Management by Objectives (MBO) is a business strategy used to provide guidance to business activity. It is based on the idea of Frederick Taylor's rational management process, which involves setting goals, measuring performance, and providing compensation that is directly related to individual achievement. The MBO process is an effort to be fair and reasonable, to predict performance and judge it more carefully, and to give people the opportunity to motivate themselves by setting their own goals. In order for MBO to be successful, managers must be educated about the concept and understand how it works.
They should be informed of the relevant overall objectives, strategies, and planning assumptions, and then work with employees to establish their objectives. Managers should also compare the employee's performance with their goals on a regular basis to identify any problems and take necessary corrective action. The practical importance of objectives in management can best be seen by summarizing how successful goal-based management works in practice. Each manager should receive specific compensation for how well they develop people, based on those evaluations.
Considering the personal objectives of managers first does not minimize the importance of the organization's objectives. For example, a group of managers (sales, promotion, advertising) who report to a vice president of marketing should formulate their collective objectives and define ways to help each other and evaluate the effectiveness of others in the common task. At a plastic manufacturing company, a performance-related bonus plan for middle management proved to be very unsatisfactory. If the individual executive cannot be trusted in relations with subordinates, then he cannot have their respect or trust in any case, and the ordinary MBO evaluation process simply serves as a management pressure device. In order for MBO to be successful, it is important that managers understand its purpose and how it works. They must be informed of the relevant overall objectives, strategies, and planning assumptions, and then work with employees to establish their objectives.
Additionally, each manager should receive specific compensation for how well they develop people, based on those evaluations. By following these steps, organizations can ensure that they are implementing Management by Objectives in an effective manner. This will help them achieve their goals while also providing employees with an opportunity to motivate themselves by setting their own goals.