Management by Objectives | Commerce & Accountancy Optional Notes for UPSC PDF Download

Overview

Management by Objectives (MBO) is a strategic model aiming to boost organizational performance by clearly defining objectives agreed upon by both management and employees. This approach promotes employee participation and commitment through involvement in goal-setting and action plans, aligning objectives throughout the organization.

Implementation

MBO establishes a management information system to compare actual performance with defined objectives. Advocates assert its significant benefits, including improved employee motivation, enhanced commitment, and improved communication between management and employees. However, critics argue that MBO may overly emphasize goal setting over systematic planning.

Principles (Peter Drucker)

In the book coining the term, Peter Drucker outlined principles for MBO:

• Objectives collaboratively set with employees, designed to be challenging yet achievable.
• Daily feedback provided, emphasizing rewards rather than punishment.
• Focus on personal growth and development, steering away from negativity for unmet objectives.

Perspective on MBO

Peter Drucker viewed MBO as a valuable tool rather than a cure-all. Success hinges on top management support, clearly outlined objectives, and trained managers capable of effective implementation. MBO offers organizations a structured process, with its efficacy linked to these key elements.

Management by Objectives in Practice

Management by objectives outlines five steps that organizations should use to put the management technique into practice:

1. Define Organizational Objectives:
   • Initial step involves establishing or revising overall company objectives.
   • These objectives should align with the firm's mission and vision, providing a comprehensive framework.
2. Communicate Objectives to Employees:
   • Translate organizational objectives for employees using the SMART criteria: Specific, Measurable, Acceptable, Realistic, and Time-bound.
   • This ensures clear comprehension and alignment with individual and collective goals.
3. Encourage Employee Participation:
   • Foster employee involvement in setting individual objectives.
   • After sharing organizational objectives, empower employees at all levels to contribute to defining their goals, enhancing motivation and engagement.
4. Monitor Employee Progress:
   • Emphasize measurable objectives, enabling ongoing monitoring of employee performance.
   • This step ensures a clear understanding of the extent to which objectives are being achieved.
5. Evaluate and Reward Progress:
   • Evaluate and acknowledge employee accomplishments and areas for improvement.
   • Provide constructive feedback on individual achievements, fostering a culture of continuous improvement and motivation.

Conclusion

Management by Objectives (MBO) is a strategic management approach designed to enhance organizational performance through the explicit definition of objectives agreed upon by both management and employees. As per the concept, actively involving employees in goal setting and action plans fosters engagement and dedication, while also ensuring alignment of objectives throughout the organization. Originating in the 1950s, Peter Drucker devised a five-step process for organizations to implement MBO effectively.