A Tutorial Notes on Management by Objectives (M.B.O.): 1. Introduction to Management by Objectives 2. Purpose 3. Characteristics 4. The Actual Mechanics 5. Process 6. Steps Involved in an MBO Programme 7. Benefits of an MBO Programme 8. Why does MBO work? 9. Problems 10. Effective Implementation 11. Effectiveness and Other Details.
Management by Objectives (M.B.O.) – Intro, Purpose, Characteristics, Steps and Benefits
1. Introduction to Management by Objectives
Management by objectives, or MBO, is normally useful and a popular technique for systematic approved to the goal-setting process. It may be noted at the outset that the technique known as management by objectives is based on the term ‘objectives’. And very few management techniques have received as much publicity in the last four decades as MBO.
Although the ideas that led to MBO were contributed by Donaldson Brown and Alfred P. Sloan in the 1920s and Edward Hagen in the 1930s, it was Peter Drucker who first used the term in 1954.
Drucker described it in this way:
The objectives of the district manager’s job should be clearly defined by the contribution he and his district sales force have to make to the sales department, the objectives of the project manager’s job by the contribution he, his engineers and draftsman make to the engineering department.
This requires each manager to develop and set the objectives of his unit himself. Higher management must, of course, reserve the power to approve or disapprove his objectives. But their development is part of a manager’s responsibility; indeed it is his first responsibility.
MBO also goes by various other names: Work planning and review, managing for (or by) results, objectives management, management by goal and management by commitment.
In MBO, a manager and a subordinate collaborate in setting goals for the subordinate, with the understanding that the extent to which these goals are attained will be a major factor in evaluating and rewarding the subordinates’ performance.
In short, MBO is concerned with goal setting for individual managers and their units or workgroups, as opposed by the overall organisation. As Drucker has pointed out, goal setting in an MBO system should start at the top of the organisation. And, the goals of the top management should reflect the goals of the organisation.
2. Purpose of MBO
The basic purpose of MBO is to give subordinates a voice in the goal-setting process and to clarify for them exactly what they are expected to accomplish in a given time.
MBO has been defined as “a process whereby the superior and subordinate managers of an organisation identify goals common to each, define areas of responsibility in terms of expected results and use these measures as guides for operating the unit and assessing the contribution of each number of the organisation.”
Although different writers on management use conflicting terminology, they describe MBO as having the following three characteristics:
1. MBO requires a manager to formulate measurable objectives for his (her) job (unit).
2. The development of objectives is a joint product of the manager and his (her) superior.
3. A system of information must be provided.
3. Characteristics of MBO
Willam F. Glueck has listed the following characteristics of MBO systems:
1. Objectives must be defined in terms of measurable results.
2. The indicator of the results or the method of measuring the result should be specified as part of the objective.
3. The time period for accomplishing the result should be revised twice or four times a year.
4. Objectives should be in writing and should be revised twice or four times a year.
5. A set of objectives should include regular or routine goals and new development goals.
6. A set of objectives should have priorities or weights assigned to each one.
7. Objectives should include a plan of action for accomplishing the desired results.
MBO programmes are basically designed to “improve employees” motivation through their participation in setting their individual goals and knowing in advance precisely how they will be evaluated.
Typically, MBO refers to a formal procedure in which each ‘management pair’ — i.e., a manager at any level and his immediate superior — periodically reach mutual agreement on specific and measurable goals or objectives which the subordinate manager is expected to attain in the next quarter or next year. Usually a written record of the objectives is kept.
In case a junior manager is involved, his superior may undertake to provide day-to-day-on-the-job coaching during the period. So the MBO programme includes personnel development — participation in on-job training programmes, enrolment on extension courses available locally, use of correspondence school offerings, etc.
At the end of the specified period, the management pair meets again to conduct a performance appraisal of the activities of the subordinates manager. At this stage the great importance of having reached mutual agreement on the subordinate’s objectives becomes apparent: he either achieved his objectives or failed to do so.
