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Planning Through Management By Objectives
There are two barriers to effective planning: (1) the reluctance to establish goals, and
(2) resistance to change.
Management by objectives is one approach to planning that helps to overcome someof these barriers. It is based on an idea that organizational objectives are such an
important and fundamental part of management that managers should use a
management approach based exclusively on them. This concept emphasizes the
establishment of common objectives by managers and their subordinates acting
together and the use of these objectives as the primary basis of motivation,
evaluation, and control efforts. The management by objectives has been widely
adopted in American and Canadian corporations.
The term management by objectives (MBO) was popularized as an approach to
planning by Peter Drucker in 1954 in his book The Practice of Management . Druckerargued that the first requirement of managing any enterprise is "management by
objectives and self control ." He contrasted management by objectives with
management by drivers. Management by drivers responses to new financial or
market pressures with an "economy drive" and " production drive." In management by
objectives effective planning depends on every manager's having clearly defined
objectives that apply specifically to his individual functions within the company. Each
person has an identified specific contribution to make his units's performance. If all
the individuals achieve their objectives, then the organization's overall objectives will
attained.
According to Drucker an MBO system has the following basic characteristics:
* MBO is a planning system requiring each manager to be involved in the total
planning process by participating in establishing the objectives for his own
department and for higher levels in the organization.
* MBO improves communications within the firm by requiring that managers and
employees discuss and reach agreement on performance objectives.
* By participating in the process of setting objectives, managers and employeesdevelop a better understanding of the broader objectives of the organization and how
their goals relate to those of the total organization.
* Performance reviews are conducted periodically to determine how close individuals
are to attaining their objectives.
* Rewards are given to individuals on the basis of how close they come to reaching
their objectives.
MBO offered a comprehensive program for converting overall organizational
objectives into specific objectives for organizational units and individual members.
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Many similar programs have been developed, including "management by results,"
"goals management," "goals and controls," and others. Despite differences in name,
these programs are similar.
The MBO process
The MBO process is illustrated in Figure 3-4. There are four essential elements
common to MBO programs:
* Goal specificity. Objective setting involves employees at all levels. Objectives
should be jointly derived. Appropriate goals must be set by top managers of the
organization. However, managers and subordinates must develop and agree on
each individual's objectives.
* Action planning. Action plans are made for both individuals and for departments.
The individuals have a wide range of discretion on choosing the means of achievingobjectives.
* Self-control. Self control means systematic monitoring and measuring of
performance by the individuals themselves.
* Periodic review. This final step evaluates performance and initiates corrective
action when behavior deviates from the established objectives. Managers and
subordinates periodically meet to review progressed toward the objectives.
Moreover, management must follow through on the employees performance
evaluations and reward employees accordingly.
Each of these elements can be converted into specific steps.
Management by objectives is one useful method of seeking individual manager
commitment to the objectives of the organization and providing managers with
clearly stated expectations.
MBO: Advantages and Disadvantages
MBO has many benefits when used properly and is associated with management
problems when used improperly.
Bill Reddin has identified several reasons why organizations can fail in they MBO
efforts. Some of these are:
- lack of involvement and commitment of to level managers,
- overemphasizing performance appraisal aspects,
- taking too mechanical an approach, and
- stifling creative goals and objectives.
A study of 135 organizations that used MBO found that a number of benefits and
problems were reported.
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Assessing the overall effectiveness of MBO is a complex task. In review of 1985
studies, Jack N. Kondrasuk found that there are numerous arguments, pro and con,
regarding the effectiveness of MBO. However, most managers find MBO beneficial,
because MBO-type programs appear to result in improved performance and higher
morale.
Planning is a process that does not end when a plan is agreed upon; plans must be
implemented. At any time during the implementation and control process, plans may
require modification to avoid becoming useless or even damaging.