MANAGEMENT BY OBJECTIVES

Management by Objectives is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources. The concept of MBO was coined by Peter F Drucker in 1954.

ACCORDING TO HAROLD KOONTZ

“MBO is a comprehensive managerial system that integrates many key managerial activities in a systematic manner, consciously directed towards the effective and efficient achievement of organizational objectives.”

ACCORDING TO GEORGE R TERRY

“It is a system in which each employee participates in determining personal objectives as well as the means by which he or she hopes to achieve these objectives. It makes each employee a manager of his or her own particular.

ACCORDING TO GEORGE S. ORDIORUE

“The system of management by objectives is described as a process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individual’s major areas of responsibility in terms of results expected of him, and use these measures as a guide for operating the unit and assessing of contribution of each of its members.”

ACCORDING TO SK CHKRAVARTY

“MBO is result-centered, non-specialist, operational managerial process for the effective utilization of material, physical and human resources for the organization by integrating the individual with the organization and organization with the environment.”

ACCORDING TO TERRY AND FRANKLIN

“A managerial objective is the intended goal that prescribes definite scope and suggests direction to the planning efforts of a manager.”

ACCORDING TO PROF. REDDIN

“MBO is the establishment of effectiveness areas and effectiveness standards for managerial positions and the periodic conversion of all this into measurable time bound objectives linked vertically and horizontally with future planning.”

So, MBO is a management system in which each member of the organization effectively participates and involves himself. This system gives full support to the individual strength and responsibility. MBO harmonizes the goal of an individual with the organization’s goal. It creates self-control and motivates the manager into action before somebody tells him to do something.

FEATURES OF MBO

Peter F Drucker who coined the term MBO defines its following features:

  • Some form of corporate or unit plan by which objectives are laid down;
  • Measurable and time bound objectives for each managerial position;
  • Objectives for each position are established by the job-holder and boss together;
  • Mutually agreed job improvement plans to facilitate the accomplishment of objectives;
  • Periodic reviews and updating, whenever necessary, of the mutually agreed objectives by the boss and subordinates together;
  • Such mutually agreed objectives form the basis of performance evaluation;
  • Sharp definition of responsibilities and authorities for positions, which brings clarity in the organizations;
  • Aligning and linking of objectives up, down and across.      

The other features of MBO are as follows:

MANAGEMENT PHILOSOPHY

MBO is not only a technique but a philosophy to the management. Technique is applicable only in some areas but philosophy or approach guides and influences every aspect of management. MBO is an approach which includes various techniques of better management.

COLLECTIVE PARTICIPATION

In MBO, the objectives are set by all individuals collectively after a thorough discussion. These objectives become the targets which are to be achieved by all. The review of the objectives is also done collectively.

YARDSTICK TO MEASURE PERFORMANCE

In MBO, the objectives are set at corporate, departmental as well as at individual level. These objectives act as yardstick to measure the performance of the employees. The actual performance is measured against the standard performance and deviations are found out and then the corrective actions are taken.

PROVIDES A REGULAR REVIEW OF PERFORMANCE

MBO provides a regular review of the performance. This review is normally held once in a year. It focuses on initiative and active role of the manager who is responsible for achieving the objectives. The review is future oriented and provides a basis for planning and corrective action.

PROVIDE BASIS FOR DECISION MAKING

The objectives in MBO provide guidelines for appropriate system and procedures. The degree of delegation of authority, fixation of responsibility, allocation of resources etc. can be decided on the basis of objectives of various individuals. These objectives also become a basis of reward and punishment in the organization.

PROCESS OF MBO

DEFINING ORGANISATIONAL OBJECTIVES

In the first step in the process of MBO, the objectives are set up. The long term objectives are set by undertaking the corporate planning by the top management at high level. Then secondary objectives are set by undertaking the strategic planning to achieve and support the achievement of long term organizational goals.

GOALS OF EACH SECTION

After determining the goals of each section, the objectives for department, divisions or sections are laid down. The objectives laid down are made time bound i.e. the time is specified in which the objective is to be achieved. The goals or objectives are expressed in meaningful, precise and concise form.

FIXING KEY RESULT AREAS

Key result areas are fixed on the basis of the organizational objectives premises. Key Result areas are arranged on a priority basis. Key result areas indicate the strength of the organization. The example of Key result areas are profitability, market share, innovation etc.

SETTING SUBORDINATE OBJECTIVES OR TARGETS

The objectives of each subordinate or individual are fixed. It is preferable to fix the objectives at lower level in quantitative terms. There should be a free and frank discussion between the superior and his subordinates. Subordinates are induced to set standards by themselves by giving an opportunity. If subordinates are allowed to do so, they may set high standards and the chances of their accomplishment are higher. In this way, the objectives or targets of subordinates are fixed.

MATCHING RESOURCES WITH THE OBJECTIVES

The objectives are framed on the basis of availability of resources. It some resources are not adequately available, the objectives of the organization are changed accordingly. So there is a need for matching the resources with the objectives. Next, the available resources should be properly allocated and utilized.

PERIODIC REVIEW MEETINGS

The superiors and subordinates should hold meetings periodically in which they discuss the progress in the accomplishment of objectives. The fixed standards may be changed in the light of the progress. But the basic conditions do not change. The periodical review meeting is held during the period set for achieving the objectives.

APPRAISAL OF OBJECTIVES

At the end of fixed period for achieving the objectives, there should be a discussion between superior and subordinates. This discussion is to be related with the comparison of performance of employee against the set standards. The superiors should take corrective action if it founds necessary.

According to EARL P. STRONG

“Only by bringing company objectives down from long range to short range, from company level to individual position level, from pre-performance to post-performance and by penalizing for failure and rewarding for success can the effective programme of managing by objectives can be accomplished.”