In case of failure, he must be in a position to explain the causes of his failure. At this time further on-the-job or off-the-job training needs are considered and then the management pair recycles — setting objectives for the next period.
4. Actual Mechanics of M.B.O.
The mechanics of MBO are simple enough every few months, typically three to twelve, each manager and his superior get together to review results for the period. Relatively few priority goals are set (typically two to ten), influenced by and linked with the general business plans.
These goals should be set in quantitative terms, whenever possible, so that their degree of accomplishment can be determined from readily available data. For example, an objective might be to reduce scrap on a certain operation from an existing 2% to a goal of 1.5% by August — with notes as to how this is to be accomplished. Sometimes records on the key measurement of a part of the business do not exist and must be established or revised.
5. Management by Objectives Process
A typical MBO process involves the following five step sequence:
1. Starting an MBO Programme:
To ensure the success of an MBO programme, it is necessary that it starts at the top of the organisation. To be more specific, top managers must communicate why they have adopted MBO, what they think it will do, and the fact that they have accepted and are committed to MBO. It is also necessary to educate employees about what MBO is and what their role in it will be.
2. Establishment of Organisation Goals:
After adopting the MBO philosophy, it is necessary to develop overall organisational goals and objectives. These goals are normally set by top management and reflect the organisation’s basic mission and strategy. While some of these goals normally coincide with the organisation’s budgeting cycle, others will involve a longer time. It is important that goals set at the top will move vertically down the organisation in a systematic way.
3. Collaborative Goal Setting:
Establishing the organisation’s preliminary goals is no doubt extremely important.
However, the essence of MBO is collaborative goal setting, which involves the following steps:
(i) Goal establishment and achievement:
Superiors tell their subordinates what organisational and unit goals have been established. Subordinates are asked to think about how they can help achieve these goals and objectives.
(ii) Periodic meetings:
Superiors meet with their subordinates on a one-to-one basis. The purpose of these meetings is to arrive at a set of objectives for each subordinate such that both the subordinate and the superior have helped develop and to which both are committed.
(iii) Verifiable objectives:
Each objective should be as verifiable (quantifiable) as possible and should specify a time frame for its accomplishment. As a general rule, objectives should meet these criteria, viz., (a) specificity, (b) conciseness, and (c) time-relatedness. Moreover, the objectives should be written (and not verbal).
(iv) Counselling:
It is essential for superiors to play the role of counsellors in the goal setting meeting. They must ensure that the subordinates’ goals are attainable and that they will facilitate both the units and the organisation’s goals.
(v) Resource requirement:
Finally, the meeting should spell out the resources that the subordinate will need to deploy for attaining goals. For example, if a sales manager’s goal for increasing sales are based on the assumption that his (her) sales area will receive four additional sales representatives and a 20% increase in travel budget, there is need for agreement on this assumption.
4. Reviews at Periodic Intervals:
During the time frame set for goal attainment, it is absolutely essential to conduct periodic reviews. If, for instance, the objectives are established for a one-year period, it will be for subordinate and superior to meet quarterly to discuss the progress made so far. Additions to, deletions from, and notes regarding the goals of a particular employee may be appropriate, especially if there has occurred any change in organisational goals or if necessary resources are not available.
5. Evaluation:
At the end of the MBO cycle, it is necessary for the managers to meet with each subordinate again to review the degree of goal attainment. They discuss which goals the employee may able to meet and which could not be met. At this stage, reasons for both success ‘and failure are explored. This may be called the ‘diagnostic phase’ of the MBO programme.
Finally, the employee is to be regarded on the basis of his (her) goal attainment. Such reward may be of three types: praise, pay-increase, promotion. In an on-going MBO programme, there is need for continuous evaluation. Such evaluation meeting often serves as the collaborative goal-setting meeting for the next time period.
