that organizational policies impact on employees’ job performance, particularly,
Human Resource Management (HRM) policies.
Performance appraisal: Performance appraisal has been used to improve performance and
build both job satisfaction and organizational commitment (DE Carlo & Leigh, 1996;
Jaworksi & Kholi, 1991). A study conducted by Cardy & Dobbins (1994) found that, for

19
performance appraisal to positively influence employee behavior and future development,
employees must experience positive appraisal reactions.
Effective leadership: Armstrong & Murlis (2004) and Cronje, du Toit & Motlatla (2001)
affirm that leadership style within an organization has a strong bearing on encouraging or
inhibiting an employee’s performance.
Employee productivity: Battu (2008), as cited in Anyim, Chidi & Badejo (2012), states that
employee productivity is the result of a combined employee ability, motivation and
workplace environment. Okereke & Daniel (2010) also suggest that employee productivity is
a consequence of effectiveness and efficiency of the employees, while Chaudhary and
Sharma (2012) posit that productivity is that which people can produce with the least amount
of effort.
Training and development: On-the-job training is also considered as a set of activities
planned by the organization to enhance on-the-job knowledge and skills or modify members'
attitudes and behavior in ways that are consistent with the organization's goals and job
requirements (Musmuliana & Mustaffa, 2012). There are other definitions that are given
regarding training and development as a single concept. One defines training and
development as the process by which people acquire or absorb skills and knowledge that
enhance their effectiveness. They do this in a variety of ways, such as: guidance and
leadership, headship, organization, and influencing others (Khan et al., 2011; Musmuliana &
Mustaffa, 2012). The effectiveness of training can also be determined based on the amount of
training that an individual has achieved. Other important training elements to consider
regarding the effectiveness of this practice are the advantages of training and the importance
of participating in training. Key training and development objectives include gathering
knowledge that is necessary for staff to accumulate, knowledge that assists in performing
work tasks correctly and effectively (Truitt, 2011). For their part, employers may not be
sufficiently attentive to staff development needs as they tend to provide training only for
those services or work processes that are most valuable to them (Truitt, 2011). However,
other authors have considered training and development practices, on-the-job training,
training design and delivery as some of the most important areas in the field of organizational
studies (Musmuliana & Mustaffa, 2012; Truitt, 2011).

Training plays a key role in the development of organizational objectives and accomplishes
this by incorporating organizational interests with those of its workforce. Developing training
objectives is a very important procedure for the organization and its executives, and there are

20
many reasons for this. Foremost, it is a major contributor to the development of a society's
human capital. This is attained through the impact it exerts on the educational policies of the
unit or organization where it is being implemented, through training provided to public
officials, and by improving quality of service and productivity. It also enables it (the
organization) to influence employers in investing more in training and development of their
employees. Secondly, it will provide a very important service to employees, equipping them
with an expertise that is necessary and very convenient, especially in the context of
developing countries (Musmuliana & Mustaffa, 2012). The quality of training is also capable
of having a direct impact on the level of income and financial performance of the unit or
organization.

Another important function is to train employees to improve the expertise that they can
provide to subsequent generations of employees. Other important training and development
functions are mentioned, among which the most relevant are: improving the relationships
within the organizational staff, the overall image of the organization, investing in a higher
degree of professionalism, which can lead to an increase in the recruitment capacity and
influence of the institution (Khan, Khan, & Khan, 2011)? Managing public organizations
requires a certain amount of skills and professionalism for attaining effective and efficient
results (Musmuliana & Mustaffa, 2012).
Worldwide, productivity, performance improvement and competitive advantage have become
central issues for scholars studying the organization of work. One of the strongest arguments
in favor of employee training is that it helps in the proper and effective development of
organizational resources. Other findings point to the direct positive effects of training, such
as: job security, increased productivity and, in particular, improved performance outcomes
(Shadare, 2010).
Human resource management is a very broad concept that has been extensively discussed in
the academic literature. The term has been given many definitions and connotations in the
literature. Some of these definitions are outlined below (Prasad & Gulshan, 2001).
Frederick Taylor defines management as "the art of knowing and recognizing what one
desires to achieve, and seeing how something can be done effectively and efficiently"
(Taylor, 1914).
Taylor focused on productivity, as indicated by the definition brought above, which he
attached to management in general (Levin-Waldman, 2015; Witzel & Warner, 2015). He
emphasized that people should exploit the utilization of human capital, machinery, money

21
and materials for yielding the desired outputs. According to him, having in-depth knowledge
of the job and chosing the most rational alternative possible should be of foremost priority.
Specifically, one of the harshest criticisms of Taylor's philosophy was its low focus on
people's needs and the relationships and bonds formed between them at work, whether formal
or informal (Prasad & Gulshan, 2001).
Furthermore, scholars in the field, emphasizing the importance of following effective
management practices in generating high levels of performance, argue that trust in
management is just as important, as a psychological component, in improving effort and
achieving higher performance levels. Performance management is a specific term that
intrinsically refers to the management process related to performance output. Performance
management and financial management systems are the means by which the government
achieves its budgetary objectives (Campos & Pradhan, 1996; Pollitt, 2001).

