Management By Objectives by Peter Drucker

Management by Objectives:- MBO aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees get strong input to identifying their objectives, time lines for completion, etc. MBO includes ongoing tracking and feedback in the process to reach objectives. Management by Objectives (MBO) Principles Cascading of Organizational goals and objectives Specific objectives for each member Participative decision making Explicit time period Performance evaluation and Feedback

Types of Objectives 1. Routine objectives 2. Innovation objectives 3. Improvement objectives The objectives must be: Focused on a result, not an activity consistent Specific Measurable Related to time Attainable

MBO Strategy: Three Basic Parts All individuals within an organization are assigned a special set of objectives that they try to reach during a normal operating period. These objectives are mutually set and agreed upon by individuals and their managers. 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 goals

Supervisor

Jointly Plan &

Set Objectives Ser Standards Choose Actions

Individually Act
Perform Task (Subordinate) Provide Support (Supervisor)

Jointly Control
Review Results Discuss Implementations Review MBO Cycle

Subordinate

What is MBO? Management by objectives (MBO) is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources. It aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees get strong input to identify their objectives, time lines for completion, etc. MBO includes ongoing tracking and feedback in the process to reach objectives. Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in his book 'The Practice of Management'. In the 90s, Peter Drucker himself decreased the significance of this organization management method, when he said: "It's just another tool. It is not the great cure for management inefficiency... Management by Objectives works if you know the objectives, 90% of the time you don't." Core Concepts According to Drucker managers should "avoid the activity trap", getting so involved in their day to day activities that they forget their main purpose or objective. Instead of just a few top-managers, all managers should:

participate in the strategic planning process, in order to improve the implement ability of the plan, and implement a range of performance systems, designed to help the organization stay on the right track.

Managerial Focus MBO managers focus on the result, not the activity. They delegate tasks by "negotiating a contract of goals" with their subordinates without dictating a detailed roadmap for implementation. Management by Objectives (MBO) is about setting yourself objectives and then breaking these down into more specific goals or key results. Main Principle The principle behind Management by Objectives (MBO) is to make sure that everybody within the organization has a clear understanding of the aims, or objectives, of that organization, as well as awareness of their own roles and responsibilities in achieving those aims. The complete MBO system is to get managers and empowered employees acting to implement and achieve their plans, which automatically achieve those of the organization. Where to Use MBO The MBO style is appropriate for knowledge-based enterprises when your staff is competent. It is appropriate in situations where you wish to build employees' management and self-leadership skills and tap their creativity, tacit knowledge and initiative. Management by Objectives (MBO) is also used by chief executives of multinational corporations (MNCs) for their country managers abroad.

Setting Objectives In Management by Objectives (MBO) systems, objectives are written down for each level of the organization, and individuals are given specific aims and targets. "The principle behind this is to

ensure that people know what the organization is trying to achieve, what their part of the organization must do to meet those aims, and how, as individuals, they are expected to help. This presupposes that organization's programs and methods have been fully considered. If they have not, start by constructing team objectives and ask team members to share in the process."6 "The one thing an MBO system should provide is focus", says Andy Grove who ardently practiced MBO at Intel. So, have your objectives precise and keep their number small. Most people disobey this rule, try to focus on everything, and end up with no focus at all. For Management by Objectives (MBO) to be effective, individual managers must understand the specific objectives of their job and how those objectives fit in with the overall company objectives set by the board of directors. "A manager's job should be based on a task to be performed in order to attain the company's objectives... the manager should be directed and controlled by the objectives of performance rather than by his boss."1 The managers of the various units or sub-units, or sections of an organization should know not only the objectives of their unit but should also actively participate in setting these objectives and make responsibility for them. The review mechanism enables leaders to measure the performance of their managers, especially in the key result areas: marketing; innovation; human organization; financial resources; physical resources; productivity; social responsibility; and profit requirements. However, in recent years opinion has moved away from the idea of placing managers into a formal, rigid system of objectives. Today, when maximum flexibility is essential, achieving the objective rightly is more important. Balance between Management and Employee Empowerment The balance between management and employee empowerment has to be struck, not by thinkers, but by practicing managers. Turning their aims into successful actions, forces managers to master five basic operations: setting objectives,

organizing the group, motivating and communicating, measuring performance, and

developing people, including yourself. These Management by Objectives (MBO) operations are all compatible with empowerment, if you follow the main principle of decentralization: telling people what is to be done, but letting them achieve it their own way. To make the principle work well, people need to be able to develop personally. Further, different people have different hierarchy of needs and, thus, need to be managed differently if they are to perform well and achieve their potential. Empowerment recognizes "the demise" of the command-and-control system, but remains a term of power and rank. A manager should view members of his or her team much as a conductor regards the players in the orchestra, as individuals whose particular skills contribute to the success of the enterprise. While people are still subordinates, the superior is increasingly dependent on the subordinates for getting results in their area of responsibility, where they have the requisite knowledge.

