Management by Objectives (MBO)

a b c Jehinder Singh , Preetam Banerjee , Azaz Ahmed , d e Bibhuti Bhushan Bhardwaj , Gangaram Sapkota
Roll nos.: a CIB-09-012, b CIB-09014, c CIB-09-015, d CIB-09-016, e CIB-09-017 Email:
a

jehinder_cib09@agnee.tezu.ernet.in, b preetam_cib09@agnee.tezu.ernet.in, c azaz_cib09@agnee.tezu.ernet.in, d bibhuti_cib09@agnee.tezu.ernet.in, e gangaram_cib09@agnee.tezu.ernet.in

Department of Civil Engg., School of Engineering, Tezpur University, Napaam 784028, Tezpur, Assam, India

Definition:
MBO is a technique and philosophy of management based on converting an organisational objective into personal objective. It is based on presumption that establishing personal objectives makes an employee committed and thus leads to a better performance. Some think of it as an appraisal tool, others see it as a motivational technique and some consider MBO a planning and control device, though definitions and applications of MBO differ widely. Peter Druker was first to discuss MBO in 1954 in the practice of management. According to Peter Druke, MBO is regarded as a system for improving performance, both the individual managers and the enterprise as a whole by setting of objectives at the corporate, departmental and individual managers level.

Concept of MBO:
Management by objectives is basically a process whereby the superior and subordinate managers of an enterprise jointly 1) Identify its common goals. 2) Define each individuals major area of responsibility in terms of results expected of him. 3) Use these measures as guidelines for operating the unit or enterprise and assess the contribution of each of its members The goals are jointly established by the manager and his subordinates and agreed upon in advance. These goals emphasize either output variables or intervening variables or some

combination of both. At the end of the predefined time period, the subordinates performance is reviewed in relation to the present goals. Both superior and the subordinates participate in this review/ evaluation. If, after evaluation, it is found that there is some discrepancy between the work planned and the work accomplished, steps are suggested to overcome the problems or to make necessary adjustments in the original plan. To conclude, MBO implies managing by properly identifying the objectives of an organization. This sets the stage to determine the objectives for the next time period.

Objectives
An objective is an intended goal which prescribes defines scope and suggests direction to the effort of a manager. Requirements of objective 1. Work in the same direction towards achieving company goals. 2. Clearly defined and communicated to all such that they can be reasonably attained. 3. Reviewed after definite time period for adjustments if necessary. Nature of Objectives a) Short Term - E.g. expanding the work lagging behind the schedule. b) Long Term - E.g. Planning diversification c) Specific - E.g. decision of pricing policies. d) General - E.g. profit objective of increasing productivity. Need for Objectives  Management is the art of getting things done through people.  In a competitive economy, things will not be done unless everyone concerned in an enterprise knows what the objectives and targets are. Types of Objectives There are three types of objectives:  Broad objectives  Major Objectives.  Lessees Objectives.

 Broad Objectives or corporate objective is a worldly statement of the standing the company wishes to achieve. E.g. : 1) To supply to public with the best of modern utility services at reasonable rates. 2) To manufacture high quality products and to strive to make them better at lower costs, etc.

 Major Objectives are distilled from broad objectives and set the tactical areas into which the company wishes to move.  Lesser Objectives are targets, budgets and departmental objectives. It also includes those governing the performance standards of managers and the other members of the staff.

Steps in setting MBO:

Usually there are five to six vital areas where the subordinators concerned must think in order to obtain the desired result. They may be driven by1. Some targets of growth 2. Achievements of greater efficiency 3. Elimination of certain problems 4. Joint Agreement on subordinates goals  Superiors subordinators sit together discuss the objectives and reach an agreement on subordinators goals to be achieved by them during the stated period. 5. Knockout of inappropriate goals  Throughout the time period what is to be accomplished, necessary adjustments should be made and inappropriate goals must be discarded. 6. Cumulative periodic review of subordinator results against targets.  The performance of all the subordinators against their MBO plan must be formally reviewed at predetermined times during the plan.

Advantages of MBO:
MBO may become powerful tool in gaining mutual commitment and high productivity for an organization. MBO keeps company objectives/targets constantly in view.

Gives meaning and direction to the people in and organization. Co-ordinates the efforts of various departments of an organization. Provides motivation to people because they work on objectives decided with their consent. Prevents flittering away of efforts and money. Allows greater consistency in decision making. Forces management to think ahead with respect to its short term and long-term goals. Leads to a better understanding between supervisors and the subordinators. Improvement of managing through results-oriented planning. Clarification of organizational roles and structures as well as delegation of authority according to the results expected from the people occupying the roles. Encouragement of commitment to personal and organizational role. Development of effective controls that measure results and lead to corrective actions. Helps in organizational change and development.

Limitations of MBO:
Management, working by objectives may follow too rigid a pattern in thinking and action. There is always need for flexibility in management thinking. The provision of written objectives should not be allowed to affect this adversity. Fails to teach the philosophy of certain programs. Fails to give guidelines to goal setters. Difficulty of setting verifiable goals with the right degree of flexibility. Emphasis on short-run goals can be done at the expense of the long-range health of the organization. Emphasis on quantitative goals and it almost neglects qualitative aspects of goals. Danger of inflexibility can make managers hesitate to change objectives, even if a changed environment would require such adjustments. Overuse of quantitative goals and the attempt to use numbers in areas where they are not applicable, or they may downgrade important goals that are difficult to state in terms of end results. Various forms, memos and reports etc. are to be prepared. This practice tends to frustrate and discourage many managers.

It requires good amount of time in consultation for setting objectives at all levels of the organization.

References:

Management by objectives, concepts and experiences- B.L. Maheswari (1994) Management-A global and entrepreneurial perspective- Heinz Weirich, Mark V Cannice, Harold Koontz (2010) Principles of Management- Rati Kanta Pathak, Manik Ch. Kalwar (2010)