Management by objectives (MBO) is a management model that aims to improve the performance of an organization by clearly defining objectives that are agreed to by both management and employees. According to the theory, having a say in goal setting and action plans should ensure better participation and commitment among employees, as well as the alignment of objectives across the organization. The term was first outlined by management guru Peter Drucker in 1954 in his book “The Practice of Management.”

Need for Management by Objectives (MBO)

  • The Management by Objectives process helps the employees to understand their duties in the workplace.
  • KRAs are designed for each employee as per their interest, specialization and educational qualification.
  • The employees are clear as to what is expected out of them.
  • Management by Objectives process leads to satisfied employees. It avoids job mismatch and unnecessary confusions later on.
  • Employees in their own way contribute to the achievement of the goals and objectives of the organization. Every employee has his own role at the workplace. Each one feels indispensable for the organization and eventually develops a feeling of loyalty towards the organization. They tend to stick to the organization for a longer span of time and contribute effectively. They enjoy at the workplace and do not treat work as a burden.
  • Management by Objectives ensures effective communication amongst the employees. It leads to a positive ambiance at the workplace.
  • Management by Objectives leads to well-defined hierarchies at the workplace. It ensures transparency at all levels. A supervisor of any organization would never directly interact with the Managing Director in the case of queries. He would first meet his reporting boss who would then pass on the message to his senior and so on. Everyone is clear about his position in the organization.
  • The MBO Process leads to highly motivated and committed employees.
  • The MBO Process sets a benchmark for every employee. The superiors set targets for each of the team members. Each employee is given a list of specific tasks.

Limitations of Management by Objectives Process

  • It sometimes ignores the prevailing culture and working conditions of the organization.
  • More emphasis is being laid on targets and objectives. It just expects the employees to achieve their targets and meet the objectives of the organization without bothering much about the existing circumstances at the workplace. Employees are just expected to perform and meet the deadlines. The MBO Process sometimes do treat individuals as mere machines.
  • The MBO process increases comparisons between individuals at the workplace. Employees tend to depend on nasty politics and other unproductive tasks to outshine their fellow workers. Employees do only what their superiors ask them to do. Their work lacks innovation, creativity and sometimes also becomes monotonous.