Management by Objectives is a process whereby employees and their superiors agree on common goals and performance standards. Performance appraisal determines whether the goals are achieved as expected.
The employees are permitted to choose how to achieve the goals set.
Peter Drucker was the first to apply the concept of ‘MBO'. This was back in 1954.
Alfred Sloan introduced MBO in the early 1950s. But it was Drucker who made MBO a central management concept as clearly made out in his book "The Practice of Management."
The Management by Objectives Process
The goals are defined in terms of the SMART principles.
It is result-oriented.
MBO is intended to empower employees whereby they can attain their personal goals and at the same time help achieve the organization's goals. Alignment of goals is a necessary ingredient of this concept.
By adopting MBO, you can expect to have a more motivated workforce and better communication between superiors and subordinates.
Advantages and Disadvantages of Using MBO
To William Gresse, MBO:
Misguided Use of the Results of Performance Evaluation
Some people make the mistake of using poor performance as a ground for taking disciplinary action.
Although they can do this, they cannot use poor performance in a single year as the basis. Superiors need to satisfy themselves that the subordinate concerned has continued to perform poorly in spite of having been given the time to improve, having been provided with necessary training and having been warned that
continued poor performance will result in disciplinary action including dismissal.
Many proponents of MBO apply it to HR, that is, in performance management, specifically in performance appraisal.
There are signs that HR is increasing in importance whereby more organizations are beginning to consider HR as strategic business partner. Acceptance of HR as one of the business drivers may result in an increased use of the MBO concept.
William Gresse writes that MBO is "a powerful tool for aligning employees actions with an organization's goals."
The fact is, in many organizations, employees' job objectives are aligned to business objectives. MBO can play its role here.
As corporate leaders, you need to keep in mind the shortcomings of Management by Objectives while working toward implementing MBO in HRD. A clear understanding of all aspects of the MBO concept, the advantages and disadvantages is crucial. After all, Peter Drucker himself has stated:
The application of MBO is moving in the direction of involvement by top management. Previously, it was made applicable to lower level managers and employees. Moreover, it is now connected to long term strategic plans, previously yearly intervals only.
The potential for MBO to benefit HR in the long run looks brighter.