2.4 Empirical Review

In the study of Sharon (2016) on The Optimal MBO: A model for effective management-by-
objectives implementation, it was found that judicious employment of MBO mechanisms and
principles elicit positive organizational performance. Hence, conclusions were that MBO is
widespread as a managerial approach, it did manage to demonstrate its positive effect on
organizations’ performance, and particularly on their ability to achieve their strategic and
financial goals.
A study conducted by Alfred, (2007) found that organizations that engage in performance
review were able to achieve over 65% percent of their sales objectives for the year. He
explained that periodic review enables management to monitor compliance to organizational
policies and operational strategies, and assesses the level of progress achieved so far. Periodic
review helps an organization to monitor the implementation of set objectives at the
department level, identify factors that are exerting positive or negative influence on
operations, with a view to finding solutions to them.
Okolocha (2020) investigated the impact of management by objectives (MBO) on the
organizational productivity of Nigerian commercial banks. Employee participation and
employee compensation were accepted as dimensions for management by objective, and he
discovered a good relationship between the adopted dimensions and the productivity of
Nigerian commercial banks. Also, according to Al Shaqsi's (2013) study on an essential way
to deal with the execution of management by objectives in the public authority area in the
Sultanate of Oman, the execution of the management by objectives in the public authority

22
area well affects execution. Ifedilichukwu (2012) also conducted research on the use of
management by objectives as a device for working on organizational performance (a
contextual analysis of First Bank plc, Enugu main branch). As per the review, the
management by objectives is a strategy for working on administrative outcomes wherein
prevalent and subordinate administrators in an association recognize significant areas of
obligation in which they will work, set some presentation norms for good or awful execution,
and measure results against those guidelines

CHAPTER THREE
RESEARCH METHODOLOGY
This chapter described how this research was carried out. It showed the processes,
procedures, and methods used in data collection and analysis as well as how the researcher
arrived at the conclusion at the end of the research process. This chapter therefore, highlights
and discussed the following sub-topics: Research Design; Research Population; Research
Sample/ Sampling Technique; Instrumentation; Validity of Instrument; Reliability of
Instrument; Administration of Instrument; and Method of Data Analysis.

3.0 Area of Study

This study was carried in Port Harcourt the capital of Rivers State. Port Harcourt is a major
economic hub in the South-South Nigeria and in oil and gas. The city was established as a sea
port in 1912 by the then British Colonial government. Port Harcourt has a sea port, airport, a
railway line linking the East and North-East to the sea port. There are several industries both
service and in the oil and gas exploration and servicing.

3.1 Research Design and Sources of Data

23
The research design adopted for this study was the explanatory research design. This research
started with exploratory study however developed into an explanatory study since the first
aim was gaining knowledge about the use of MBO to improve organizational performance.
The explanatory research design is a type of research design that advocates the collection of
data in order to answer research questions or find the relationship between variables.
However, the descriptive survey research design was adopted. Surveys are a kind of research
which are more rigid than interviews. They are usually used to gather ideas from a large
population. Each respondent is asked to respond to the same set of questions, it provides an
efficient way of collecting responses from a large sample prior to quantitative analysis
(Saunders et al., 2009). Both the primary and secondary data were used in this study. The
primary data were obtained from questionnaire designed by the researcher as well as
observation and interviews were used to collect data for the study. The secondary data were
obtained from textbooks, journals, internet publications such as online journals, government
publications and newspaper.

3.2 Study Population and Determination of Sample Size

Research population is a group of individuals, units, households, organizations about which
information is sought. In view of the above, the population for this study comprises of all the
staff of the following ten companies which operates MBO:
1. Thinksoft Technologies
2. Braidgz Universal Services Ltd
3. Anchor Maric Nigeria Limited
4. McmudiaIntegrated Services
5. Josac Global consult Nig. Ltd
6. Rosabon Financial Services Ltd
7. Asset & Resource Management Company Limited
8. Jalops Electrical Services
9. Ansett Integrated Services
10. Peritoneum Global Services Limited

24
The targeted population of this work were the managers and employees of the
aforementioned service firms under study.
Sample size refers to the portion of the population that is used for the study. The method used
to obtain the sample size is called sampling technique. The sampling technique used for this
study is the purposive sampling technique or the total enumeration sampling technique. This
is based on the fact that the total and available population that is accessible is small. The
sample size of this study was two hundred (200) workers which comprised of management
(50) and employees (150).