6. Steps Involved in an M.B.O. Programme
Five important steps are involved in implementing MBO programmes in practice:
1. To start with the subordinate develops a description with the superior.
2. In the next step short-term performance goals are established.
3. In the third step the MBO programme is made operational. During the operational phase of the MBO programmes the subordinate meets regularly with the superior to discuss progress towards the goals.
4. In step four specific intermediate check points are established to measure progress towards achieving the organisational goals.
5. In the final step at the end of the defined period, the subordinate and the superior meet to evaluate the results of the subordinate’s efforts. At this stage new goals for the following period are also established.
7. Benefits of an M.B.O. Programme
The advocates of MBO claim that it provides the following advantages:
A. Benefits for the Enterprise:
1. It focuses managers’ efforts on the right objectives.
2. It improves the potential for achieving objectives such as profits.
3. It provides data on the basis of which managers can be rewarded objectively.
4. It helps to pinpoint human development needs.
5. It enables the manager to identify those who can be promoted to higher positions.
6. It facilitates the ability of an organisation to introduce change as and when need arises.
7. It enables the manager to co-ordinate the various efforts of an enterprise.
B. Benefits for Superiors:
1. It helps the superior to coach his subordinate.
2. It helps to eliminate vague performance appraisal tools.
3. It motivates subordinates to perform better.
C. Benefits for Employees (and Lower-Level Managers):
1. It increases job satisfaction.
2. It clarifies in clear terms what is to be expected of an employee.
3. It provides measurable objectives that the employee is expected to achieve.
However, the major benefits of any MBO programme seem to be “the linking of the objectives setting with individual motivation. Since the individual employee participates in setting his or her goals, there is a commitment to these goals. Workers know both the tasks to be accomplished and how they will be evaluated. Improved morale may also result from regular face-to-face communication between employees and their superiors.”
It is to be noted that MBO must be implemented properly. Otherwise it will not work.
8. Why does MBO Work?
According to Stephen Carrol and Henry Tosi, MBO works because, when it is properly done, the employee participates in setting goals of the company and becomes committed to achieving those goals. Participation (liberal style) motivates most of the employees to work for goals they help to choose. The participative management process motivates even conservative employees because it makes clear what is expected to do to earn a reward.
Another reason explains why MBO works. It also works because the communication system ensures that employees know how they are doing and what remains to be done. This is likely to improve their performance. Furthermore, “clearly set goals direct employees’ attention to the results of their work. They lead to high levels of achievement by preventing arbitrary judgements of performance and improving the ability of all concerned to predict results.”
Results of contemporary research indicate that “MBO goal-setting sessions, properly done, result in achievable goals and that motivation is positively affected when these goals are achieved: in other words, success breeds success. The employee sets the goals, reaches it, everyone knows it and he is rewarded for it; this keeps the success momentum going.”
MBO has been used in many enterprises. However, a handful of companies use it fully and successfully. Although MBO is growing in use, it is more likely to be used in large and medium-sized enterprises than in the small ones.
It is now widely accepted that MBO is a particularly flexible management technique that may be implemented for a single department or for the organisation as a whole. Writers on organisation have, however, reached consensus on the point that an MBO programme should “begin with the chief executive officer of the organisation setting specific goals in consultation with the board of directors. The process should then extend throughout the organisation.”
9. Problems with MBO
However experience with MBO programme is not very satisfactory. Only 10% of the 500 big American companies which have applied the technique achieved complete success with their MBO programmes. Empirical evidence available so far indicates that MBO programmes can make significant contribution to the organisation if used with proper judgement and a great deal of planning.
The failure of MBO in most situations can be traced to the following areas:
1. Inadequate Top-Management Support:
Time and again top management see MBO as a panacea for all the problems they face. So they decide to go ahead with MBO programme but delegate its operation to somebody else. However, in practice, MBO does not work without the constant participation and strong support of top management, i.e., at beginning and regularly during the year.
