Meaning of Management by Objectives
Management by objectives (MBO) is a strategic approach of management focused on improving the performance level of organization. It is a management model where objectives are clearly defined by management to each employee with the intention of attaining them timely. The goals and targets to be achieved are mutually agreed in between managers and employees. Management by objectives is also termed as Management by Results and was first propounded by Peter F. Drucker in 1954. It is an effective tool available with management to properly align the employee’s action in line with the organizational goals. This process clearly defines the roles and responsibilities of all subordinates working within the organization so that accordingly they can decide their future course of action.
Advantages of Management by objectives
Various advantages of management by objectives can be well-understood from points given below: –
- No role ambiguity: Management by objectives approach avoid any instance of confusion and overlapping of roles or duties among employees within organization. The duties and responsibilities are clearly assigned to each and every subordinate by management team towards the achievement of organizational goals. Employees are fully aware of what they are expected to do which thereby simply their work.
- Greater sense of identification: There is a great sense of identification with company goals among all individual members of business. Managers set and convey the objectives of company across the organization. Employees feel proud with MBO by getting involved into the business goals. All this results in enhancing their commitment and morale level towards established objectives.
- Enhance performance level: MBO is a result-oriented process which plays an efficient role in enhancing the performance of business. It focuses on better planning by deciding goals and targets via active participation of both workers and managers. More realistic plans are formed when goals are decided mutually among people leading to better clarity among them. This way better planning ultimately leads to raise the productivity and profit level.
- Device of organization control: MBO act as a tool for proper control and integration of organizational activities. It enables management in easy identification of deviations in between the actual performance and pre-decided goals. When such deviations are identified timely, then corrective measures can be taken in order to rectify them.
- Career development of employees: MBO approach efficiently analyses the training and development needs of employees. Under it, the skills and capabilities of employees are evaluated so that accordingly managers can guide them for strengthening those areas which needs further refinement. When employees are trained on their weak areas, their knowledge and skills get improved thereby leading to their career development.
- Better communication: There is an efficient communication network among employees and management in MBO approach. The level of communication is two way which takes place on continuous basis thereby avoiding conflicts and ambiguity. Superiors and subordinates hold a meeting where discussions take place among them for deciding the objectives with mutual understanding of all.
- Stimulates employee’s morale: MBO system plays an efficient role in stimulating the morale of employees. At first, subordinates are happy and feel motivated due to their participation in decision making of business. They are more interested in implementation of such goals which are established by their mutual participation. Secondly an objective and specific method of performance appraisal can be highly moral boosting.
- Performance evaluation on result basis: The performance level of employees is evaluated on the basis of measurable and quantifiable objectives. Employees get to know about what they are doing in a better way when performance evaluation is carried out periodically. This way the appraisal system tends to be more equitable and objective specific. It is considered more superior to trait evaluation method as based on results but not on intangible characteristics.
Disadvantages of management by objectives
Different limitations of management by objectives are as follows: –
- Lack of proper objective: MBO approach suffers to a great extent from lack of proper objective. Every business enterprise operates in a completely dynamic environment in presence of stiff competition. As a result of this, the objectives of organization seem to be vague at times.
- Costly and time consuming: This is a very costly and time-consuming process which requires a lot of paper work formalities. Moreover, a lot of meetings and report are prepared by management team that increase their responsibilities and overall burden. Managers may resist the MBO because of all this.
- Problem of coordination: All employees are aware about their individual’s tasks and are engaged in completing them without any interaction among them. There may be several complexities which arises while coordinating the organizational objectives with those of individual and departments.
- Lack of support of top management: The MBO approach may not get proper support of top management team of business. Authority is only limited to senior management which flows from top to bottom in traditional organizations. Whereas in case of MBO, an equal opportunity is provided in decision making to subordinates. Top management may resent such participation of employees and does give their full support to MBO system.
- Resentful attitude of employees: The subordinates many times have resentful attitude toward the MBO system. They may decide objectives under the pressure of management thereby without any mutual understanding. Such objectives are unrealistic in nature that are high or too rigid. Workers feel suspicious of management and assume that MBO is just another means to make them work harder.
- Difficulty in quantifying goals and objectives: MBO approach only consider the goals which are quantifiable in nature. Performance of employees can’t be judge in case if the areas are difficult to quantify and cannot be evaluated. This system is not successful in case of non-quantifiable terms. Moreover, no subjectivity aspect is taken into consideration while doing performance appraisal by MBO. Only the productivity of employees is rewarded without considering their creativity.
- Poor integration: MBO system faces the problem of integration with other system. Integration of forecasting and budgeting system is very poor with MBO. This way the overall functioning of system become bad due to the lack of integration.
- Inflexibility: There may be a chance of rigidity in organization while implementing MBO system. Goals are set every six months or yearly and managers may hesitate to revise the goals even if there is a need of such revision of goals. They may fear from the subordinate’s resistance. However, managers need to handle such situations in right way as many times revision of short-term goals in must in order to attain the long term objectives.