MBO is a strategic management model outlined by the management guru Peter Drucker in his book ‘The Practice of Management in 1954. The model aims to improve the organization’s performance and is mutually agreed upon by the Management and the employees. This model of Management believes that when the employees have a say in the goal setting, they tend to be more willing to participate and work progressively to achieve organizational goals.
Management by objectives outlines five steps that organizations should use to put the management technique into practice. First, the employees must revise the organizational objectives before practice. The next step is to comprehend the organizational objectives into the employee objectives. After that, the employer should encourage the employees to achieve their individual objectives and monitor their performance.
Let's understand it in detail ahead. Here is what we cover in this glossary-
- MBO Meaning
- MBO Definition
- What are the Features of MBO?
- Management by Objective Process
- Management by Objectives Examples
Let’s look at them one after the other.
Management By Objective Meaning
Management by objective (MBO), also known as Management by planning, means setting goals (organization and individual level) to manage the team better and improve output.
MBO Definition
You can understand Management by objective definition to a certain level from the term itself. But, to elaborate, it is a management practice widely used to do performance management and increase the efficiency and effectiveness of work done so that the expected results can be achieved.
It requires every person to agree on the set objectives to ensure that the focus is not on completing random tasks but on doing them with a clear purpose.
For instance, upon discussion, Higher Management decides goals for the organization; then team managers decide team goals and then individual goals; both have to be approved by the team and individual, respectively.
What are the Features of MBO?
There are multiple features of Management by objective (MBO); some of them are-
- All tasks are goal-based, and the employee is quite aware of their responsibilities and purpose of the activity they are doing, even how it will impact the bigger organizational goals
- MBO pairs the resources well, especially people, with the objectives. Moreover, the tasks are purposeful and planned as per the available resources as the resources also have a say in finalizing the goals set for them as per the bandwidth
- MBO impacts review and performance evaluation positively. Employees get feedback more often, and the objective progress is tracked. Upon evaluation, the manager either chooses to appraise the employee or provide him the proper training to do better.
Management by Objective Process
The Management by the objective process has 4 steps.
- Defining organizational goals critical for company success are brainstormed and agreed upon. The timeline for them is also decided like a quarter, bi-annual or annual
- Defining employee objectives is the next step. Here the team managers have to share the goals for approval to the individual in the team. It is also the manager’s responsibility to explain the goals and how they benefit the employee’s organizational goals. After discussion, changes can be made to the goal sheet if required.
- This step involves checking the progress, sharing feedback, providing support and training whenever necessary to the team members
- The last and final step is where employees get evaluated basis on how well they accomplished their objectives. Then, to motivate and support the team, appraisals are done.
Management by Objectives Examples
Here are a few examples to get you kickstarted on the MBO journey. If you have performance management software that uses MBO to manage performance, this will become simpler and easier.
Sales MBO example
- Close ___ deals by the quarter-end
- Attain ___ big brands on average of Rs._____ deal size
HR MBO example
- Increase employee engagement by ___ %
- Compensate at ___% above average standard
- Customer success MBO example
- Decrease avg. ticket closing time to _____ or less
- Get an average of _____ rating
Also Read: Importance of Strategic Management in an organization