2. Inadequate Explanation of MBO:
Some enterprises often proceed on the basis of the wrong assumption that the employees know and understand MBO. They provide only a short, cursory explanation. If employees and superiors are unable to understand the system and why it was introduced, it is most likely to fail. In other words, MBO will not work if it not adequately explained.
3. Poorly Defined Objectives:
MBO is found to work when important, measurable objectives are jointly agreed upon. It is unlikely to achieve the desired degree of effectiveness if the objectives are too narrow or when, in an attempt to quantify every aspect of the job, the objectives chosen are short-term, unimportant ones that may be hard to measure.
To the extent that the objectives are measurable and important to the enterprises and to the employee, MBO is supposed to work. It may be difficult to develop objectives in very volatile environments. Objectives are also hard to develop if a position’s job description and responsibilities are vague.
4. Personality Conflicts:
In those situations where there are personality conflicts between superiors and subordinates it will be difficult to set upon MBO system between the two groups. MBO requires joint development of objectives. This is likely to be extremely difficult, if not impossible, when the participants do not get along.
5. Insincere Commitment by Managers:
In order to ensure that MBO works, it is absolutely essential for the superior to use a liberal or moderate leadership style. As Glueck has noted: “It will not work if a conservative leader goes through the motions and at the ‘joint’ meeting, simply tells the subordinate his (her) objectives. This turns MBO into a sham; the employee will resent it and view it as ‘playing games”.
6. Inadequate Reinforcement of MBO:
MBO usually works well when proper feedback is provided by holding progress meeting at periodic intervals. Such meetings are to be held frequently to generate necessary feedback. It is also necessary to impart refresher training in the principles and techniques of MBO. Additionally, rewards have to be tied to the achievement of objectives. (This point will be discussed again in the context of organisational communication and human motivation later in this title.)
7. Overemphasis on Paper Work:
MBO is essentially a philosophy of management. Thus when companies convert this approach into costly, technique-oriented paper work they virtually kill it. The essence of MBO is getting managers and employees together to agree on objectives. Some enterprises design various types of paper work to give evidence to the fact that MBO is being used: forms to be filled in (in multiple copies), at the beginning, after objective-setting and reinforcement meetings, at end-of-year review and so forth.
As a result the time necessary to operate MBO increases. This huge volume of paper work will surely be resisted by both employees and managers and, in the process, MBO itself.
MBO programmes are domed to failure in the absence of top management support. The total support of top management is lacking in most organisations. More often than not, top management starts an MBO programme as ‘the latest fad’ and delegates its implementation to subordinates.
In some situations, organisational goals are specified by top management and subordinates are left with little flexibility. In other cases, MBO programme is made operational without sufficient preparation or understanding.
B. D. Jamieson has discovered that some MBO programmes suffer due to reluctance of managers to devote time to the regular face-to- face meetings required in MBO programmes. Others fail due to the adoption of mechanical approach which solely rely on excessive paper work for both the superior and the subordinate.
10. Effective Implementation of MBO
After discussing the problems encountered in the use of MBO, it is now necessary to focus on how to handle MBO more effectively.
Effective implementation of MBO proceeds in the following three steps:
(a) Getting an MBO Programme Started:
It is absolutely essential for managers to take the initiative in starting the MBO programme, making it clear that they believe in it and repeatedly emphasising (indicating) that they are very much interested in it.
It is necessary to introduce an adequate training programme in MBO, in which all parts of the organisation has to participate. The implication is that MBO cannot be implemented overnight.
The following steps have to be taken in setting up an MBO system:
1. Specification of the objectives of the programme.
2. Naming the departments and units that will participate.
3. Clarifying relationships between departments which are affected by MBO programme.
4. Assigning responsibility for MBO activities at each level; ensuring that job descriptions are clear.
5. Establishing time deadlines for each stage of MBO and checking back to see that these are met.
(b) Setting Measurable Objectives:
The next important step is to insist that realistic, important, measurable objectives have to meet five criteria:
1. They have to be clear, concise and unambiguous.
2. They must be achievable by the person concerned.
3. They must be interesting, motivating and challenging.
4. They have to be consistent with various policies, procedures and plans of the organisation.
5. They have to be very much accurate in terms of what is actually desired by the enterprise. The objectives must also be team-oriented in the sense that they should not stimulate competition among employees within the same unit.
