The essence of MBO is participative goal setting, choosing a course of actions and decision-making process. An important part of the MBO is the measurement and comparison of the employee’s actual performance with the standards set.
Management by Objective defined as a management system in which specific performance goal are jointly determined by employees and their managers, progress toward accomplishing those goals is periodically reviewed and rewards are allocated on the basis of this progress.
Four Common Ingredients of an MBO Program are;
- Goal specificity,
- Participative decision making,
- An explicit time period, and
- Performance feedback.
Let’s briefly look at each of these.
The objectives in MBO should be concise statements of expected accomplishments. It is not adequate, for example merely to slate a desire to cut costs, improve service or increase quality.
Such desires need to be converted into tangible objectives that can be measured and evaluated for instance to cut departmental costs by 8 percent to improve service by ensuring that all insurance claims processed within 72 hours of receipt, or to increase quality by keeping returns to less than 0.05 percent of sales.
Participative Decision Making
In MBO, the objectives are not unilaterally set by the boss and assigned to employees, as is characteristic of traditional objective setting.
Rather, MBO replaces these imposed goals with participative determined goals. The manager and employee jointly choose the goals and agree on how they will be achieved.
An Explicit Time Period
Each objective also has a concise time period in which it is to be completed. Typically the time period is three months, six months, or a year.
The final ingredients in an MBO program are continuous feedback on performance and goals that allow individuals to monitor and correct their own actions.
This continuous feedback is supplemented by periodic formal appraisal meetings in which superiors and subordinates can review progress toward goals, which lead to further feedback.