Management by Objectives (MBO)

Management guru Peter Drucker is credited with being the first to introduce
Management by Objectives (MBO) as an approach for increasing
organizational effectiveness.
MBO is a process or system designed for supervisory managers in which a
manager and his or her subordinate sit down and jointly set specific objectives
to be accomplished within a set time frame and for which the subordinate is
then held directly responsible.
The important aspect of MBO is that participative goal setting with a strategic
plan which ensures the objectives have an alignment throughout the
organisation. This aids in better participation and commitment among
employees. Further, employees understand their roles and responsibilities due
to the participative goal setting. So, employee performance can be measured
with the standards set without grievances.
Such a process would enable each manager to have a clear understanding of
what the organisation expects of him or her and how their individual objectives
are integrated with the overall organizational objectives.
Different goals are sought to be achieved by the introduction
of MBO in organizations. MBO, as a management tool, thus,
is so versatile that it is used;
to integrate the organizational goals with the individual
goals;
as a motivational technique wherein individuals are driven
towards the achievement of goals;
to appraise the performance of managers; and
to control the activities as they are performed.
The benefits of MBO are:

Motivation Due to the participative goal setting employees are better

empowered. This raises the job satisfaction and commitment.
Clarity of objectives Due to the participative goal setting, the goals are
better understood across the organisation.
Better communication Reviews and constant interactions with
managers and employees aids in a better relationship between them and
helps coordination.
Drive to achieve As goals are set by them for them, they will have more
urge to achieve the objectives.
Objectives can be set at all levels and for all functions.
The process of MBO includes the following steps:

establishment of goals for the whole organisation,

preparation by subordinates, of specific goals within the
framework provided by the superior,
joint discussion of an agreement upon the goals by the
superior and subordinate,
joint review of progress at regular intervals in the light of the
predetermined goals, and
corrective measures, if necessary, as revealed by the review.