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Management by objectives (Drucker)

The father of modern corporate management Peter Drucker is often considered to be the world’s most influential corporate guru. His ideas and thoughts revolutionized corporate management in the later half of the 20th century.

Drucker questioned why in both the classical and human relations schools of management, effectiveness was automatically considered to be a natural and expected outcome. According to him effectiveness was more important than efficiency and was the foundation of every organization.

Management by objectives©[Andrey Burmakin]/Adobe Stock

He thereby developed Management by Objectives (MBO) through his 1954 book ‘The Practice of Management’. MBO deals with a certain type of interaction, specific to a manager and his employee. MBO is based on the thinking that various hierarchies within companies need to be integrated. There was a need for commitment, responsibility and maturity. There was a need for a common challenge. Here MBO becomes a process by which the objectives of an organization are agreed to and decided between the management and the employees, this way the employees understand what is expected of them and help set their own individual goals. Therefore they attain both their personal goals and the organization’s targets.

Every level of management in the organization participates in the strategic planning process and creation of performance systems. The managers of the firm are expected to participate in the strategic planning process to ensure the effectiveness in the implementing of the plan. The managers are expected to apply a range of performance systems, designed to help in the effective functioning of the organization.

An MBO system calls for each level of managers to identify their goals for ever area they are responsible for. These goals are shared then with their individual units. Shared targets guide individuals in fulfilling their role. The role of the management now is to monitor and evaluate performance. The focus is on future rather than on past. They check progress frequently and over a set period of time. There is external and internal control in this system with routine assessments. An evaluation is done to understand as to which extent the goals have been met.

An important aspect of the MBO approach is this agreement between employees and managers regarding performance which is open to evaluation.  The principle is that when employees are involved with the goal setting and choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities. There is a link between organizational goals and performance targets of the employees.

In MBO goals are expected to be SMART, i.e.

  • Specific
  • Measurable
  • Achievable
  • Realistic, and
  • Time bound.

Advantages of MBO:

  • Objectives are discussed before being agreed upon
  • There is participation in setting of goals, deciding the action course and in making decisions
  • There is increased motivation and job satisfaction
  • Relationships between the managers and those under them improve
  • There is better communication within the organisation and increased coordination
  • Managers can ensure that objectives of the subordinates are linked to the organization’s objectives
  • Objectives can be set at all levels and in various departments
  • Objectives can be set individually for each department especially in promotion, marketing, and financial planning
  • MBO can be applied in any organisation
  • Traits of MBO can be found in industries like the electronic media where performance objectives are carefully established and monitored, particularly in the areas of promotion, marketing, and financial planning
  • In an MBO system, employees are more self-directed than boss-directed

Disadvantages of MBO:

  • It has to be systematically done
  • There is more importance given to the setting of the goals than on the actual outcome or course of action
  • It may lead to polarization of efforts, whereby, people or departments are not motivated to look beyond their own targets and help others
  • It does not take into consideration, the environment I which the goals are set, like available resources, stake holders, etc
  • To avoid potential problems SMART and SMARTER objectives need to be agreed upon
  • There is no stimulation of innovation
  • Managers start believing in the concept of an “ideal employee” and evaluate their subordinates based on what they expect they should be
  • Targets can be misreported and objective setting may become counter –productive to the organization
  • Quality of goals set may be poorer or too unrealistic
  • It is time-consuming to implement and difficult to maintain
  • Setting production targets may encourage resources to meet those targets through whatever means necessary, which usually results in poor quality
  • It is not easy to identify all the objectives
{ 38 comments… add one }
  • Ahsanul Hoque July 21, 2011, 6:30 pm

    Excelent

  • charles onuekwusi December 9, 2011, 6:08 pm

    well done peter drucker

  • Beasty Pop February 6, 2012, 3:53 pm

    Peter Drucker- good looking guy

  • ABHINAV PRIYADARSHI March 1, 2012, 11:40 pm

    this presentation is too much effective and very helpful.

  • tara March 20, 2012, 4:10 pm

    i’m so impressed.no knowledge is wasted.

