Management By Objectives steps
Peter Drucker has developed five steps to put Management By Objectives
into practice:
1. Determine or revise the organizational objectives
Strategic organizational objectives are the starting points of management
by objectives. These objectives stem from the mission and vision of an
organization. If an organization has not formulated these yet, it does not
make sense to carry out the next steps.
2. Translating the organizational objectives to employees
In order to make organizational objectives organization-wide, it is
important that these are translated to employee level. For efficiency
reasons, Peter Drucker used the SMART Goals acronym SMART (Specific,
Measurable, Acceptable, Realistic and Time-bound). The
element Acceptable is crucial in management by objectives as this is
about agreement on the objectives between the employees and the
organization. The management by objectives principle does not allow
management to determine the objectives by themselves. According to
management by objectives, objectives should be clearly recognizable at
all levels and everyone should know what their responsibilities are in this.
Communication is also an important item for consideration when it comes
to expectations, feedback and to giving rewards for objectives that have
been achieved.
3. Stimulate the participation of employees in the determining of the objectives
The starting point is to have each employee participate in the determining
of personal objectives that are in line with the objectives of the
organization. This works best when the objectives of the organization are
discussed and shared throughout all levels of the organization so that
everyone will understand why certain things are expected of them. In this
way, everyone can make their own translation of what their contribution
can be to the objectives. This approach increases the involvement and
commitment of the objectives. Instead of simply following expectations of
managers and executives, everyone in an management by objectives
approach will know what is expected of them. By broadening the decision
making process and responsibility throughout the organization, people are
motivated to solve the problems they are faced with in an intelligent
manner and they are given the information they need so that they can be
flexible in the changing circumstances. This participatory process ensures
that personal objectives with respect to general team objectives,
department objectives, business unit objectives and ultimately
organizational objectives are made clear.
4. Monitoring of progress
Because the goals and objectives are SMART, they are measurable. If
they cannot be measured, a system will have to be set up in which a
monitoring function is activated when the objectives are deviated from.
Detection must be timely so that large problems can be prevented. On
the other hand, it is important that the agreed objectives do not cause
abnormal behaviour of employees for example. For instance, when a
service call must be handled within seven minutes and as a result
employees finish these calls after 6 minutes and 59 seconds to meet this
requirement. There are always exceptions to a rule and these situations
should always be supervised.
In Management By Objectives, employees are not supported by their
management through annual performance reviews. Management By
Objectives is about growth and development. Each objective comprises
mini objectives and it is about supporting these in small steps in the form
of coaching by managers or executives. Create a clear path with sufficient
evaluation moments so that growth and development can be monitored
accurately.
5. Evaluate and reward achievements
Management By Objectives has been designed to improve performance at
all levels within an organization. A comprehensive evaluation system is
therefore essential. As goals and objectives have been SMART formulated,
they make the evaluation of processes very easy. Employees are
evaluated and rewarded for their achievements in relation to the set goals
and objectives. This also includes accurate feedback. Management By
Objectives is about about why, when and how objectives can be achieved.
It is not a one-off exercise
Peter Drucker’s five steps are not a one-off exercise. It is a development
cycle that takes the organizational objectives as the starting point and
these need to be translated to an individual level. The message
behind Management By Objectives is the jointly determining and
achieving of objectives and being rewarded for these achievements. It is
important to make fair and correct assessments of the achievements
against the setting of measurable goals. Clear performance indicators are
essential for a good management by objectives approach.
Benefits of MBO:
Benefits of MBO can be stated as follows:
1. Better Managing:
MBO results in improved and better managing. Better managing requires setting
goals for each and every activity and individual and ensuring that these are achieved.
MBO not only helps in setting objectives but also ensures balancing of objectives and
resources. For establishing objectives there is a need for better and result oriented
planning. Management by objectives forces managers to think about planning for
results, rather than merely planning activities or work. Managers will devise ways
and means for achieving objectives. The objectives also act as controls and
performance standards. So MBO is helpful in improving management.
2. Clarifying Organisation:
MBO helps in clarifying organisational roles and structures. Responsibility and
authority are assigned as per the requirements of the tasks assigned. There is no use
of fixing objectives without delegating requisite authority. The positions should be
built around the key results expected of people occupying them. Implementation of
MBO will help in spotting the deficiencies in the organisation.
3. Encouraging Personal Commitment:
The main benefit of MBO is that it encourages personnel to commit themselves for
the achievement of specified objectives. In a normal course people are just doing the
work assigned to them. They follow the instructions given by the superiors and
undertake their work as a routine matter. In MBO the purpose of every person is
clearly defined with his or her own consent. People in the organisation have an
opportunity to put their own ideas before superiors, discuss the pros and cons of
various suggestions and participate in setting the final objectives. When a person is a
party for setting objectives then he will make honest endeavor to achieve them. He
will feel committed to reach the goals decided with his consent. A feeling of
commitment brings enthusiasm and helps in reaching the goals.
4. Developing Controls:
MBO mechanism helps in devising effective controls. The need for setting controls is
the setting of standards and then finding out deviations if any. In MBO, verifiable
goals are set and the actual performance will help in finding out the deficiencies in
results. Every person is clear about what is expected from him and these standards
act as clear cut controls. So controls can easily be devised when MBO is followed.
Weaknesses of Management by Objectives:
Despite of its acceptability in recent times, MBO technique has not yet acquired a
final shape.
This system suffers from a number of weaknesses which are discussed as
under:
1. Failure to Teach MBO Philosophy:
The success of MBO will depend upon its proper understanding by managers. When
managers are clear about this concept only then they can explain to subordinates
how it works, why it is being done, what will be the expected results, how it will
benefit participants, etc. This philosophy is based on self direction and self control
and aims to make managers professionals.
2. Failure to Give Guidelines to Goal setters:
If the goal setters are not given proper guidelines for deciding their objectives then
MBO will not be a success. The managers who will guide in goal setting should
themselves understand the major policies of the company and the role to be played
by their activity. They should also know planning premises and assumptions for the
future. Failure to understand these vital aspects will prove fatal for this system.
3. Difficulty in Setting Goals:
The main emphasis in MBO technique is on set ting objectives. The setting of
objectives is not a simple thing. It requires lot of information for arriving at the
conclusions. The objectives should be verifiable so that performance may be
evaluated. Some objectives may not be verifiable, precaution should be taken in
defining such objectives. The objectives should not be set casually otherwise MBO
may prove liability for the business.
4. Emphasis on Short Term Objectives:
In most of the MBO programs there is a tendency to set short-term objectives.
Managers are inclined to set goals for a year or less and their thrust is to give undue
importance to short term goals at the cost of long term goals. They should achieve
short term goals in such a way that they help in the achievement of long term goals
also. There may be a possibility that short term and long term objectives may be
incompatible because of specific problems. So proper emphasis should be given to
both short term and long term objectives.
5. Danger of Inflexibility:
There is a tendency to strict to the objectives even if there is a need for modification.
Normally objectives will cease to be meaningful if they are often changed, it will also
be foolish to strive for goals which have become obsolete due to revised corporate
objectives or modified policies.