In order to meet these criteria what is called for is a ‘cascade’ approach. The implication is that “before lower-level objectives can be set, deaf, concise top-management objectives must be set, cascading down to long-range objectives, short-range objectives and then unit objectives throughout the organisation.”
Thus the statement of organisational purpose includes such critical elements as (1) precise- definition of the firm’s business, (2) the strategies chosen, (3) the organisational structure, (4) the markets to be served, (5) measurable objectives (e.g., return on investment, market share, etc.). Additionally, it is necessary to define the following: profitability (specific measures); markets (share of the market, rupee, volume, etc.); productivity (outputs per employee); and facilities (square metre, etc.)
This process percolates (continues) down to the departmental level, where objectives are specified for each unit.
Examples of specific objectives include the following:
(i) Sales volume (i.e., total rupee revenues for 1990-91).
(ii) Share of market (12% of total rupee volume of industry sales).
(iii) Market penetration (6% increase in the number of sales outlets carrying the company’s product) by January 1, 2000.
(iv) Reduction in sales costs (3% less newspaper advertising by January 1, 1991.)
The final step, then, is to set the objectives of each job in a conference between the employee and the supervisor.
It is necessary to set objectives in the following three areas:
(i) Routine activities in key areas — for example, to limit waste to 3% of raw materials; to reduce the grievance rate by 6%.
(ii) Creative activities —for example, to introduce a new computerized billing system by January 1,2000 and thus reduce accounts receivable to 15 days of sales on average.
(iii) Personal development activities — for example, learn FORTRAN by June 15, 2000; to use transcendental meditation daily in order to reduce stress by July 30,2000.
In case all objectives cannot be accomplished it is necessary to assign priorities to these objectives. These objectives have urgency.
The following is one possible weighting system:
1. Critical objectives: must do.
2. Necessary objectives: should do.
3. Desirable objectives: need to do.
There are four attributes desirable characteristics of objectives which are most useful in MBO systems: they must be measurable, relevant and important, challenging and attainable. Thus they have to be above the average level of achievement of pre-MBO days (assuming no serious changes in the environment), but not excessive.
For instance, if the company has improved its market penetration 1%, 1½%, 2%, 2½% and 3% in the past five years, 3½% is not challenging and 6% seems to be unattainable. Thus 4½% is probably just right.
(c) Negotiating Objectives:
Finally, it is of considerable importance for the superior to take MBO seriously.
This implies that he (she) has to do the following:
1. Come prepared for the MBO meeting, having objectives in mind.
2. Put the employee at ease.
3. Facilitate discussion by listening, summarizing progress at various points, minimizing criticism and rewarding insight and self-criticism.
4. List disagreements and work them out.
5. Summarise in writing the objectives that have been agreed upon.
In this context it may be noted that most multinationals operating in India have introduced the MBO programme, viz., (1) Peico Electricals Ltd. (a subsidiary of Philips India) — Mumbai and Calcutta, (2) Glaxo Laboratories, (3) Hindustan Lever Ltd., (4) ITC Ltd., Calcutta, (5) ICI, (6) Union Carbide of India Ltd., Calcutta, (7) Indian Aluminium Co. Ltd., Calcutta, (8) Madusseri Mills Ltd., Madusseri.
11. Effectiveness of M.B.O.
Various organisations have used some form of MBO and in the process several strengths and weaknesses of MBO have been identified.
The following points may be noted in this context:
(a) Improving Employee Motivation:
The primary benefit provided by MBO is improved employee motivation. As Griffin has commented: “By clarifying exactly what is expected, by allowing the employee a voice in determining expectations, and by basing rewards on the achievement of these expectations, organisations create a powerful motivational system for their employees”.
