Originally, the approach was developed in the 1950s by the United States. At that time, it completely revolutionized the world of management. The core of this management style, as practiced in companies today, essentially consists of agreements on annual objectives between a manager and an employee. As a general rule, in the MBO process, personal objectives are expected to be met 100 percent.
In addition, the achievement of one's own objectives is often linked to rewards, bonus payments or salary increases. As revolutionary as management by objectives was in the world of management in the 1950s, the model has since faded. More and more companies are trying new management styles. If you look at the pros and cons of MBO, it quickly becomes clear why this is so.
The OKR was developed in the 1970s by Andy Grove, the third employee and later CEO of the microchip manufacturer Intel. Based on Peter Drucker's MBO approach, Grove developed the OKR method and presented it at Intel. However, OKR only became really popular — and how could it be otherwise — through Google. To learn more about how OKRs came about and how they work, see our OKR guide.
Some examples of management by sales objectives could be increasing sales by 20 percent or shortening the sales cycle to three months. In HR, the objectives could be to “hire at least two new employees in marketing” or “maintain consistent compensation at 10 percent above the industry average”. Management by objectives (MBO) is a system by which managers and subordinates define goals for each department, project and person and use them to monitor subsequent performance. However, project management tools in which each member of the team records their progress and introduces key performance indicators have proven effective.
Managers and employees should not stick to predefined behavior and should be willing to take the necessary steps to produce significant results. Here, management will compare what the employee has completed with what the employee has committed to doing. The MBO is a process by which the objectives within an organization are agreed upon so that management and employees accept the objectives and understand what they are. Objective management has been successfully implemented in industries that have competent and highly knowledgeable staff, such as information technology.
In the management by objectives approach, the most essential step is continuous feedback on results and objectives, since it allows employees to track and correct their actions. At this meeting, managers and employees discuss the marketing initiatives they can take to achieve specific marketing goals for the next year, and the individual personal goals that derive from each member of the team. Within the framework of the MBO, performance evaluation is achieved through the participation of interested managers. Management by objectives (MBO) is defined by its own name: it literally means “management through the agreement of objectives”.
Meanwhile, management monitors performance and progress (, provides feedback and motivation) and, finally, rewards success (at the end of the cycle) if established goals are achieved. Once employees are informed about the general objectives, the plan, and the strategies to follow, managers can start working with their reports to establish their personal objectives. For example, suppose that the manager and the employee agree that it would be wise to introduce a key performance indicator to show the development of new free revenues in fire prevention. In addition, reliable management information systems are needed to establish relevant objectives and monitor their performance with a view to achieving those objectives in a meaningful way.
Then, management, with the help of the organization, will define the path or steps that must be taken to achieve the objectives...