Management by objectives (also known as management by planning) is the establishment of a management information system (MIS) to compare actual performance and achievements with defined objectives. Within the framework of the MBO, performance evaluation is achieved through the participation of interested managers. Management by objectives (MBO), also known as management by planning (MBP), was first popularized by Peter Drucker in his 1954 book The Practice of Management. While the management by objectives approach is necessary to increase the effectiveness of managers, it is equally essential for monitoring the performance and progress of every employee in the organization.
In the management by objectives approach, the most essential step is continuous feedback on results and objectives, since it allows employees to track their actions and correct them. Objectives can be set in all areas of activity, such as production, marketing, services, sales, R&D, human resources, finance and information systems. The objectives set by supervisors are provisional and are based on an interpretation and evaluation of what the company can and must achieve in a specific time frame. A salesperson who enjoys cultivating relationships with hard-won customers but with a low volume of customers is pressured by management to focus only on high-volume customers.
The management of the computer company Hewlett-Packard (HP) has said that they consider this policy to be an important component of their success. Point 7 of Deming's key principles encourages managers to abandon objectives in favor of leadership, since he believes that a leader who understands systems is more likely to guide workers to an appropriate solution than to push them towards an objective. Reliable management information systems are needed to establish the relevant objectives and to monitor their reach ratio objectively. Deming also noted that Drucker warned managers that a systemic vision was necessary and felt that MBO practitioners largely ignored Drucker's warning.
Management by objectives is still practiced today, with a focus on planning and development, helping several organizations. These include, for example, the Objectives and Key Results (OKR) method, which was developed by John Doerr (among others) and has been used successfully in many companies, especially Google. The objectives set by high-level managers are based on an analysis of what the organization can and must achieve in a specific period of time. Although the concept of management by objectives (MBO) has already become an integral part of the management process, the typical MBO effort perpetuates and intensifies the hostility, resentment, and distrust between the manager and his subordinates.
When organizations don't properly establish, agree and manage this approach, egocentric employees can be prone to distorting results and falsely representing the achievement of objectives that were set in the short term and in a limited way.
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