Introduction

Management by Objectives (MBO), often shortened to MBO, is simply one of several management models that have been used, and are still being used even today. This technique allows management to focus on the attainable goals of the organization, and to work towards achieving the best possible results, using the resources available to the organization at that point in time.

The goal of this model is to improve the overall performance of an organization by defining its objectives clearly, and these objectives have to have been agreed to completely by the management, the employees, and the other members of the organization. In other words, it operates on the assumption that, if the goals of the organization are aligned with that of the employees, then achieving these goals through work performance will be more successful.

The origins of MBO can be traced back to 1954, when management expert Peter Drucker first introduced the term and the concept in his book, entitled “The Practice of Management”. Basically, he described it as an environment where management and employees join forces and work together to set and monitor the goals of the organization for a certain period.

Focus of Decision Making

When a manager takes a decision the purpose is to increase either the efficiency or the effectiveness of the existing operation, or increase both efficiency and effectiveness; Efficiency is the best way of performing a task. Formally, efficiency is defined as the ratio of output to input. The more output that can be obtained from a given input, the more efficient is the utilization of the input.

While efficient refers to the right or best way of doing a particular task, effectiveness is concerned with doing the right task. However efficient a manager may be at performing his tasks, if the choice of tasks itself is not right; his efficiency is certainly not helping his organisation. A sales manager is very efficient in managing the time of his sales force and ensures that each salesman makes at least six to seven sales calls every day. But wrong identification of potential customers makes the salesman’s calls totally ineffective as no sale is actually made.

The manager’s concern should always be to increase his own effectiveness and that of the total organisation. An organisation which concentrates on doing the right tasks, i.e. its focus is on effectiveness, will surely survive and grow even if it performs the tasks in a somewhat less efficient manner. But a firm whose choice of tasks is totally wrong, no matter how high its efficiency, will certainly fail.

Management By Objectives (MBO) is a tool by which managers can improve their performance and increase their effectiveness.

Meaning and Definition

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. According to the theory, having a say in goal setting and action plans encourages participation and commitment among employees, as well as aligning objectives across the organization.

It refers to the process of setting goals for the employees so that they know what they are supposed to do at the workplace. Management by Objectives defines roles and responsibilities for the employees and help them chalk out their future course of action in the organization.

Evolution of MBO

The term MBO was coined by Peter Drucker more than 25 years ago. Drucker used the term in a very broad sense to connote not just a specific tool, but rather an approach or philosophy of management. Later contributors to the subject have focused on MBO in terms of improving performance of either an individual in the context of a superior-subordinate relationship or the entire organisation. In the United States, the name most associated with MBO is that of George Odiorne and he stresses the superior-subordinate relationship and propounds MBO as a “guide for operating the unit and assessing the contribution of each of its members”. John Humble of U.K. visualises MBO as a “system which integrates the company’s need to achieve its goals with the managers need to contribute and develop himself” and consequently places greater emphasis on corporate planning.