Management by objectives is a planning approach developed and popularized by Peter F. Drucker in 1954. It is a collaborative / participative approach to planning. MBO begins with goal setting and continues through performance review. The approach actively involves staff members at every organizational level. By building on the link between planning and controlling functions, MBO helps to overcome many of the barriers to planning.
The MBO process involves the following steps:
Top level goal setting
MBO begins with establishment of the overall goals of the organization by top level managers. These managers may set goals by consulting with other organization members e.g. divisional or departmental managers
Collaborative goal setting throughout the organization
Each person’s major area of responsibility is clearly defined in terms of measurable objectives. Managers consult with departmental members to set objectives
Periodic review of performance
The objectives set are used by the management and employees to review or monitor the actual implementation of plans / activities / objectives from time to time.
Final evaluation and feedback
Performance appraisal is finally conducted to determine the achievement of goals and objectives.
As a collaborative planning approach, MBO enables managers and subordinates to set goals jointly and decide what resources are needed to achieve them. They then review the performance or goal achievement jointly.
- It motivates the workers since they are involved in decision making.
- It aids managers in reviewing employee performance i.e. it helps to implement the controlling function together with planning simultaneously.
- There is commitment to attaining the organizational goals.
- It reduces resistance to change.
- There is higher productivity through efficiency.
- Periodic review in the MBO process will ensure that problems are addressed before it’s too late.
- There is improved communication between management and employees.
- It leads to self-discipline on the part of the subordinate.
- It clarifies the specific roles, responsibilities and authority of personnel.
- There is participative/democratic management
- It provides an opportunity for career development i.e. employees will be trained on setting objectives.
- It saves top management time which can be used to do other things that are of strategic importance since there is self-regulation on the part of subordinates/employees.
- Its time consuming to implement.
- Some subordinates may not be good at goal setting.
- It may lack top management support as they may feel they are being replaced.
- It tends to over emphasize on short-term goals over long-term goals.
- It may lead to inflexibility, as subordinates will stick to the objectives they have set.
- There is the danger of managers forgetting that there is more to management than goal setting.
- It may be resisted by subordinates because they may not know how to set goals.
- Conditions in the environment change too frequently for MBO to work at all times.
Barriers to Planning/Limitations to Planning
- Lack of planning skills on the part of the management.
- Planning is based on forecasts and things do not always turn out to as anticipated.
- The planning premises do not always hold.
- The planning process is time consuming and expensive.
- Resistance to change. Planning may require a change in the existing set-up and organizational members may want to maintain he status quo.
- The managers who do the planning are usually not the ones who implement. Those who were implementing may not understand the plan well since there may be issues that were not expressly indicated but were implied.
- Powerful people with vested interest may frustrate planning and planners, they may also lead to adoption of sub-optimal plans.
- Government interference may affect implementation of plans by setting restricting business policies.
- Lack of resources as planning is expensive.
- Managers may be reluctant to establish goals and this will hinder planning as the planning process begins with goal setting.
- Planning leads to rigidity.
- Have contingency plans i.e. Alternative plans incase what you had planned fails, you have another one.
- Involve all the stakeholders in planning e.g. workers/operatives. They may come up with more realistic plans as they understand the work related problems more clearly.
- The long-term, short term and medium term plans should be consistent with each other.
- Enough research should be done to obtain adequate information for the purpose of determining the goals and determining the planning premises.
- Planning must be forced. Planning will not occur unless it is forced on some managers and deadlines set.
- The management should avail enough resources to assist in planning.
- The management should take an environmental analysis before drawing plans.
- Communication and participation with the stakeholders.
- Planning should start at the top