Management by objectives (MBO) is one of the most sophisticated and dynamic approaches to management that have been developed in recent years to improve organizational effectiveness and efficiency. MBO is basically a process in which the superior and the subordinate jointly identify the objectives desired to be accomplished by the subordinate in terms of the overall results expected, and then use the same to measure and evaluate the subordinate’s performance.
Characteristics of MBO
- Goal Orientation: MBO focuses on the determination of unit and individual goals in line with the organizational goals.
- Participation: The MBO process is characterized by a high degree of participation of the concerned people in goals setting and performance appraisal. Such participation provides the opportunity to influence decisions and clarify job relationships with superiors, subordinates, and peers.
- Key Result Areas: The emphasis in MBO is on performance improvement in the areas which are of critical importance to the organization as a whole.
- Systems Approach: MBO is a systems approach to managing an organization. It attempts to integrate the individual with the organization and the organization with its environment.
- Optimization of Resources: The ultimate aim of MBO is to secure the optimum utilization of physical and human resources of the organization. MBO sets an evaluative mechanism through which the contribution of each individual can be measured.
Objectives of MBO
Management by Objectives is intended primarily:
- To measure and judge performance
- To relate individual performance to organizational goals.
- To clarify both the job to be done and the expectations of accomplishment
- To foster the increasing competence and growth of the subordinates
- To enhance communications between superiors and subordinates.
- To serve as a basis for judgment about salary and promotion.
- To stimulate the subordinate’s motivation, and
- To serve as a device for administrative control and integration.
Advantages (Strengths) of MBO
The main benefits of MBO are as follows:
- Improved Planning: MBO involves participative decision-making, which makes objectives explicit and plans more realistic.
- Coordination: MBO helps to clarify the structure and goals of the organization. Harmony of objectives enables individuals at various levels to have a common direction.
- Motivation and Commitment: Participation of subordinates in goal setting and performance reviews improves their commitment to performance.
- Accurate Appraisals: MBO replaces trait-based appraisal with a performance-based appraisal. Quantitative targets for every individual enable him to evaluate his own performance. Performance under MBO is innovative and future-oriented.
- Executive Development: The MBO strategy is self-discipline whereby shortcomings and development needs are easily identified. It stresses upon a long-term perspective and self-development
Limitations (Weaknesses) of MBO
MBO is not free from shortcomings. It requires sound policy formulation, sound organization structure, and an effective control system. Many organizations have failed to derive the expected benefits from MBO due to one or more of the following problems:
- Failure to teach philosophy: The idea of MBO appears to be very simple, but it requires far-reaching changes in conventional attitudes and practices. Many managers have severe doubts about MBO and consider it merely another management gimmick for controlling the behavior of subordinates.
- Problem of participation: MBO requires a high degree of participation and collaboration at all levels of the organization. In practice, superiors adopt a half-hearted approach to participative goal-setting.
- Difficult in goal setting: It is often difficult to set genuinely verifiable goals. For example, quantifiable goals for staff people cannot be set easily. Much study and work are required to set meaningful goals.
- Emphasis on short-term goals: In most organizations, there is a tendency to stress upon short-term goals at the cost of long-range goals. This is because short-term goals make for precision in goal setting and achievement.
- Inflexibility: MBO involves the danger of inflexibility in the organization in a changing environment. In a dynamic environment, objectives may require frequent revision, but managers may continue to strive for a goal that has become obsolete.
- Time-consuming and expensive: MBO has also been criticized as it is too pressure-oriented and time-consuming. The setting and evolution of goals are done over such a short period that it may not provide for adequate interaction among people in the organization.