In turn, these subordinates depend on their superior for direction and "above all, to define what the 'score' if for the entire organization, that is, what are standards and values, performance and results." Individual Responsibility Management by Objectives (MBO) creates a link between top management's strategic thinking and the strategy's implementation lower down. Responsibility for objectives is passed from the organization to its individual members. It is especially important for knowledge-based organizations where all members have to be able to control their own work by feeding back from their results to their objectives. Management by objectives is achieved through self-control, the tool of effectiveness. Today the worker is a self-manager, whose decisions are of decisive importance for results. In such an organization, management has to ask each employee three questions: 1.What should we hold you accountable for? 2.What information do you need? 3.What information do you owe the rest of us? Managing for Results The only place where meaningful management results can be won is the outside world. Managing for results is expansion of Management by Objectives (MBO) into the marketplace. It is the theory and practice of how to produce results on the outside, in the market and economy To achieve these results, you should develop a solid, sound, customer-focused, and entrepreneurial strategy, aimed at market leadership, based on innovation, and tightly focused on decisive opportunities. SMART is a mnemonic used in project management at the project objective setting stage. It is a way of evaluating if the objectives that are being set are appropriate for the individual project. A SMART objective is one that is:

Specific

Specific in the context of developing objectives means that an observable action, behavior or achievement is described which is also linked to a rate, number, percentage or frequency. This latter point is extremely important - let me illustrate. 'Answer the phone quickly' can be said to be a precise description of behavior, you can clearly see whether someone answers the phone or not, but there is no rate, number, percentage or frequency linked to it. So, if I state; 'Answer the phone within 3 rings' a rate has been added and the behavior is now much more specific. Summary: Is there a description of a precise or specific behavior / outcome which is linked to a rate, number, percentage or frequency?

Measurable

A system, method or procedure has to exist which allows the tracking and recording of the behavior or action upon which the objective is focused. Setting an objective that requires phone calls to be answered in three rings is fine, provided a system exists which measures whether this is actually being achieved. If none exists the manager must be prepared to set time aside time to actually monitor the response rates to incoming phone calls. The only other alternative is to get the person with whom the objectives are being set to measure their own progress; in some cases and situations it may be acceptable to do this, in others maybe not - use common sense to decide this. Summary: Is there a reliable system in place to measure progress towards the achievement of the objective?

Achievable

The objectives that are set with people need to be capable of being reached, put most basically; there is a likelihood of success but that does not mean easy or simple. The objectives need to be stretching and agreed by the parties involved. Setting targets that are plainly ridiculous does not motivate people; it merely confirms their opinion of you as an idiot. They will apply no energy or enthusiasm to a task that is futile. Consider sending a group of footballers out to play a game having told them the final score already, and they've lost! What's the point? So don't do it. (Some people feel that Agreed should stand for the definition of A in SMART. But as this relates to the process of communicating and deciding the objective rather than a definition of the content it seems out of context in relation to the rest of the criteria and consequently I do not use it. I concur however that objectives should indeed be agreed between involved participants rather than enforced.) Summary: With a reasonable amount of effort and application can the objective be achieved?

Relevant

This means two things; that the goal or target being set with the individual is something they can actually impact upon or change and secondly it is also important to the organization. Example: Telling the cleaners that they 'have to increase market share over the next financial quarter' is not actually something they can do anything about - it's not relevant to them. However, asking them to reduce expenditure on cleaning materials by 50 over the next three months is entirely relevant to them. It's what they spend their budget on every day. As to whether it's relevant to what the organization is trying to achieve, the manager has to decide this by considering the wider picture. Summary: Can the people with whom the objective is set make an impact on the situation? Do they have the necessary knowledge, authority and skill?

Time framed

In the objective somewhere there has to be a date (Day/Month/Year) for when the task has to be started (if it's ongoing) and/or completed (if it's short term or project related). Simply: No date = No good. Summary: Is there a finish and/or a start date clearly stated or defined?