mbo in planning

8/13/2019 MBO in Planning

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Planning Through Management By Objectives

There are two barriers to effective planning: (1) the reluctance to establish goals, and

(2) resistance to change.

Management by objectives is one approach to planning that helps to overcome someof these barriers. It is based on an idea that organizational objectives are such an

important and fundamental part of management that managers should use a

management approach based exclusively on them. This concept emphasizes the

establishment of common objectives by managers and their subordinates acting

together and the use of these objectives as the primary basis of motivation,

evaluation, and control efforts. The management by objectives has been widely

adopted in American and Canadian corporations.

The term management by objectives (MBO) was popularized as an approach to

planning by Peter Drucker in 1954 in his book The Practice of Management . Druckerargued that the first requirement of managing any enterprise is "management by

objectives and self control ." He contrasted management by objectives with

management by drivers. Management by drivers responses to new financial or

market pressures with an "economy drive" and " production drive." In management by

objectives effective planning depends on every manager's having clearly defined

objectives that apply specifically to his individual functions within the company. Each

person has an identified specific contribution to make his units's performance. If all

the individuals achieve their objectives, then the organization's overall objectives will

attained.

According to Drucker an MBO system has the following basic characteristics:

* MBO is a planning system requiring each manager to be involved in the total

planning process by participating in establishing the objectives for his own

department and for higher levels in the organization.

* MBO improves communications within the firm by requiring that managers and

employees discuss and reach agreement on performance objectives.

* By participating in the process of setting objectives, managers and employeesdevelop a better understanding of the broader objectives of the organization and how

their goals relate to those of the total organization.

* Performance reviews are conducted periodically to determine how close individuals

are to attaining their objectives.

* Rewards are given to individuals on the basis of how close they come to reaching

their objectives.

MBO offered a comprehensive program for converting overall organizational

objectives into specific objectives for organizational units and individual members.



Many similar programs have been developed, including "management by results,"

"goals management," "goals and controls," and others. Despite differences in name,

these programs are similar.

The MBO process

The MBO process is illustrated in Figure 3-4. There are four essential elements

common to MBO programs:

* Goal specificity. Objective setting involves employees at all levels. Objectives

should be jointly derived. Appropriate goals must be set by top managers of the

organization. However, managers and subordinates must develop and agree on

each individual's objectives.

* Action planning. Action plans are made for both individuals and for departments.

The individuals have a wide range of discretion on choosing the means of achievingobjectives.

* Self-control. Self control means systematic monitoring and measuring of

performance by the individuals themselves.

* Periodic review. This final step evaluates performance and initiates corrective

action when behavior deviates from the established objectives. Managers and

subordinates periodically meet to review progressed toward the objectives.

Moreover, management must follow through on the employees performance

evaluations and reward employees accordingly.

Each of these elements can be converted into specific steps.

Management by objectives is one useful method of seeking individual manager

commitment to the objectives of the organization and providing managers with

clearly stated expectations.

MBO: Advantages and Disadvantages

MBO has many benefits when used properly and is associated with management

problems when used improperly.

Bill Reddin has identified several reasons why organizations can fail in they MBO

efforts. Some of these are:

- lack of involvement and commitment of to level managers,

- overemphasizing performance appraisal aspects,

- taking too mechanical an approach, and

- stifling creative goals and objectives.

A study of 135 organizations that used MBO found that a number of benefits and

problems were reported.



Assessing the overall effectiveness of MBO is a complex task. In review of 1985

studies, Jack N. Kondrasuk found that there are numerous arguments, pro and con,

regarding the effectiveness of MBO. However, most managers find MBO beneficial,

because MBO-type programs appear to result in improved performance and higher

morale.

Planning is a process that does not end when a plan is agreed upon; plans must be

implemented. At any time during the implementation and control process, plans may

require modification to avoid becoming useless or even damaging.

mbo in planning

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