What is Management by Objectives and How Does it Work?

Management by objectives (MBO) is a process in which a manager and an employee agree on specific performance goals and then develop a plan to achieve them. It is designed to align objectives across the organization and drive employee participation and engagement. The term MBO refers to the creation of tangible goals for an employee to reach for the betterment of the organization. The MBO process begins with managers and subordinates agreeing to work together to achieve common objectives.

Employees and supervisors identify and set these goals as a subset of the organization's goals, including individual employee goals in the plan. Then, employees and their supervisors align the two sets of objectives, determine the expected results, and establish criteria for achieving those objectives. Performance evaluation is achieved through the participation of interested managers, which helps maintain motivation and staff enthusiasm for achieving management objectives. Once employees are informed about the general objectives, the plan, and strategies to follow, managers can start working with their reports to establish their personal objectives.

At this point, managers can also identify weaknesses in the criteria used to measure performance goals. To increase effectiveness, it is essential to monitor the performance and progress of each employee in the organization. Management by objectives guides employees to reach their best level and achieve their goals within the stipulated time frame. A manager is rarely in a position to judge the overall performance of a superior, but he can assess how well the manager has helped him do his job, how well the superior helps increase his competence and visibility, what problems the superior poses to him, and what kind of support he can use.

As a solution, it is best to use MBO in combination with other models such as management by walking around (MBWA) to counteract its weaknesses. In addition, providing direct feedback on his own behavior helps the supervisor when there is a high-level review of this evaluation.