Application of Management by Objectives in HR

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

  1. Organizational goals are defined;
  2. Employees' objectives are defined;
  3. Continuous Monitoring of Performance. Some had stated that employees, not superiors, are expected to monitor (the former's) performance and to identify their own skills needs;
  4. Employees' performance is reviewed by superior;
  5. Superiors give feedback to subordinates on a regular basis. Arguably this is satisfactory and timely feedback, honest, fair, direct, and objective.
  6. Performance is evaluated
  7. Some lament that the "evaluation process is often considered an end rather than a means for development..."
  8. Reward is given where merited. Counseling is given where performance is below average.

MBO Goals
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

  • Based on actual performance. There is clarity of purpose.
  • When set objectives met or exceeded, it clearly shown that employees have attained an acceptable level of performance or have exceeded expectation.
  • Results are clearly observable.
  • Results are measurable.
  • Promotes objectivity.


  • Leads to unrealistic expectations by employees on what they can achieve.
  • Not easy to acquire skills in managing appraisal using MBO
  • Setting objectives leads to rigidity. Organizations need to have flexible goals in a dynamic environment.
  • Setting flexible objectives makes the objectives unclear and difficult to define.
  • "Lack of effective feedback is probably the greatest reason why MBO fails..." (Thomas P. Kleber)

To William Gresse, MBO:

  • involves using techniques for effective team management.
  • needs the full commitment of the organization, and an underlying system for tracking goals and performance.
  • He cautions against making Management by Objectives slip into a financial management mechanism.
  • is essentially a managerial process, not a substitute for good leadership
  • is only one of the ways to motivating people

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.

Where in HR Management by Objectives can play a Role

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:

    "We can't start talking objectives until we know what they are. The things we desire are not objectives.... When you do not figure out the real objectives, you substitute procedure for thinking." ..."Management by objectives works if you know the objectives. Ninety percent of the time you don't."

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 bright.

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