Management by Objectives

Management by objectives (MBO) is a comprehensive management system based on measurable and participatively set objectives. MBO has come a long way since it was first suggested by Peter Drucker in 1954as a way of promoting managerial self-control. In one form or another, and under various labels, MBO has been adopted by many organizations around the world. In fact, it is difficult to find a public or private organization of any significant size that has not tried some variations of the MBO theme.

The common denominator that has made MBO programs so popular in both management theory and practice is the emphasis on objectives that are both measurable and participatively set. Unfortunately, as pointed out by a management consultant, a gap exists between MBO theory and practice: “ Today, MBO is being used as an exploitive, manipulative management control mechanism as often as liberating, humanistic philosophy of management. It seems to be venerated more by its abuse than for its proper use”. Whether properly or improperly applied, MBO is by far the most widely used planning aid.

Originally characterized as a relatively simple performance appraisal technique, MBO evolved into a more complex planning and control tool and eventually into a comprehensive management system. According to one recognized expert on MBO: Within the past few years MBO has emerged as a system designed to integrate key management processes and activities in a logical and consistent manner. These include the development of overall organizational goals and strategic plans, problem solving and decision making, performance appraisal, executive compensation, manpower planning, and management planning and training.

Proponents claim that when MBO is applies as a comprehensive management system, it becomes an integral part of the manager’s job.

At the heart of MBO is the four-step cycle:

Step 1. Setting objectives. A hierarchy of challenging, fair and internally consistent objectives is the necessary starting point for the MBO cycle because it serves the foundation for all that follows. All objectives, according to MBO theory, should be reduced to writing and put away for later referral during steps 3 and 4. MBO’s main contribution to the objective-setting process is its emphasis on the participation and involvement of subordinates.

Step 2. Developing action plans. With the addition of action statements to the participatively set objectives, the planning phase of MBO is complete. Managers at each level develop plans that incorporate objectives established in step 1. High managers are responsible for making sure that their direct subordinates’ plans complement one another and do not work at cross-purposes.

Step 3. Periodic review. As plans turn into action, attention turns to step 3, monitoring performance. Advocates of MBO usually recommend face-to-face meetings between superior and subordinates at three-, six- and nine-month intervals. These periodic checkups permit those who are responsible for a particular set of objectives to reconsider them to see if they are still valid. If an objective is no longer valid, it is updated accordingly. Otherwise, progress toward valid objectives is assessed. Periodic checkups also give managers an excellent opportunity to give subordinates needed and appreciated feedback.

Step 4. Performance appraisal. At the end of one complete cycle of MBO, typically one year after the original goals were set, final performance is matched with the previously agreed-upon objectives. The pairs of superior and subordinate managers who mutually set the objectives one year earlier meet face-to-face once again to discuss how things have turned out. MBO calls for emphasis on results, not on personalities or excuses. The control phase of the MBO cycle is completed when success is rewarded with promotion, merit pay, or other suitable benefits and when failure is noted for future corrective actions.

1. Say some words about Peter Drucker and his management system: MBO.

2. What made MBO programs so popular in both management theory and practice?

3. What is at the heart of MBO?

4. Speak on each step of the cycle.

Text 5

Read the following text and say which statements are false and which are true. Correct the false ones.