Management By Objective

Management by objectives (MBO) is a strategic management model that aims to improve organizational
performance by clearly defining objectives that are agreed to by both management and employees.

According to the theory, having a say in goal setting and action plans encourages participation and
commitment among employees, as well as aligning objectives across the organization.
The term was first outlined by management guru Peter Drucker in his 1954 book, The Practice of
Management.
Management by Objectives (MBO) refers to the process of managers and employees agreeing on
objectives for the organisation, which Drucker considered to be the only effective way of delegating
authority in a large organisation. Drucker urged that targets should be agreed after discussion, not
imposed from above. This ensures employees understand and are committed to the organisation's
objectives.
Peter Drucker in the 1950s, detailed five steps that organizations should follow under this strategy:

1. The first step is to either determine or revise organizational objectives for the entire company.
This broad overview should be derived from the firm's mission.
2. The second step is to share the organizational objectives with the employees. Drucker used the
acronym SMART (specific, measurable, acceptable, realistic, time-bound) to express the
concept.
3. Step three is stimulating the participation of employees in setting individual objectives. After the
organization's objectives are shared with employees, from the top to the bottom, employees
should be encouraged to help set their own objectives to achieve these larger organizational
objectives. This gives employees greater motivation since they have greater empowerment.
4. Step four involves monitoring the progress of employees. In step two, a key component of the
objectives was that they are measurable in order for employees and managers to determine
how well they are met.
5. The fifth step is to evaluate and reward employee progress.

Peter Drucker set forth several principles for management by objectives.

Drucker believed MBO was not a cure-all but a tool to be utilized. It gives organizations a process, with
many practitioners claiming that the success of MBO is dependent on the support from top
management, clearly outlined objectives, and trained managers who can implement it. He argued that a
business survives on profit and that corporate goals should be built according to this. He thought that
work could be broken down, measured and improved. Drucker's belief that targets for performance
must be specific and quantifiable led him to develop the concept of SMART objectives (specific,
measurable, acceptable, realistic, time-bound).

Practitioners claim that the major benefits of MBO are that it improves employee motivation and
commitment and allows for better communication between management and employees. However, a
cited weakness of MBO is that it unduly emphasizes the setting of goals to attain objectives, rather than
working on a systematic plan to do so. Critics of MBO, such as W. Edwards Demming, argue that setting
particular goals like production targets leads workers to meet those targets by any means necessary,
including short-cuts that result in poor quality.

Advantages and Disadvantages of Management by Objectives (MBO)

MBO comes with many advantages and disadvantages to a company's success. The benefits include
employees taking pride in their work with goals that they know they can achieve. It also aligns
employees with their strengths, skills, and educational experiences. MBO also leads to increased
communication between management and employees. Assigning tailored goals brings a sense of
importance to employees, bringing loyalty to the firm. And lastly, management can create goals that
lead to the success of the company.
Though there are plenty of benefits to MBO, there are some drawbacks and limitations. As MBO is
focused on goals and targets, it often ignores other parts of a company, such as the culture of conduct, a
healthy work ethos, and areas for involvement and contribution. MBO puts increased strain on
employees to meet the goals in a specified time frame. In addition, if management solely relies on MBO
for all management responsibilities, it can be problematic for areas that don't fit under MBO

4 Ways to Implement Peter Drucker's Theory of Management

1. Delegate equal power across the board: While it's important that employees respect you as
their manager, they shouldn't feel that they're below you. Every worker should have the
opportunity to speak up and share ideas with their team, whether it's during staff meetings or
one-on-one conferences. When workers are treated as equals, they're more confident and
motivated in their work, which benefits the company as much as it benefits them. Talk to each
employee as though their role is as necessary as yours (because it is), and remind them that
they have a say in the organization.
2. Encourage collaboration: Collaboration is a crucial part of every organization. Rather than pitting
employees against each other, or fostering an environment where employees keep to
themselves, urge them to work together by sharing ideas, tips and guidance. This doesn't mean
your employees shouldn't work individually, but they shouldn't feel like they can't ask for help
or inspiration from others. Your staff should feel like a team, and you should serve as their
coach.
3. Increase efficiency: To ensure you're continuing to prioritize productivity, utilize the concept of
MBO, a process that calls for workers of all levels to work together to reach a common goal.
There are five steps to MBO:
 Review goals
 Set objectives
 Monitor progress
 Evaluate performance
 Reward employees
These goals should be SMART, or specific, measurable, achievable, relevant and time-
oriented. Call your team together and discuss your SMART goals to ensure everyone is on the
same page and understands their part in the overall objectives of the organization.

4. Boost innovation: You want your workers to be confident and willing to take risks. Create an
innovative atmosphere and lead by example, showing your employees that mistakes are not
shortcomings. If your team sees that you're human, that effort does not always lead to success,
they'll feel more comfortable risking failure. Be transparent with them, support their ideas and
never punish creativity.