Definition
Management By Objectives (MBO) is a strategic management model often used in businesses for setting and tracking organizational goals. Essentially, it involves defining objectives within an organization so that management and employees agree on those objectives and understand what they need to do in the organization. The progress towards the overall organizational goals is then monitored, evaluated, and rewarded.
Key Takeaways
- Management By Objectives (MBO) is a strategic management model that aims to improve organizational performance by aligning goals and subordinate objectives throughout the organization. Managers and employees work together to set, define, and track objectives, thus ensuring all team members agree to the defined targets.
- MBO emphasizes participative management, where employees have a significant say in setting their objectives and are held responsible for fulfilling them. It enhances motivation and commitment while promoting clear communication within the organization.
- The success of MBO relies on the ability to set clearly defined and measurable objectives which can be objectively evaluated. Regular reviews and updates are necessary to ensure that the goals reflect the changing business environment and priorities.
Importance
Management by Objectives (MBO) is a key finance term because it emphasizes a systematic and organized approach that aligns company goals with individual and team goals. This concept enhances coordination and communication within the organization, offering clarity about what is supposed to be achieved by everyone.
Moreover, MBO instills a sense of responsibility for individual employees as they are integral parts of the goal-achieving process. Not only does this increase employee motivation and commitment, but it also enables faster decision-making and promotes effective management.
By evaluating performance against set objectives, MBO provides a clear measurement for success and progression, and hence aids in better forecasting, budgeting, and financial control. Therefore, Management by Objectives is an essential financial term and practice for enhancing organizational efficiency and efficacy.
Explanation
Management by Objectives (MBO) is a strategic management tool that is employed to improve the overall performance and productivity of an organization. MBO is designed to align a team’s goals and objectives with that of the organization as a whole. It encourages involvement and participation by individuals on all levels, from senior management to lower level employees, to participate in the decision-making process.
This enhances the communication and understanding of the organization’s goals and the specific role that each individual plays in achieving these objectives. The process begins by clearly defining the organization’s objectives, following which, individual objectives are determined in conjunction with the employees. This method is useful in setting and achieving short-term goals as well as long-term objectives.
An important attribute of MBO is evaluation and feedback, which is necessary to monitor progress towards the objectives and make necessary adjustments. The major advantage of using MBO is that it focuses on results rather than on activities. It allows for better communication and coordination among various sections, and helps in developing committed and responsible employees.
Examples of Management By Objectives
Apple Inc: One of the most famous uses of management by objectives is at Apple Inc., where the company’s executives set annual goals for each department, product, and region. These goals are designed to align with Apple’s overall strategic plans. Employees are then evaluated not only on how well they perform their specific tasks, but also on how their work contributes to meeting these strategic objectives.
General Electric (GE): GE is another large corporation that uses management by objectives. Each year, GE’s management and employees define personal goals that are aligned with the company’s overall strategy. Objectives are set at all levels of the organization, creating a consistent direction across the company. Progress towards these goals is measured on a regular basis, allowing the company to continuously monitor its performance.
LinkedIn: LinkedIn has also adopted the management by objectives approach. The company sets clear, specified goals for its employees and teams which fall in line with LinkedIn’s overall objectives and mission. These goals are then used to evaluate employee performance and provide feedback. This feedback helps the employees improve their performance by focusing on their strengths and addressing their weaknesses.
FAQs: Management By Objectives
What is Management By Objectives?
Management By Objectives (MBO) is a strategic management model that aims to improve the performance of an organization by clearly defining objectives that are agreed to by both management and employees. It places a strong emphasis on the alignment of goals and objectives among different levels of an organization.
Who introduced the concept of Management By Objectives?
The concept of Management By Objectives was first introduced by management guru Peter Drucker in his 1954 book “The Practice of Management”.
How does Management By Objectives work?
Under the MBO approach, managers and employees work together to set, discuss and align the organization’s objectives with employees’ personal goals. The process usually involves a cycle of discussion, review, and evaluation to ensure the objectives are being met.
What are the benefits of Management By Objectives?
MBO can lead to improved communication between management and employees, improved employee motivation and commitment, and alignment of goals and objectives across the organization.
What are some potential pitfalls of Management By Objectives?
While MBO can reap several benefits, potential pitfalls include setting unrealistic objectives, a focus on short-term objectives at the expense of long-term goals, and disparities in objectives between different levels of the organization.
Related Entrepreneurship Terms
- Goal Setting
- Performance Metrics
- Strategic Planning
- Employee Motivation
- Progress Tracking
Sources for More Information
- Investopedia: This website provides a wide array of information on finance and management terms, including Management By Objectives (MBO).
- Mind Tools: Mind Tools offers a variety of resources on managerial and leadership techniques, including management by objectives.
- The Balance Careers: This resource provides extensive articles on career development and management styles, such as MBO.
- Business Dictionary: An extensive dictionary of business terms including Management By Objectives.
