What is Management By Objectives (MBO)?


By: Site Engineer, Staff

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This is a systematic approach to the setting of objectives and appraisal of results, and that it would lead to improved organizational performance and employee satisfaction. It is also known as Management By Results (MBR).

MBO has been well recognized, very popular and widely used for more than three decades now. It is seen as a management technique based on goal and objective setting.

Today, the MBO is widely used in large and complex organizations across the world and also in many fast-growing organizations. There is no consensus concerning the meaning, use, and application of MBO in organizations. However, the concept generally covers a series of systematic steps four of which are very basic to its implementation.

Many of the variations in the steps that may appear in most other writings may be subsumed in these four basic steps namely:

Four Basic Steps for MBO Implementation in Organization

1. Setting the Overall Objectives

The MBO takes a top-to-bottom approach and is therefore implemented on an organization-wide scale.

First, the top management meets to formulate the overall objectives of the organization. Areas that have a greater impact on overall organizational functioning are first identified e.g., sales volume market share, production output, etc.

Secondly, the measures of performance are determined. Finally, the objectives are agreed upon by all top management, even though final authority still rests with the CEO. It should be noted that:

  • The objectives are stated, with target dates and accompanying action plan of how they will be achieved.
  • Objectives must be stated in such a way that they can be rationally and objectively measured.

2. Developing the Organization for an MBO System

Formulation of objectives must necessarily be followed by implementation and here the organization must be prepared from top to bottom. Both the ranks of the organization and the top must be developed so that MBO can be successfully implemented. Sometimes there may be a need for reorganization to accommodate the MBO system.

The current stage of development of human resources in the organization would determine the time-frame of development in question. It may take from a few weeks to several months or even years.

3. Setting Individual Objectives

The next stage in the MBO system involves the setting of individual objectives. These objectives are determined by each superior-subordinate pair; starting from the very top and going down as far as the system is to be implemented. The objectives are discussed thoroughly between the boss and the subordinates.

These objectives are accompanied by specific modes of accomplishment, such as:

  • They should be able to contribute to the objectives of superiors, peers, and subordinates.
  • The objectives are to be set within the individual areas of responsibility.
  • They must be in line with the organization’s overall objectives.

4. Appraisal and Feedback

This is a very crucial stage in the MBO system in which individuals are given periodic feedback (usually quarterly and annually) and will be appraised based on how they perform by their set objectives the appraisal session attempts to be diagnostic rather than evaluative.

This means that the superior assesses why objectives were either attained or not attained, rather than give punishment or reward for failure or success in meeting objectives.

These periodic reviews are conducted to provide feedback and evaluates progress towards the attainment of objectives. This provides an opportunity to make necessary changes in objectives. The dynamic nature of our business environment makes this evaluation critical, because objectives set at the beginning of a period may soon become obsolete due to changing conditions, such as a change in regulations by government or a change in priority.

Also, it must be noted that:

  • At the annual review session, an overall diagnosis and evaluation are made according to results attained and the system starts all over again.
  • There is a constant review of individual objectives and, to a lesser extent, of overall organizational objectives. This makes the MBO a living system that is adaptable to change.

Strengths of MBO

Weaknesses of MBO

  • MBO may be used as a whip especially when it is closely tied to wage and salary programs.
  • Managers may not be adequately trained in the MBO process effective ways to coach and counsel subordinates.
  • MBO may fail to provide adequate personal incentives to improve performance. The emphasis is only on the benefit to the organization and net on the development of the participating managers.
  • MBO may fail to receive continual top management commitment and support and may therefore not reach the lower managerial levels.
  • There may be an overemphasis on production and productivity to the neglect of the human element of the organization.
  • There may be an overemphasis on quantitative objectives while ignoring the qualitative one, which measures ‘how well’.

Positive Characteristics of MBO

  • Feedback about performance.
  • Participative decision-making.
  • Open two-way communication, self-control.
  • It combines sound management techniques for decision-making communication and control with the basic behavioral requirements.
  • Goal setting.

Use of MBO in Nigeria

Perhaps a major reason why MBO is not widely used in Nigeria particularly in the public sector and government agencies have to do with the setting of goals. It is very difficult to have people agree on goals. Individuals may have their interpretations of goals.

Consequently, the MBO exercise becomes time-consuming and frustrating to organizational members. Employees who may want to share their responsibility may see it as a trap by management.

Management By Exception

This management principle is often simply referred to as the exception principle. Even after delegating responsibilities to others, some managers still want to know everything about anything that is going on.

They insist on being kept informed of all details affecting their area of responsibility. The exception principle is useful in helping managers overcome this tendency.

The principle suggests that the controlling manager should be informed about an operation’s progress only if there is a significant deviation from the plans. They do not have to be informed when actions are in line with the plans or within tolerance limits. The managers can thus concentrate fully on problem situations as they arise.

The more managers concentrate control efforts on exceptions, the more efficient will be the results of their control. The manager should organize the work in such a way that subordinate personnel can handle the routine and predictable, while the manager devotes time to the exceptional events or problems.

In practice, the application of the exception principle is more difficult than it appears to be. How does a manager know when actions are conforming to plans? Deviations from plans do not always show up well.

Target Setting or Objective Setting

Goals are related to performance and the future rather than the past or present. A goal represents what the employee intends to do sometime in the future.

Goals have two major functions.

First, they provide a basis for motivation.

Secondly, they guide behavior.

Objectives are more specific than goals. Objectives or targets steer the organization or individual in the direction of the goal. When an individual has identified an intended or expected end such an end is called a target or objective.

Even though some people use the term’s goals and objectives interchangeably, many, however, use goals to refer to non-measurable, future ends, and objectives or targets to refer to specific, measurable ends.

The objective setting enhances managerial performance because of it:

Characteristics of Effective Targets or Objectives

  • It should be concise.
  • Should call for standard performance.
  • It should be realistic.
  • It should be flexible.
  • It should be acceptable.
  • It should be specific and understandable.
  • It should be measurable.
  • It should include a time-frame.


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