  • tuntufyealliy April 19, 2012, 1:38 pm

    this is the best…

  • Prisca Nneka May 10, 2012, 3:09 pm

    I Love this article

  • Ahanonu ogechi May 11, 2012, 10:42 pm

    OGA peter ur book is very knowledge-able and grateful.

  • joy nnanta May 12, 2012, 2:32 pm

    Good presentation

  • odikpo ijeoma July 14, 2012, 2:21 am

    helo sir does it mean orgnizations should not adopt d mbo system because of d disadvantages.?

  • Adekunle July 20, 2012, 8:03 pm

    Brilliant Concept!

  • erica hope November 7, 2012, 6:38 am

    Mr. Peter love your work keep it up!

  • Oryem Augustus Apire May 19, 2013, 5:40 pm

    Thanks for postulating this management construct that has form the basis of modern management.

  • Management Training June 11, 2013, 10:29 pm

    Each and every points has been clearly explained. Thanks for publishing the great post.

  • Rullyn Garcia June 29, 2013, 10:27 am

    MBO approach is perfect fit for creating better managers out of trial court judges in the Philippenes whose main focus is on adjudication of cases, thereby generally leaving their courts in a mess.

  • Phadoungsy July 10, 2013, 2:38 pm

    Superb

  • Sara de' Omondi November 5, 2013, 1:08 pm

    This is super. Very clear to the point and really knowledgeable.l enjoyed every bit.Hongera!!!!

  • mambe semani January 6, 2014, 2:07 pm

    MBO is well thought and written that only a genious could think of it. If well implemented, an organisation is assured of proper efficiency and effectiveness which promote maximum productivity

  • Deepak Akhade January 9, 2014, 4:19 pm

    Brilliant Concept!

  • mercy January 20, 2014, 3:41 am

    Quite enligtening,thanks uncle peter

  • bogonko October 18, 2014, 4:17 pm

    perfect

  • Tinah November 6, 2014, 1:24 pm

    Well done DRUCKER

  • OBEDI PASTIMA NDEMEKE January 11, 2015, 12:29 pm

    MANAGEMENT BY OBJECTIVE IS THE BEST MANAGEMENT THEORY IN TODAY WORLD BECAUSE MANY BUSINESS ARE OPERATING AT MULTINATIONAL LEVEL WHERE MANAGEMENT BY OTHER SYSTEM CAN CREATE MORE CHALLENGE TO MANAGEMENT. BECAUSE THERE ARE FAST CHANGE IN OPPORTUNITIES, THREATS COMES AND GONE FASTER WHILE INFORMATION ARE MOVEMENT TOO FASTER. IT IS ONLY THROUGH MBO WHERE SUBORDINATE CAN BE FLEXIBLE TO COPE WITH THOSE CHANGES.

  • George Dickson March 25, 2015, 1:06 am

    It is quite noteworthy that there is such an international response in the comments on Peter Drucker and that they are so heartfelt.
    So many people have experienced authoritarian, top down management ,that it is liberating to be empowered -ALLOWED may be more precise- to use their own abilities and initiative to work towards a common end in an organization.
    And that is another reason for the wide response to OMB. If properly used it reflects and encourages community of effort as well as respect for individual initiative. People are happier and perform better if they work towards a common goal ,and in a cooperative win/win versus an adversarial win/ lose environment

  • analiza dimaunahan June 28, 2015, 4:17 pm

    can you give me some case or person who applied the stability of personnel? thank you

  • Saint Paul Olofua August 9, 2015, 2:42 pm

    Peter Drucker was a very good man sent by God to give social, business and ecological directions to intelligent people of his time and of the future and on application humanity enjoyed every contribution he made and he was well rewarded and so his evergreen legacies in books will ever remain bright.

  • Halima Betso March 12, 2016, 9:15 pm

    A very good meaning and explanation of MBO.
    Peter Drucker well done.

  • Mukoya Wakala April 3, 2016, 5:51 pm

    Fanfastic piece

  • Jim Schmidt December 4, 2016, 3:46 am

    good

  • mbachan Achu January 10, 2017, 1:22 pm

    Great man

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    going to plan this well for next year for my workplace.

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