A brief description of MBO
Manager usually takes decisions to increase efficiency and effectiveness of an existing function. When more output is generated from the same input the organization is said to be more efficient. Effectiveness means doing right task. Even if something is done efficient, but not suited customers met, then it’s said to be ineffective. So, a manger should concentrate on both – to increase efficiency as well as effectiveness. Management by Objectives (MBO) is a tool for managers to improve their performance and increase their effectiveness.
Peter Drucker coined the word first
The term MBO was coined more than 25 years ago by Peter Drucker. Though he used this term in a very broad sense, its contributors later focused on improving performances of an individual in a superior-subordinate relationship or an organization as a whole. It can be seen as a guide for operating each units and knowing the contributions made by each member. Also, it integrates the organization’s needs to achieve its goals when a manager is able to develop himself and contribute towards the organization.
What’s its real need?
There exist many barriers to achieve organization goals. Misdirection of superiors and compensations given, wrong hierarchical structures and specialization of work are a quite few among them. A force is needed to unify all effects, which is provided by MBO. Specialized workers, in their search of perfectness may often tend to forget organization’s goals. MBO provides them suitable instructions to operate within specified parameters. Also, very often employees tend to please the boss to get good ratings for appraisal and promotion. MBO gives emphasis on outputs and results and thus provide them guidelines not to move away from organizational roles.
There are different hierarchical levels in an organization. Very often, it happens, in sake of their own objectives, they never care other section’s achievements and importance which may result in clashes and moving away from organizational success. If there is an agreement among all sections, such conflicts can be avoided. Very often, employees are bothered with their own compensations only. They may never care about other factors which adversely affect organisation’s effectiveness. Such selfishness may lead to inefficiency of the system, wastage of raw materials and projects, rejection of finished goods etc. They may not even try to rectify the problems caused by other sectors before moving forward. MBO look forward to such misuses, emphasis on team work, thus helping in achieving organisation’s targets and goals. Thus MBO can be defined as an approach to give focus to objectives rather than just a set of rules, to improve both managerial performances and effectiveness. Also, it’s done in both individual and organizational levels.
Objectives of MBO
It’s not only a tool for performance appraisal which evaluates, measures and review performances. It’s a comprehensive mechanism which provides a frame work for decisions – both managerial level and organizational. Though objectives are given more focus, real emphasis is on improvement of both. So, it targets both objectives and processes. Key concepts of MBO are given below.
1. Emphasis on result rather than activities
If an activity can’t achieve results, it should be dropped, as it causes only wastage of time and resources. MBO begins with identification of results and then moving backward to find which activities are needed to reach those required targets. So, it’s not at all an easy task to shift an activity oriented system to a result oriented one. Some work due to mere satisfaction may be using scarce resources to get a result, less important to the organization. So, a manager should keep in mind, organization’s goals and change his attitude and style of working, giving more positive results.
2. Specific managerial positions
So, objectives of MBO are defined as expected results. Such results should be made visible to different hierarchies of management. Also, it should be noted that objectives are for positions, not for individuals who occupy them.
3. Setting objectives
Usually all objectives are broken into small modules and allocated according to positions. They are set by concerned managers, taking advices from superiors. Objectives should be realistic, achievable and suiting the present market condition.
4. Identifying KRAs
Though each managerial position has some targets, it’s noted that a few result areas are always critical and can determine the organizational success. Quality of both raw materials and produced goods, inventory, labour cost, material cost, time etc are a few among them and they are known as Key result areas (KRA). They should be identified at both functional areas and organizational level, give more emphasis to get maximum output. So, it’s the duty of managers to focus on such KRAs to give more profit to the organization.
5. Periodic review system
A periodic review system helps to know overall performance of a system over a time period. It can be done on regular basis, for example, monthly, once in three months, six months or annually. Performances of each employee at different levels is cross checked against objectives and know if it’s moving in the desired direction. Thus it provides a mechanism for both measuring and controlling system.
How a MBO process works?
It involves three steps – setting objectives in each and every key result area, action planning and overall performance review.
1. Setting objectives in KRAs
KRAs are given more focus and objectives are set, to be achieved within those key result areas. So, it’s more important to identify the KRAs and persons attached to those critical points. Second step is to frame objectives.