(b) Improving Communication:
The second major benefit provided by MBO is improving the communication system. And, it is possible to make performance appraisals more objectively with less reliance on arbitrary or subjective assessment. Furthermore, MBO focusses attention on “appropriate goals, helps identify superior managerial philosophy that can have a positive effect on the overall organisation”.
(c) Facilitating Control:
Finally, MBO facilitates control which is essentially the process of monitoring progress toward goal attainment. As Griffin has opined: “The periodic development and subsequent evaluation of individual goals helps keep the organisation on course towards its long-run goals”.
12. Criticisms of M.B.O.
However, MBO has few major shortcomings. That is why it has been subject to severe criticisms.
The following two criticisms are common to all MBO programmes:
(a) Lack of Top Management Support:
Perhaps the most serious problem created by MBO is lack of support from the people at the helm of affairs. In most organisations, the implementation of MBO has been delegated to lower management.
This reduces the effectiveness of the MBO programme because the goals moving vertically down the organisation may not actually be the goals of top management and because others in the organisation are not motivated to accept and become committed to MBO.
(b) Lack of Commitment:
Another problem with MBO is that most firms over emphasise quantitative goals and burden their system with excessive paperwork and record-keeping. Some managers never sit down and work out goals with their subordinates. They, instead, ‘suggest’ or even ‘assign’ goals to people. The end result is resentment and a lack of commitment to the MBO programme.
13. Importance of MBO to Accountants
Since accounting information cannot provide an adequate record of the performance of a responsibility centre, managers rely on MBO system. Accounting information no doubt measures profitability and profitability is perhaps the most important goal in a profit-oriented enterprise. But profitability is by no means the only goal.
In a non-profit organisation, profit is not a goal at all. Furthermore, the income reported for a profit centre or an investment centre measures only short-run performance; it shows the results of the manager’s decision on current profits. However, it tells nothing about actions that the manager may have taken to influence future profits. Top management is primarily interested in profits over the long run, not merely profits of the current period.
For overcoming these inadequacies of the accounting information system most companies supplement the monetary accounting information system with additional information about the results of the manager’s actions. A system that does this is none other than the management by objectives system.
The system describes specific objectives that the responsibility centre manager is expected to achieve and then measure progress in meeting these objectives. In the technology of management these objectives are outputs and the comparison of actual performance with the stated objectives is a measure of effectiveness.
For example, a sales manager may open three new training programmes developed and installed or to take certain steps to the incurrence of additional expenses in the current period, which reduces current profit. But it is expected to lead to improved profitability in future periods or to attainment of other company goals.
Since the overall objective of a non-profit organisation cannot be measured by profit, a system of MBO assumes greater importance in such organisations. If properly devised, the objectives that are set forth in such a system can measure the outputs of the organisation in roughly the same way that revenue measures the output of a profit-oriented organization.
14. Management by Objectives: An Overall Assessment:
When properly installed and functioning, management by objectives is actually a system for managing the organisation as a whole.
(1) To make the MBO programme a success the subordinate manager should receive continuing encouragement and necessary coaching from his superior.
(2) An effective installation will avoid the pitfall of being thought of as simply another personnel-department device. True, MBO can be a valuable tool in performance appraisal, development of managers and establishing proper compensation – all areas of interest to personnel specialists. But the latter will be the first to point out that these are also properly the major concerns of line managers.
Thus MBO is a management programme, rather than a personnel programme. The specific objectives chosen must be consistent with the objectives of the organisation’s long-range plans — hence the programme is clearly a concern of general management.
(3) The man in change of MBO programme (whether chief executive, division head, or profit- centre head) must be thoroughly sold on it and give it strong support. Since it may take about two years for this system to become ingrained, any relaxation of such support will lead to its abandonment at an early date.
(4) There will be a tendency of some managers not to come to grips with the real issues and the real profit-improvement opportunities in their business areas. In effect, they will state that they are already performing at a peak. This is a danger signal, a warning of shallow thinking.
