Management By Objectives (MBO)

The term ‘management by objectives’ was first coined by Peter Drucker in 1954. It is a style of management that prioritizes setting, tracking and achieving goals. By emphasizing planning and personal responsibility it aims to ensure that every employee contributes to company-wide goals through a process of collaboration with their manager. 

It focuses on working ahead towards a common objective, rather than simply reacting to events as they occur. When done well, MBO allows managers to clearly communicate what they expect from employees, and employees to feel involved in the process of setting their own goals.

Following criticism of the original approach, a new formula was introduced in 2016, aimed at revitalizing the process. This is known as the OPTIMAL MBO: Objectives, Outside-in; Profitability related goals; Target Setting; Incentives & Influence; Measurement; Agreement, Accountability, Appraisal, Appreciation; and Leadership Support.

From the perspective of organisational transformation, attention should be placed on a process which takes both short-term operational and longer-term strategic goals into account, which may prove challenging in companies with annual performance cycles.

Pros

• It can be an effective tool for expectation management.
• Due to it’s collaborative nature it encourages communication.
• It increases individual commitment levels.
• It allows flexibility for individualized plans.

Cons

• It can be detrimental to overall quality, as it can focus activities too much on only achieving individual specific goals.
• It increases comparisons between employees, which can have a detrimental effect on a culture of team collaboration.
• It can’t evaluate everything so may not take into consideration the ‘little things’, which can make a significant difference to team performance.
• Evaluations can be subject to management bias or incorrect interpretation, and create a mountain of paperwork.

Recommended resources:

Drucker Institute

The Practise of Management, P. Drucker, 2006; ISBN: 0060878975