Management by Objectives (MBO) is a strategic business model designed to improve the performance of an organization. It is a strategy with clearly defined objectives that are agreed by both management and employees. The term “Management by Objectives” was first referred to by management guru Peter Drucker in his 1954 book, The Practice of Management. The objectives set by supervisors are provisional, based on an interpretation and evaluation of what the company can and should achieve within a specific time. The communication process becomes more active between management and employees with this management technique.
It helps managers and employees work together to improve performance, make better decisions and focus on their most important goals. Believe it or not, some companies and their owners may avoid setting definite goals, even when it comes to large sums of money. Theoretically, having a say in goal setting and action plans encourages employee participation and engagement, as well as alignment of objectives across the organization. The term Management by Objectives refers to the creation of tangible goals for an employee to achieve to improve the organization. So, instead of having a general idea of what you should do at work (with the burden of constantly figuring out the details), MBO provides you with clearly defined goals that you and your management agree on.
It can lay an excellent foundation for more involved performance management practices that empower and engage the entire workforce. When it's time to inspire your team and breathe new life into your organization, consider incorporating goal-based management into your company culture. Research has shown that MBO works well in organizations where entrepreneurship is encouraged. They found that the average company achieved a performance improvement of more than 10% in the areas for which they set targets. A truly competent and self-directed workforce is one that thrives in this environment.
The result? A significant majority of employees agreed that setting goals in an MBO context led to greater motivation at work. Most also agreed that feedback on performance within the program increased their motivation. Overall combined performance also increased throughout the cohort studied. The combination of helping to achieve the organization's objectives, as well as incentives for its own performance, such as salary increases, promotions, praise, recognition and additional training, created a positive and determined workforce. While the goal-based management approach is necessary to increase the effectiveness of managers, it is equally essential to monitor the performance and progress of every employee in the organization.
We believe that the key to making MBO work is for employees to write strategies for how they will achieve their goals. It is a process in which the objectives of the organization are defined and transmitted by management to the members of the organization with the intention of achieving each objective. In conclusion, Management by Objectives (MBO) is an effective strategy for improving organizational performance when used correctly. It encourages employees to take ownership of their work and provides them with clear goals to strive for. When combined with incentives such as salary increases, promotions, praise, recognition and additional training, it can create a motivated workforce that is focused on achieving organizational objectives.