What is Management By Objectives and what are the steps involved in it?

The concept of management by objectives is a logical extension of Goal Setting theory. The Goal Setting theory studies the processes by which people set goals for themselves and then put in efforts to achieve them. Evidence proves that 90 percent of the time, performance improves with goal setting. Comparatively high achievers set comparatively more difficult goals and they are more satisfied with intrinsic rewards than extrinsic rewards. Management by objectives is an extension of Goal theory as it involves systematic and programmatic goal getting throughout an organization.

The concept of MBO was introduced by Peter Drucker in 1954 as a means of using goals to improve people rather than to control them. Thus this concept of MBO is also known as Goal management. It is based upon the assumption that involvement leads to commitment and when an employee participates in goal setting as well as setting standards for measurement of performance towards that goal then the employees will be motivated to perform better and in a manner that directly contributes to the achievement of organizational objectives. Simply stated, “MBO is a process whereby both managers and subordinates work together in identifying goals and setting up objectives and makes plans together in order to achieve these objectives. Their objectives and goals should be consistent with the organizational goals”.

What are the steps involved in the process of MBO?
The basic steps that are common in all the processes of management by objective (MBO) are:-

1. Central goal setting: defining and verifying organizational objectives is the first step in MBO process. Generally these objectives are set by central management of the organization but it does so after consulting other managers. Before setting of these objectives, an extensive assessment of the available resources is made by the central management. It also conducts market service and research along with making a forecast. Through this elaborate analysis, the desired long run and short run objectives of the organization are highlighted. The central management tries to make these objectives realistic and specific. After setting these goals it is the responsibility of the management that these are known to all members and are also under stood by them.

2. Development and individual goal setting : After organization objectives are established by the central management, the next step is to establish the department goals. The top management needs to discuss these objectives with the heads of the departments so that mutually agreed upon objectives are established. Long range and short range goals are set by each department in consultation with the top management. After the department goals are established, the employees work with their managers to establish their own individual goals which relate with the organization goals. These participative goals are very important because It has been seen that employees become highly motivated to achieve the objectives established by them. These objectives for individuals should be specific and short range. These should indicate the capability of the unit of the individual. Through this process all the members of the organization become involved in the process of goal setting.

3. Revision of job description : In the process of MBO resetting individual goals involves a revision of job description of different positions in the organization which in turn requires the revision of the entire structure of the organization. The organization manuals and charts may also have to be modified to portray the changes that have been introduced by the process of MBO. The job description has to define the objectives, authority and responsibility of different jobs. The connection of one job with all other jobs of the organization also needs to be established clearly.

4. Matching goals : The establishment of objectives can not be fruitful unless the resources and means required to achieve these objectives are provided. Therefore the subordinates should be provided required tools and materials which enables them to achieve the objectives efficiently and effectively. Resource requirements can be measured precisely if the goals are set precisely. This makes the process of resource allocation relatively easy. Resource allocation should be made after consulting the subordinates.

5. Freedom implementation: The task team of manager and his subordinates should be given freedom in deciding the way to utilize their resources and the way to achieve their objectives. There should be very little or no interference by the seniors as long as the team is working with in the framework of organization policies.

6. Establishing check points: The process of MBO requires regularly meetings between the managers and their subordinates to discuss the progress achieve in the accomplishment of the objective established for the subordinates. For this purpose the mangers need to establish the standards of performance or check points to evaluate the progress of their subordinates. These standards need to be specified as for as possible quantitatively and it should also be ensured that these are completely understood by the subordinates. This practices needs to be followed by all managers and these should lead to an analysis of key results has the targets are represented in terms of the results. The analysis of key results should be recorded in writing and it generally contains information regarding :
(i) The overall objectives related with the job of subordinates.
(ii) The key results which must be achieved by the subordinate to fulfill his objectives.
(iii) The long term and short term priorities, a subordinate needs to adhere to.
(iv.) The extent and scope of assistance expected by a subordinate from his superior and other departmental managers and also the assistance, the subordinates is required to extend to other departments of his organizations.
(v.) Nature of information and the reports receive by the subordinate to carry out self evaluation.
(vi.) The standards use to evaluate the performance of the subordinate.

7. Performance appraisal : An informal performance appraisal is generally conducted in routine by the manager, a periodic review of performance of the subordinates should also be conducted. Periodic reviews are required as the priorities and conditions change constantly and need to be monitored constantly. These reviews help the mangers as well as the subordinates to modify the objectives or the methods whenever require. This significantly increases the chances of achieving the goals and also ensures that no surprises are found at the time of final appraisal. Periodic performance appraisal needs to be based on measurable and fair standards so that these are completely understood by the subordinates and there are also aware of the degree of performance required at each step.

8. Counseling : Periodic performance review helps the subordinates in improving his future performance.