(5) MBO is particularly difficult to install in a crisis situation. Where the continued existence of an organisation is threatened, senior management may lay down certain goals by edict — contrary to normal MBO principles. However, MBO can still be useful in gaining ideas and support on how the goals are to be achieved.
(6) There are hazards in linking a review of compensation with MBO performance appraisal. This subject is hotly debated. Proponents claim that compensation should be based upon results and that, therefore, the link between MBO and compensation is discussed in the same interview as performance and goals, little attention will be paid to anything other than compensation.
(7) What is often overlooked is that the MBO performance review should be used as a means of determining the individual’s personal development, needs for further coaching, on-the- job training, or job rotation.
15. Acceptance and Prospects of MBO:
In the U.S.A. 50% of the largest 500 companies apply MBO in at least part of the company, such as one division in ten. In a few instances, judged to be less than 10% of the largest 500 companies, MBO is widely employed, covering most of the managerial jobs in the companies.
Few practitioners report complete satisfaction with their MBO programme, but most are willing to state that use of MBO has indeed resulted in superior overall performance.
Proper use of MBO has largely been impeded by its simplicity. This has led some organisations to attempt to install it with minimal preparation without regard to relating MBO to overall business plans and to management development.
John J. Mores and Jay W. Lorsch studied some U. S. box-making plants having repetitive tasks and in research organisations requiring initiative and creative thinking. They have reached the conclusion that enterprises with highly predictable tasks perform better with organisations characterised by highly formalized procedures and management hierarchies of the classical approach.
In contrast, they report that the less rigid approach, emphasizing self-control and member participation in decision making, is more effective in organisations with highly uncertain tasks requiring more problem-solving. It is in this latter type of organisation that MBO is expected to flourish.
The management by objectives concept was first presented by Peter Drucker in 1954.
MBO was designed to help management establish clear and measurable goals with time component to constrain the period in which the objective is to be met. These clear & specific objectives are then compared with the actual achieve results to know how far the objectives are met and what are the limitations in achievement.
Another key aspect of MBO encompasses the relation between the superior and the subordinate persons in the management hierarchy. This aspect is very important in relation to advertising because goals are often set by the client and given then to the agency.
It is not a fruitful exercise. If both client and the agency comes to the mutual benefit and optimum results in the long run, the results can be achieved in much better way.
Etzel and Ivancevich have written about the application of MBO concept in marketing and derived seven potential benefits:
1. MBO can provide subordinates with the latitude and freedom to reach decisions without always checking for approval.
2. MBO can produce a shift from control over people to control over operations. Managers are evaluated on how well they manage the operation.
3. MBO can point out where greater Co-ordination between managers in required. For example one marketing unit may have to cut down its request for budget money because another unit needs the money more.
4. MBO can generate a more immediate response to deviations from standards because the manager knows the objectives and their priorities.
5. Concrete objectives can direct performance, reduce uncertainty, and serve as an instrument of communication.
6. MBO can remove performance appraisal from the realm of a superior acting as a judge evaluating subordinates, to a role of counselor and encouraging.
7. MBO can lead to improved planning because the manager knows what is his objectives are as well as the expectations of superiors.
In order for MBO to work well, the objectives must become more specific as one moves down in the organisation. This relationship can be explained by the Fig. 11.1.
In reference to the Fig. 11.1, in relation to time dimension, the top management objectives have the longest time horizon and the advertising account executives and brand managers have the shortest horizon. The Fig. 11.1 states that the advertising objectives must fit within the broader corporate and marketing objectives.
The MBO process (Fig. 11.2) reveals the following aspects:
1. There are contracts for performance based on objectives.
2. Organisational objectives give direction to more specific group or division objectives.
3. The evaluation serves as input to the next time period’s objective. This last issue is important because it ties directly to a similar proposed ordering of events in the decision sequence frame work.
