Management by Objectives (MBO)

Management by Objectives (MBO) is a process of agreeing upon objectives within an organisation so that management and employees agree to the objectives and understand what they are. Management by Objectives (MBO) is a systematic and organised approach that allows management to focus on achievable goals and to attain the best possible results from available resources. It aims to increase organisational performance by aligning goals and subordinate objectives throughout the organisation. Ideally, employees get strong input to identify their objectives, time lines for completion, etc. MBO includes on going tracking and feedback in the process to reach objectives.


MBO was first outlined by Peter Drucker in 1954 in his book ‘The Practice of Management’. In the 90s, Peter Drucker himself decreased the significance of this organisation management method, when he said: “It’s just another tool. It is not the great cure for management inefficiency … Management By Objectives works if you know the objectives. 90% of the time you don’t.”  According to Drucker, managers should “avoid the activity trap”, getting so involved in their to day activities that they forget their main purpose or objective. Instead of just a few top managers, all managers should: Participate in the strategic planning process, in order to improve the implement ability of the plan, and Implement a range of performance systems, designed to help the organisation stay on the right track.

Managerial Focus


MBO managers should focus on the result rather than on the activity. They delegate tasks by “negotiating a contract of goals” with their subordinates without dictating a detailed roadmap for implementation. Management by Objectives (MHO) is about setting for you objectives and then breaking these down into more specific goals or key results.

Main Principle

The principle behind Management by Objectives (MBO) is to make sure that everybody within the organisation has a clear understanding of the aims, or objectives, of that organisation, as well as awareness of their own roles and responsibilities in achieving those aims. The complete MBO system is to get managers and the employees acting to implement and achieve their plans, which automatically achieve those of the organisation.

Where to Use MBO

The MBO style is appropriate for knowledge-based enterprises when the organisational staffs are competent. It is appropriate in situations where there is a wish to build employees’ management and leadership skills and tap their creativity, knowledge, and initiative. Management by Objectives (MBO) is also used by chief executives of multinational corporations (MNCs) for their country managers abroad.

Setting Objectives

  • In Management By Objectives (MBO) systems, objectives are written down for each level of the organisation, and individuals are given specific aims and targets. “The principle behind this is to ‘ensure that people know what the organisation is trying to achieve, what their part of the organisation must do to meet those aims, and how, as individuals, they are expected to help. This presupposes that organisation’s programmes and methods have been fully considered. If they have not, start by constructing team objectives and ask team members to share in the process” (Peter Drucker).
  • The one thing an MBO system should provide is “focus”. For this, objectives haves to be precise and their number small. This is because, most of the people disobey this rule, try to focus on everything, an’ end up with no focus at all. For MBO to be effective, individual managers must understand the specific objectives of their job and how those objectives fit in with the overall company objectives set. ”’A manager’s job should be based on a task to be performed in order to attain the company’s objectives … the manager should be directed and controlled by the objectives of performance rather than by his , boss” (Stephen Robbins).
  • The managers of the various units or sub-units, or sections of an organisation should know not only the objectives of their unit but should also actively participate in setting these objectives and make responsibility for them.
  • The review’ mechanism enables leaders to measure the performance of their managers, especially in the key result areas: marketing, innovation, human organisation, financial resources, physical resources, productivity, social responsibility, and profit requirements.

Balance between Management and Employee Empowerment

One of the cardinal features of the MBO is the balance between management and the employee empowerment has to .be struck, not by thinkers, but by practising managers. Turning their aims into successful actions, managers
must master five basic operations:

  1. Setting goals,
  2. Organising the group,
  3. Motivating and communicating,
  4. Measuring performance, and
  5. Developing people, including one’s own self.

These MBO operations are all compatible with empowerment, if we look the main principle of decentralisation: telling people what is to be done, but letting them achieve it their own way. To make the principle work well,people need to be able to develop personally. Further, different people have different hierarchy of needs and, thus, need to be managed differently if they are to perform well and achieve their potential. Empowerment recognises “the demise” of the command-and-control system, but remains a term of power and rank. A manager should view members of his or her team as individuals whose particular skills contribute to the success of the enterprise. While people are still subordinates, the superior is increasingly dependent on the subordinates for getting results in their area of responsibility, where they have the requisite knowledge. In turn, these subordinates depend on their superior for direction and “above all, to define what the ‘score’ if for the entire organisation, that is, what are standards and values, performance and results.”

Individual Responsibility

MBO creates a link between planning and management and the implementation units. Responsibility for objectives is passed from the organisation to its individual members. It is especially important for knowledge- based organisations where all members have to be able to control their own work by feeding back from their results to their objectives. Management by objectives is achieved through self-control, the tool of effectiveness. Today every worker is a manager, whose decisions are of decisive importance for results.

In such an organisation, management has to ask three pertinent questions:

1. What should we hold you accountable for?

2 What information do you need?

3. What information do you owe the rest of us?

However, in recent years opinion has moved away from the idea of placing managers into a formal, rigid system of objectives. Today, when maximum flexibility is essential, achieving the objective rightly is more important. It is also difficult to set MBO as a procedure because:

  1. Difficulty in setting quantitative targets.
  2. Organisational emphasis on short-term goals.
  3. Rigidity and resistance to change.
  4. Limited applicability and cost involved in its implementation.
  5. Lack of a proper training structure.


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