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MBO is one of the rational school of management's successful products.

Management by objectives (MBO) is a systematic and organizedapproach that allows management to focus on achievable goals and toattain the best possible results from available resource.

It aims to increase organizational performance by aligning goals andsubordinate objectives throughout the organization. Ideally,

employees get strong input to identify their objectives, time linesfor completion, etc. MBO includes ongoing tracking and feedback inthe process to reach objectives.

Management by Objectives (MBO) was first outlined by PeterDrucker in 1954 in his book 'The Practice of Management'. In the90s, Peter Drucker himself decreased the significance of thisorganization management method, when he said: "It's just anothertool. It is not the great cure for management inefficiency...Management by Objectives works if you know the objectives, 90% ofthe time you don't."

Core ConceptsAccording to Drucker managers should "avoid the activity trap",getting so involved in their day to day activities that they forgettheir main purpose or objective. Instead of just a few topmanagers , all managers should:

participate in the strategic planning process, in order toimprove the implement ability of the plan, and Implement a range of performance systems, designed tohelp the organization stay on the right track.

Managerial FocusMBO managers focus on the result, not the activity. They delegatetasks by "negotiating a contract of goals" with their subordinates

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without dictating a detailed roadmap for implementation.Management by Objectives (MBO) is about setting yourselfobjectives and then breaking these down into more specific goals or

key results.Main PrincipleThe principle behind Management by Objectives (MBO) is to makesure that everybody within the organization has a clearunderstanding of the aims, or objectives, of that organization, aswell as awareness of their own roles and responsibilities in achievingthose aims. The complete MBO system is to get managers andempowered employees acting to implement and achieve their plans,which automatically achieve those of the organization

Drucker's typology of Organisational Goals clarified tensionscreated by the varying interpretations of goal statements fromdifferent stakeholders. In addition, organisations have to come toterms with contradictory sub-goals and make trade-offs between

them. His typology distinguished between the following eighttangible and intangible objectives:

1. Market standing

The organisation's position in the market (quality and market share):e.g. to become the quality leader in market x.

2. Innovation

The value of new product development: e.g. to develop two newproducts over the next 12 months.

3. Productivity

The level of output: e.g. to increase production of product x by 25%.

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Features and Advantages

Unique features and advantage of the MBO process

The principle behind Management by Objectives (MBO) is to createempowered employees who have clarity of the roles andresponsibilities expected from them, understand their objectives tobe achieved and thus help in the achievement of organizational aswell as personal goals.

Some of the important features and advantages of MBO are:

1. Motivation Involving employees in the whole process of goalsetting and increasing employee empowerment increasesemployee job satisfaction and commitment.

2. Better communication and Coordination Frequent reviews andinteractions between superiors and subordinates helps tomaintain harmonious relationships within the enterprise andalso solve many problems faced during the period.

3. Clarity of goals

Well to be supposed if yet this management by objectives hascertain advantages as well as disadvantages, it is a virtual techniquefor effective management and it takes around 5 years to get mbo

yielding results.

Domains and levels

Objectives can be set in all domains of activities (production,services, sales, R&D, human resources, finance, information systemsetc.).

Some objectives are collective, for a whole department or the wholecompany, others can be individualized.

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Practice

Objectives need quantifying and monitoring. Reliable managementinformation systems are needed to establish relevant objectives andmonitor their "reach ratio" in an objective way. Pay incentives(bonuses) are often linked to results in reaching the objectives

Limitations

There are several limitations to the assumptive base underlying theimpact of managing by objectives, including:

1. It over-emphasizes the setting of goals over the working of a planas a driver of outcomes.

2. It underemphasizes the importance of the environment orcontext in which the goals are set. That context includes everythingfrom the availability and quality of resources, to relative buy-in byleadership and stake-holders. As an example of the influence ofmanagement buy-in as a contextual influencer, in a 1991

comprehensive review of thirty years of research on the impact ofManagement by Objectives, Robert Rodgers and John Hunterconcluded that companies whose CEOs demonstrated highcommitment to MBO showed, on average, a 56% gain in productivity.Companies with CEOs who showed low commitment only saw a 6%gain in productivity .

3. Companies evaluated their employees by comparing them with the"ideal" employee. Trait appraisal only looks at what employees should be , not at what they should do .

4. It did not address the importance of successfully responding toobstacles and constraints as essential to reaching a goal. The modeldidnt adequately cope with the obstacles of:

Defects in resources, planning and methodology, The increasing burden of managing the information

organization challenge,

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The impact of a rapidly changing environment, which could alterthe landscape enough to make yesterdays goals and actionplans irrelevant to the present.

When this approach is not properly set, agreed and managed byorganizations, in self-centered thinking employees, it may trigger anunethical behaviour of distorting the system of results and financialfigures to falsely achieve targets that were set in a short-term,narrow, bottom-line fashion.

Where to Use MBO

The MBO style is appropriate for knowledge-based enterprises when your staffs are competent. It is appropriate in situations where youwish to build employees' management and self-leadership skills andtap their creativity , tacit knowledge and initiative

The use of MBO needs to be carefully aligned with the culture ofthe organization. While MBO is not as fashionable as it was beforethe 'empowerment' fad, it still has its place in management today.The key difference is that rather than 'set' objectives from acascade process, objectives are discussed and agreed, based upon amore strategic picture being available to employees. Engagement ofemployees in the objective setting process is seen as a strategicadvantage by many.

Management by Objectives (MBO) is also used by chief executivesof multinational corporations (MNCs) for their country managersabroad.

Case in Point MBO in Action at Intel

http://www.1000ventures.com/info/creativity_brief.htmlhttp://www.1000ventures.com/info/creativity_brief.html

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A Manager's Guide at Intel provides the following directions.1. Start with a few well-chosen overriding objectives.2. Set your subordinates objectives that fit in with your

overriding objectives.Allow your subordinates to set their own key results to enable themto meet their objectives.