Page 63 - DMGT402_MANAGEMENT_PRACTICES_AND_ORGANIZATIONAL_BEHAVIOUR

Management Practices and Organisational Behaviour

Notes 3.5 Management by Objectives

Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in his book ‘The
Practice of Management’. It is a systematic and organised approach that allows management to
focus on achievable goals and to attain the best possible results from available resources.
MBO aims to increase organisational performance by aligning goals and subordinate objectives
throughout the organisation. It managers focus on the result, not the activity. They delegate
tasks by “negotiating a contract of goals” with their subordinates without dictating a detailed
roadmap for implementation. Management by Objectives (MBO) is about setting yourself
objectives and then breaking these down into more specific goals or key results. Ideally,
employees get strong input to identify their objectives, time lines for completion, etc. MBO
includes ongoing tracking and feedback in the process to reach objectives.

3.5.1 Core Concepts

According to Drucker managers should “avoid the activity trap”, getting so involved in their
day to day activities that they forget their main purpose or objective. Instead of just a few top
managers, all managers should:

1. participate in the strategic planning process, in order to improve the implementability of
the plan, and
2. implement a range of performance systems, designed to help the organisation stay on the
right track.

3.5.2 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 programs and methods have been fully considered. If they
have not, start by constructing team objectives and ask team members to share in the process.”
“The one thing an MBO system should provide is focus”, says Andy Grove who ardently practiced
MBO at Intel. So, have your objectives precise and keep their number small. Most people disobey
this rule, try to focus on everything, and end up with no focus at all.
For Management by Objectives (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 by the board of directors. “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.”
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.
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.

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