Management by Objectives

Management by objectives (MBO) is a comprehensive management

system based on measurable and participatively set objectives. MBO has

come a long way since it was first suggested by Peter Drucker in 1954

as a way of promoting managerial self-control. In one form or another,

and under various labels, MBO has been adopted by many organiza-

tions around the world. In fact, it is difficult to find a public or private

organization of any significant size that has not tried some variations of

the MBO theme.

The common denominator that has made MBO programs so popular

in both management theory and practice is the emphasis on objectives

that are both measurable and participatively set. Unfortunately, as point-

ed out by a management consultant, a gap exists between MBO theory

and practice: “ Today, MBO is being used as an exploitive, manipulative

management control mechanism as often as liberating, humanistic phi-

losophy of management. It seems to be venerated more by its abuse than

for its proper use”. Whether properly or improperly applied, MBO is by

far the most widely used planning aid.

Originally characterized as a relatively simple performance appraisal

technique, MBO evolved into a more complex planning and control tool

and eventually into a comprehensive management system. According

to one recognized expert on MBO: Within the past few years MBO has

emerged as a system designed to integrate key management processes and

activities in a logical and consistent manner. These include the development

of overall organizational goals and strategic plans, problem solving and de-

cision making, performance appraisal, executive compensation, manpower

planning, and management planning and training.

Proponents claim that when MBO is applied as a comprehensive

management system, it becomes an integral part of the manager’s job.

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At the heart of MBO is the four-step cycle:

Step 1. Setting objectives. A hierarchy of challenging, fair and inter-

nally consistent objectives is the necessary starting point for the MBO

cycle because it serves the foundation for all that follows. All objectives,

according to MBO theory, should be reduced to writing and put away for

later referral during steps 3 and 4. MBO’s main contribution to the ob-

jective-setting process is its emphasis on the participation and involve-

ment of subordinates.

Step 2. Developing action plans. With the addition of action state-

ments to the participatively set objectives, the planning phase of MBO

is complete. Managers at each level develop plans that incorporate ob-

jectives established in step 1. High managers are responsible for making

sure that their direct subordinates’ plans complement one another and

do not work at cross-purposes.

Step 3. Periodic review. As plans turn into action, attention turns to

step 3, monitoring performance. Advocates of MBO usually recommend

face-to-face meetings between superior and subordinates at three-, six-

and nine-month intervals. These periodic checkups permit those who

are responsible for a particular set of objectives to reconsider them to

see if they are still valid. If an objective is no longer valid, it is updated

accordingly. Otherwise, progress toward valid objectives is assessed. Pe-

riodic checkups also give managers an excellent opportunity to give sub-

ordinates needed and appreciated feedback.

Step 4. Performance appraisal. At the end of one complete cycle of

MBO, typically one year after the original goals were set, final perfor-

mance is matched with the previously agreed-upon objectives. The pairs

of superior and subordinate managers who mutually set the objectives

one year earlier meet face-to-face once again to discuss how things have

turned out. MBO calls for emphasis on results, not on personalities or

excuses. The control phase of the MBO cycle is completed when success

is rewarded with promotion, merit pay, or other suitable benefits and

when failure is noted for future corrective actions.

1. Say some words about Peter Drucker and his management system:

MBO.

2. What made MBO programs so popular in both management the-

ory and practice?

3. What is at the heart of MBO?

4. Speak on each step of the cycle.

Text 5

Read the following text and say which statements are false and which are true. Correct

the false ones.