MBO or management by objectives is defined as a comprehensive managerial system that integrates many key managerial activities in a systematic process and that is consciously directed toward the effective and efficient achievement of organizational and individual objectives.
The practical importance of objectives in management can best be seen by summarizing how successful managing by objectives works in practice.
The six steps of MBO process are shown below graphically;
- Define organizational goals
- Define employees objectives
- Continuous monitoring performance and progress
- Performance evaluation
- Providing feedback
- Performance appraisal
Let’s briefly look at each of these;
Define Organizational Goals
Goals are critical issues to organizational effectiveness, and they serve a number of purposes. Organizations can also have several different kinds of goals, all of which must be appropriately managed.
And a number of different kinds of managers must be involved in setting goals. The goals set by the superiors are preliminary, based on an analysis and judgment as to what can and what should be accomplished by the organization within a certain period.
Define Employees Objectives
After making sure that employees’ managers have informed of pertinent general objectives, strategies and planning premises, the manager can then proceed to work with employees in setting their objectives.
The manager asks what goals the employees believe they can accomplish in what time period, and with what resources. They will then discuss some preliminary thoughts about what goals seem feasible for the company or department.
Continuous Monitoring Performance and Progress
MBO process is not only essential for making line managers in business organizations more effective but also equally important for monitoring the performance and progress of employees.
For monitoring performance and progress the followings are required;
- Identifying ineffective programs by comparing performance with pre-established objectives,
- Using zero-based budgeting,
- Applying MBO concepts for measuring individual and plans,
- Preparing long and short range objectives and plans,
- Installing effective controls, and
- Designing sound organizational structure with clear, responsibilities and decision-making authority at the appropriate level.
Under this MBO process performance review are made by the participation of the concerned managers.
The filial 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 which superiors and subordinates can review progress toward goals, which lead to further feedback.
Performance appraisals are a regular review of employee performance within organizations. It is done at the last stage of MBO process.
6 Stages of MBO are explained in this video.