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