The superiors should identify the reasons for failure of achieving objectives. The problems faced by the subordinates should be identified and steps should be taken to tackle such problems.

REAPPRAISAL OF OBJECTIVES

An organization is living in a dynamic world. There are a lot of changes within a short period. The survival and growth of the modern business organization largely depends upon putting up with the changing conditions. So, the top management executive should review the organization’s objectives to frame the objectives according to the changing situation.

According to NEWMAN, SUMMER and WANNEN

“Every manager must frequently reappraise emphasis he gives to his various objectives. The job is like that of a captain of a large ship who is continually changing his speed and direction in relation to his present position, tides, winds and other conditions.”

BENEFITS OF MANAGEMENT BY OBJECTIVES

The following are the objectives of Management by Objectives:

EFFECTIVE PERFORMANCE

MBO aims at managing the things by setting up the objectives collectively. This creates the cordial environment in the organization and induces the employees to accomplish the objectives. By doing this MBO ensures effective performance of the employees in the organization.

TEAM SPIRIT

MBO is a dynamic change in the management field. The objectives are set here after inviting the opinions and suggestions and ideas of all the superiors and subordinates. The discussion between all the superiors and subordinates for setting the objectives create a sense of connectivity among them. This promotes the team spirit in the workplace.

MOTIVATION

As the decisions in MBO approach are taken collectively by the superiors and subordinates, the participation of the subordinates motivates them to work hard and give their best. This implies that the MBO approach induces the employees to give their best.

DELEGATION OF AUTHORITY

MBO helps in fixation of the responsibility on the basis of the objectives laid down and provides sufficient scope for a proper balance between authority and responsibility. All the authority required to discharge the duties is delegated to all the employees and up to the level possible. All this leads to the better delegation of authority and the decentralization to the maximum possible extent.

EFFECTIVE DECISIONS

The decisions taken in such an organization with the participation of workers, managers and administration are once best implemented and leads to increased efficiency of the management and the organization as a whole.

EFFECTIVE MANAGERIAL DEVELOPMENT

Under this system, individual objectives are determined for all the managers. They are held responsible for the attainment of their individual objectives. It develops a feeling of responsibility in the managers and consequently the managerial ability and efficiency increases.

COORDINATION AND EFFECTIVE CONTROL

With the unified objectives and sub-objectives, MBO helps in coordinating the activities of different sections and departments. Periodical view of the plans and objectives and evaluation of performance, comparison of actual performance with the standards set are the basic components of the MBO. These become the basis of effective control and better planning.

REWARDS ON THE BASIS OF PERFORMANCE

In the organization that adopts the MBO approach the individual objectives are also set. The employees who achieve the targets set get the rewards for the same. This induces them to work hard in the direction to achieve rewards. Rewards are given in the form of recognition, prestige, bonus, profit sharing, promotion etc.

LIMITATIONS AND WEAKNESSES OF MBO

The concept of MBO is in developing stage. So it carries some weaknesses in it which are as follows:

DIFFICULTY IN DETERMINATION OF OBJECTIVES

The first step in the process of Management by Objectives is determination of objectives which is not so easy. The objectives are set differently at corporate level, department level and then on individual level. It is difficult to reconcile the interests and goals of everyone in one corporate goal. So this proves a serious limitation of MBO.

PROBLEM OF COORDINATION

Business is nothing without its working employees. Every employee has different goal, different perspective of viewing things. There may be conflicting interests of the various employees due to which management confront the problem of coordination among the work force.

TIME CONSUMING TECHNIQUE

MBO is time consuming technique. The setting of objectives requires thorough analysis of the business environment. The setting of objectives at various levels is also time consuming. The recording of performance and its comparison and periodical evaluation is also considered as wastage of time.

LACK OF COMPETENT AND TRAINED MANAGERS

Management is emerging as a profession. It is not emerged as a profession till yet in the true sense. In present times, it becomes difficult to find the trained managers who can effectively employ this approach as well as ensure the economy of operations in the concern.

LACK OF COOPERATION BETWEEN SUPERIORS AND SUBORDINATES

The lack of cooperation between the superiors and the subordinates leads to the failure of MBO approach. The superiors consider then well trained and generally ignore and underestimate the opinions and suggestions of the subordinates. This creates frustration among the subordinates and this leads to the conflicts among both working groups.

PRESSURE UPON THE EMPLOYEES

The management by objectives creates pressure on the employees to achieve the targets upon that adversely affect their performance.

SACRIFICE OF QUALITATIVE OBJECTIVES

MBO focuses on setting and attainment of quantitative objectives only. Objectives in terms of quality do not come in the purview of the management by objectives and this proves a serious limitation of this approach.

LACK OF FLEXIBILITY

The changing business environment is full of uncertainties and complexities. MBO aims at determining objectives only. But in practical the changes are so frequent that it is very difficult to change the objective set. Thus lack of flexibility is a limitation of MBO.

SUGGESTIONS TO MAKE MBO EFFECTIVE

The following suggestions should be considered to make the MBO implementation effective:

  • Objectives must be set by keeping in view the resources available with the enterprise.
  • Objectives must be determined jointly by the supervisors and subordinates.            
  • Objectives must be feasible.
  • Objectives must be convincing to all concerned.
  • Objectives must be time bound.
  • Objectives must be stimulating.
  • Objectives must be determined considering the economic as well as industrial policy of the government.
  • Team spirit should be developed through collective determination of objectives, policies and procedures.
  • Effective system of communication must be developed at all levels of management.
  • System of performance evaluation should be there.
  • Plans and programmes should be periodically reviewed.
  • Efforts of employees should be properly rewarded.
  • Objectives should be ranked on the basis of their performance.     

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