Described by famed management scholar Peter Drucker in his 1954 book, The Practice of Management, management by objectives has remained a popular and compelling method for defining goals and monitoring progress toward achieving them. Management by objectives (MBO) is a system whereby managers and employees define goals for every department, project, and person and use them to monitor subsequent performance. A model of the essential steps of the MBO system is presented below
Four major activities make MBO successful:
1. Set goals
Setting goals involves employees at all levels and looks beyond day-to-day activities to answer the question “What are we trying to accomplish?” Managers heed the criteria of effective goals described in the previous section and make sure to assign responsibility for goal accomplishment. However, goals should be jointly derived. Mutual agreement between employee and supervisor creates the strongest commitment to achieving goals. In the case of teams, all team members may participate in setting goals.
2. Develop action plans
An action plan defines the course of action needed to achieve the stated goals. Action plans are made for both individuals and departments.
3. Review progress
A periodic progress review is important to ensure that action plans are working. These reviews can occur informally between managers and subordinates, where the organization may wish to conduct three-, six-, or nine-month reviews during the year. This periodic check-up allows managers and employees to see whether they are on target or whether corrective action is needed. Managers and employees should not be locked into predefined behaviour and must be willing to take whatever steps are necessary to produce meaningful results. The point of MBO is to achieve goals. The action plan can be changed whenever goals are not being met.
4. Appraise overall performance
The final step in MBO is to carefully evaluate whether annual goals have been achieved for both individuals and departments. Success or failure to achieve goals can become part of the performance appraisal system and the designation of salary increases and other rewards. The appraisal of departmental and overall corporate performance shapes goals for the next year. The MBO cycle repeats itself on an annual basis.
For MBO to be successful, three things have to happen
1. Top Management Must Be Committed
2. It must be applied organization wide
3. Objectives must cascade