What Is Management By Objectives? (A Complete Guide)

By Indeed Editorial Team

Updated 22 September 2022 | Published 13 May 2022

Updated 22 September 2022

Published 13 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

In any organisation, managing the employees effectively is a crucial job for the executives and high-ranking officers. The performance of employees can have a significant effect on a company's abilities to achieve its goals. Knowing about management by objectives can help you understand the best practices to ensure better employee performance in an organisation. In this article, we discuss what management by objectives is, learn how companies can practise it and explore some of its advantages.

What Is Management By Objectives?

Management by objectives (MBO) is a managerial approach that organisations can follow to improve their performance. They do it by strategically defining objectives and goals for their employees that can ultimately help achieve the goals of the organisation. The aim of this method, formulated by Peter Drucker, is to evaluate common goals between employees and organisations and provide feedback on outcomes. Defining achievable goals can help in keeping employees engaged. Expanding engagement gives managers the chance to concentrate on fresh concepts and innovation that contribute to the organisation's growth and goals.

Executives define the goals of an organisation that they want to achieve. They then pass those goals to the company and its employees so that they can support and implement them. In addition, executives supervise and assess employee productivity and use performance as a basis for ideal staff behaviour. Employees receive feedback regularly, and the focus is on the rewards that an employee receives when proven efficient in the job. The emphasis is on personal development and growth instead of negativity for failing to achieve goals.

Read more: What Is Management? Definition, Functions And Levels

How To Practise MBO In An Organisation

Here are the steps that an organisation can follow to implement MBO:

1. Identify or revise organisational goals

The first step is to identify what goals does the company wants to achieve. If there are goals that are already set but are too ambitious, it may be best to revise them or break them down into small milestones. This can be crucial in determining the company's path. To set relevant, achievable goals, the executives can follow the company's mission and vision.

2. Translate organisational objectives to the employees

Once the company decides upon its goals, it is important to communicate them to its employees. This lets the employees know what the company wants to achieve in the short term and the long term. Based on this, employees can set personal goals and recognise ways to connect them to the company's goals. A company can conduct meetings and coaching from team leaders down to its members to clearly communicate goals.

3. Stimulate employee participation in determining objectives

A good way to define relevant objectives can be to involve the employees of the company in the process. It can also help in setting goals for the employees in line with the organisation's goals. This can work best when the organisation debates and communicates the potential goals at all levels to ensure that everyone understands the purpose of those goals. Involving employees in the goal-setting process can encourage transparency and also ensure that the goals are set in a way that is fair to all employees.

4. Monitor progress

Setting up SMART objectives can be helpful for an organisation, as they are easy to measure. Once the employees and the organisation start working towards the goals, regularly monitoring progress can be beneficial. It can help identify if the process requires modification to achieve the goals more effectively. Employees can follow a checklist that outlines the things they can do to achieve the goal without deferring from the process. Constantly monitoring progress may also allow companies to add more goals or delay some that may be a low priority.

Read more: SMART Goals: Definition And Examples

5. Evaluate and reward achievements

While it is important to involve employees in the goal-setting process, it is also important to recognise them when they achieve those goals. When employees meet or exceed the objectives, rewarding them can provide them with motivation and encourage them to sustain their performance. It may also help them improve over time. Rewards can be material things like a monetary bonus, or they can be a promotion, based on their present role and the type of goals they achieve.

Benefits Of Practising MBO

Practising MBO can provide several benefits to an organisation. Some of these benefits include:

Planning

MBO allows organisations to plan goals in advance. This can help them identify all the support and equipment they require to achieve those goals effectively. This may also help in identifying unachievable goals early enough and defer them.

Employee involvement

This management method allows employees to provide their inputs while setting personal and organisational objectives. This can help them feel valuable and involved in important decisions. It may also encourage them to work and stay with the organisation for a long time.

Measurable objectives

The objectives under MBO are typically measurable, such as an increase in production by a certain percentage or an increase in customer satisfaction. This allows organisations and employees to identify when they achieve or exceed the goals. It can also help them set a realistic timeline for the goals.

Better employee evaluation

Employees work towards achieving the goals set for them. Based on these goals, the management can effectively evaluate the performance of employees. This can help them provide relevant feedback or rewards for the employees.

Improved communication

Executives and employees manage and work on goals together, spending more time on communicating the progress. This allows the employees to share their concerns with or ask questions to their supervisors. It can also help in developing a good rapport between employees and executives.

Career development

Working under MBO allows employees to understand the areas in which they are strong when they work on a goal to achieve it. It also allows them to identify their weak areas, enabling them to develop them through relevant training and mentorship. It also gives a chance to the management to identify useful trainings at executive levels and provide them with helpful coaching to improve their skills further.

Improved company performance

A company may perform better when it has clear goals. Setting clear goals can help companies develop a roadmap to achieve them. Managing the objectives efficiently can also allow them to identify and use tools that are helpful in achieving the goals, ultimately improving the performance of the company.

Defined roles

Once the company sets the objectives for itself and the employees, it becomes easier to establish roles. The company can use the goals and their complexity to identify and assign roles to the employees accordingly. It may assign goals with a lower complexity to relatively newer employees in union positions, and complex goals to those in senior positions with a robust skillset.

Regular feedback

Companies can set goals transparently under MBO, allowing the executives and the employees to be aware of their duties. This helps employees to receive clear and genuine feedback on their progress. Regular feedback can help employees remain focused on their objectives and achieve their goals as per the plans.

Read more: Performance Improvement Plan: Benefits, Process And Examples

Employee empowerment

Setting goals in advance allows employees to identify and implement the ways to achieve them. This can empower them to take action without always having to ask their supervisors for help. It may also allow them to solve problems related to their goals independently.

Examples Of MBO

Here are some examples of setting objectives under MBO within specific areas:

Company performance MBO examples

Company performance is one of the most crucial factors to determine whether the company has completed its goals. Here are some goals that a company can establish depending on its performance as a whole:

  • Become the industry leader

  • Attain ₹50,00,000 money flow for every month

  • Become a Fortune 500 member

  • Increase customer satisfaction to 90 per cent

  • Boost client retention rate to 92.5 per cent

Marketing MBO examples

Marketing is an important aspect of taking care of the organisation's customers. A company can set goals like:

  • Produce 1,000 fresh marketing qualified leaders (MQL) for every month

  • Generate 40 per cent of total business income from marketing strategies

  • Improve annual product customers by 35 per cent

  • Increase marketing ROI by 7.5 per cent

  • Triple social media following in six months


Related:

  • What Is Management? Definition, Functions and Levels

  • What Are The Essential Human Resource Management Objectives?

  • What Are The Objectives Of Project Management? (With Phases)

  • What Is Total Quality Management? (A Complete Guide)

  • What Is Change Management And Why Is It Important?

  • 15 Recruitment Objectives To Improve Your Hiring Process


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