4. There is an evaluation of performance.
Management by Objectives (M.B.O.) – Meaning, Process, Limitation (with Indian Context)
The term MBO means management by objectives is a management technique. It is process where manager at a lower level participate in jointly setting of target, so as to ensure to achieve an attainment of group goals in the organization. For example, in shipyard there are different department such as safety.
Pipe and Boiler, Hull, Mechanical painting, Staging and cleaning, they are working under different category but their basic aims Is to earn profit. But the instruction comes from High level to their subordinates. So as to make their work effectively and efficiently.
Process of Management by Objectives (MBO):
The employee contribution and participation are the basic venture towards achieving organizational objectives.
1. The Basic conflict of an MBO how the approaches are going on through the organization.
2. The main process of MBO is to contribute overall performance in the organization through the administrative personnel.
3. The organizational goal is mainly dealt with all the maker in the organization.
4. Individual performance are maintained through their subordinates or superiors.
5. Decision-making is mainly preferred by the supervisor or through the subordinates.
6. The communication between superior and subordinates are in frequent objectives setting session taking into consideration each other point of view.
The system of Managing and appraising by Objectives.
1. Proper Managing:
MBO is basically determined with helping in proper managing because the managers are well trained in the organization. So as to practiced will in planning and results oriented. Planning is the only one-term results the organization is goal oriented.
2. Clear in Organization:
The major votes and structures are tends to force clear in organization. It slows the clear results in the organization and also individual results are utilized in the management. Here the responsibility, authority and resources play a major role in the organization.
3. Mistakes (Commitment):
If one who works hard in the organization and make a better result due to psychological aspect it make him to work hard in the organization. This feeling of commitment makes him to willing in work and enthusiastic matter of his own future.
4. Help in Achievement:
MBO basically aims the employee to work in his performance appraisal. To Judging his work or capable on the work doing creates the performance appraisal.
Limitations of Management by Objectives (MBO):
1. Difficult to Explain:
In nature, objective deals with broader issues.
2. Difficult to Avoid Argument:
Objectives can be achieved through the planning because the objective is the base for planning. Since the planning may differ from Time to Time, person-to-person and organization-to-organization. Objectives may need to change but managers may hesitate to change the objectives during the period of time.
3. Difficult to Teach Philosophy:
In MBO thought, philosophy looks very easy in outlook. But it was very much to be understood put it into practice.
4. Difficulty in Setting Goals:
Some of the goals are difficult to set up because some goals are not achievable due to certain circumstances or due to lack of time period or lack in their characteristics.
5. Difficult to Devise Suitable Means:
Qualitative aspects of objectives may sometimes be neglected while or when quantifying the objectives. All other aspect, related to the objectives may be forgotten by the managers.
MBO in Indian Organizations:
George Bernard Shaw once said “Set me anything to do as a task, and it is inconceivable the desire I have to do something else”. This perhaps is the basic instinct in the human individual, the instinct of consciously or unconsciously deviating from the main job at hand.
So the fundamental problem facing employers is how to keep the employee morale high and motivating them enough to not only do their job but to also do it in such a way so as to benefit the company to the fullest.
Employee’s Morale:
Professor John F. Mee in his book “Personnel Handbook” has observed, “Good employee morale is the mental attitude of the individual, or of the group. Which enables the employee to realize that the maximum satisfaction of his drivers coincides with the fulfillment of the objectives of the company. In other words, the employee identifies his objectives with those of the company, not merely subordinates his own desires to that to the company.”
Importance of Employee Morale:
If an employee has “Low Morale”, it means that he has many frustrations or deep frustrations within him. This in turn means that his ability and desire to perform are both and as such the company will not be able to get maximum benefit out of him and that employee tends to become a burden or a liability to the company.
On the other hand, if an employee has “High Morale” it means that he has lesser frustrations of that he is happy with the atmosphere he is working in. This in turn results in his working more efficiently and thus the company gets some benefit out of him. Thus this type of an employee rather than being a burden to the company becomes an asset.