2. Action planning
While objectives describe, ‘what’ targets are to be achieved, plans derive ideas, ‘how’ to reach those targets and turn them to reality. So, it depends on managers’ caliber to convert those ideas to plans within the specific time. Four steps are normally involved in every action plan – choosing strategies to fit the situation, assigning responsibilities to subordinates and himself, allocating available resources among them and finally, scheduling specific activities to make use of resources to its maximum.
3. Performance review
If a review system is not there, MBO system cannot function properly. So, importance is given to the review of performance, improvement, future needful corrections, frequency of reviews and self-appraisal. So, after a review, it provides feedback to the concerned person, giving points on improvement.
How MBO can be implemented successfully?
Though it appears simple, it requires a lot of skills and clarified purposes from managerial levels. Some of the pre-requisites include evaluation, preparation, top level support, time horizon and proper entry point.
Never make any unrealistic expectations from MBO. Instead, make it simple, achievable, understandable and correct expectations. So, use this powerful tool in an effective way that can improve both managerial and organizational efficiency a lot. It’s human nature to resist change. So, give maximum information about MBO to the people related to it and make them accept it. Formal training may be sufficient and this preparation stage is very critical. Sometimes, with its implementation, some roles may be needed to be redefined. It may even lead to open conflicts. So, it’s often required for top level management to intervene to smooth such emotional disturbances, giving some practical solutions. So, during its implementation stage top management needs to remain patient and more understanding.
Some persons may be flexible while some others, very resistant to new changes. So, it should be decided if implementation is to be done stage by stage, department wise or an organization as a whole. It may take a little time for many employees to adjust with the new changes. If all the above processes are completed, MBO can be implemented in the top management level at first. Gradually it can be implemented on each level step by step. Its advantage is that, as people at higher levels are low in number, it’s easy to implement. Also, they are more talented and experienced people. So, they can set examples for their sub-ordinates to follow.
Benefits of MBO
MBO benefits can be categorized into three groups, according to three levels – Organizational, Superior and Subordinate.
1. Organizational benefits
MBO targets on managerial effectiveness as seeing it as the central value in the entire organization. So, when emphasis is given to each level, overall performance of the organization improves. Also, it improves interests and co-ordination of managerial levels. Periodic reviews help to understand the true potential of its employees and it also recognizes under-utilized or less contributing employees. Also, many centers of accountability is another benefit of MBO in organizational level.
2. Subordinates
Role clarity, job satisfaction and performance measurement are the major benefits of subordinates. When roles are pre-determined and goals set, less wastage of scarce resources happens. Also, it helps them to plan ahead. As periodic reviews are conducted, employees themselves can evaluate their own performances and identify his weak points.
3. Superiors
All the benefits of subordinates will be equally accrued to superiors too. In addition to that, they can motivate their subordinates and maintain a good superior-subordinate relationship. It helps them to strengthen the relationships too. Participation is the success key of MBO which becomes motivation later. When seniors and juniors are sited around a table to discuss, it brings many serious issues to limelight and suggestions from both sides. Thus it increases mutual trust, bond and confidence. When they are reviewed, preference is given to performance rather than personality traits. First preference is result and achieved targets rather than personality and relationship and such persons are retained by the organization too.
MBO too has certain limitations
As told earlier, even if it looks simpler, its practical implementation is the real challenge. When roles are redefined, conflicts may occur and it’s the same when joint objectives are set. Superior-junior relationship of MBO may often stall the process of unifying goals and free communication. According to rules, managers at each level are given permission to set their own rules and objectives. But in reality, low level workers or managers are not given that much freedom. Since all the objectives of an organization are integrated, it often happen, juniors have to sacrifice some of their goals and decisions for people in the upper level hierarchy. Also, MBO assumes that a system is stable and set roles according to it, which may not be true always. External factors can also determine the directional flow of the system. So, in an organization if frequent and sudden changes in behaviour occur, it may be a great task to implement MBO.
In India MBO was introduced in the early seventies applying British model rather than American model. While implemented that model, corporate planning and control were given first preference. By now, many companies are implementing MBO. Some of them are successful while some others, still in its search. It’s well adopted in both private and public sectors. Yet, it’s seen more used in private organizations.
Through this article, I have given a description of MBO, its objectives, its implementation process and also, its limitations. If an organization is able to cover up those limitations, using this tool in proper manner, it can reach pre-set targets much more faster!
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