3.3 Instrumentation
The main instrument used for data collection in this work is questionnaire. The instrument is
called Questionnaire for Assessing the Impact of the use of MBO on Organizational
Performance in Service Firms (QAIMOPSF). The questionnaire was designed by the
researcher. The design of the questionnaire was based on the modified Likert rating scale
which allows four (4) response options in the following order: Very Great Extent (VGE),
Great Extent (GE), Moderate Extent (ME), and Little Extent (LE). This was adopted to
enable the respondents have a number of specific alternatives from which to choose. The use
of rating scale as questionnaire design gives respondents the opportunity of responding based
on their degree of agreement or disagreement with each questionnaire item.
Validity of instrument refers to the capacity of an instrument to measure what it was designed
to measure. A copy of the structured instrument was presented to the supervisor and two
other experts in management for perusal and correction in terms of clarity, relevance and
appropriateness to the research question. Their suggestions were taken into cognizance in
drafting the final instrument. Thus the basis of the validation of the instrument was face and
content validity.
Reliability of instrument refers to the capacity of an instrument to measure what it was
designed to measure consistently. To determine the reliability of the instrument the test-retest
method was used. The validated questionnaire was administered to a pilot study group of 20
in two service companies which are not part of the research population. The pilot group was
made up of 20 persons. The researcher administered the questionnaire to the same pilot group
two times within an interval of two weeks. The scores obtained were correlated using Pearson
moment correlation coefficient (r). The Pearson moment correlation coefficient(r) score was
0.75 which showed high level of reliability.

25
3.4 Procedure for Data Collection and Data Analysis
A total of two hundred (200) sets of questionnaire were personally administered by the
researcher with the assistance of a research assistance drawn from each of the firm. The
researcher was able to retrieve one hundred and forty (140) of the total questionnaire
distributed. This represents 70% that was returned and considered useful for analysis.
The research questions were analyzed using Pie Chart Statistical tool, while test of
hypotheses was conducted using chi-square non-parametric statistical tool, as stated in
chapter one of the study. The chi-square non-parametric statistical tool formula is stated thus:

X2= ∑(fo-fe)2 fe

Where ∑= Summation

Fo= Frequency Observed

Fe= frequency expected

X2= Chi- Square

The test of hypotheses was conducted at 0.05 level of significance.

Decision Rule: If the calculated chi-square value is greater than the chi-square(X 2) Critical
value, the null hypotheses will be rejected, if otherwise, where the calculated X 2 value is less
than the X2 critical value, the null hypotheses will be accepted.

3.5 Limitations of the study

In the course of executing this research work, some limitations and challenges were
encountered. Some of the limitations of the study are explained below:
The major challenge faced during the process of carrying out this research work was financial
constraint because sourcing for materials and gathering of relevant data from various sources
imposed a huge financial cost on the researcher. Also time constraint was another major
limitation of this study because the time frame given to conduct the work was limited. Also
respondent’s reluctance to give out accurate information was a major limitation to the work.

26
 CHAPTER FOUR
CONCLUSIONS AND RECOMMENDATIONS

4.1 Summary of Findings

Based on the analysis of data, the following findings were revealed:
1. That goal setting affect the organizational performance of service firms to a very great
extent,
2. That team spirit affects customer service of service firms to a Very great extent,
3. That periodic review affects the organizational performance of service firms to a very
great extent,
4. There is a significant relationship between goal setting and firms’ organizational
performance.
5. There is a significant relationship between team spirit and firms’ excellent customer
service.
6. There is a significant relationship between periodic review and firms’ organizational
performance.

27
4.2 Conclusions
Based on the analysis of data and discussion of findings, the study concluded that there is a
significant relationship between goal setting and organizational performance of service firms
in Port Harcourt. In experimental method, the existence of a well-articulated organizational
goal makes it easier to measure organizational performance in terms of revenue generation
and financial resource management. The study also concluded that Teamwork helps in
providing a sustainable customer service. Without strong teamwork, it can be difficult for
managers and executives to determine which staff members can best accomplish job tasks.
Hence work groups and teams develop systems that allow them to complete tasks efficiently
and quickly which leads to excellent customer service. The study also concluded that periodic
review plays a big role in the performance of any service firm, this brings about a significant
relationship between periodic review and organizational performance. Hence, MBO is a
veritable tool to boosting organizational performance of service firms.

4.3 Recommendations
Based on the findings of the study, the following recommendations were made:
1. Management of service firms should necessitate the setting of their goals in order to
enhance their organizational performance.
2. Managers and team leaders should endeavor to build a team spirit to enable their
members work as one to enhance customer service.
3. Managers should ensure that periodic review of employee performance per
department is conducted to ascertain progress made and challenges encountered.
4. Managers should endeavor to build a corporate culture that aligns with their corporate
goals and as well make sure that every individual in their organization sticks to it to enhance
performance.

4.4 Areas for Further Study

Since this research was limited to impact of Management by Objectives on organizational
performance, it was suggested that further research should be carried out on “Management by
succession and organizational performance on selected production firms in Port Harcourt”.

28
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Anderson, U. I. (2013). Management: A Practical Approach. New Delhi: Prentice-Hall

Anderson, U. I. & Meyer, B. P. (2009). Values-Exchange Leadership: Using

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