MBO

Many organizations today are helping their employees set performance objectives in an
effort to achieve organizational goals. One means of doing this through a process called
management by objectives (MBO), a system in which specific performance objectives are
jointly determined by subordinates and their superiors; progress toward objectives is
periodically reviewed, and rewards are allocated on the basis of that progress. This
system ensures that everyone is clear about what they should be doing, and how that is
beneficial to the whole organization. If all the individuals achieve their goals, then the
unit’s goals will be attained. Subsequently, the organization’s overall objectives will
become a reality. And by focusing on what you’re trying to achieve, you can quickly
discriminate between tasks that must be completed, and those that are just a waste of
valuable time. (Commonly, there are four ingredients to MBO programs: goal specificity,
jointly participative decision making by manager and employee, an explicit time period,
and continuous feedback on performance and goals)

The process for MBO involves five common steps:

The first step is setting or reviewing organizational objectives. MBO starts with clearly
defined strategic organizational objectives. If the organization isn't clear where it's going,
no one working there will be either.

The second step is cascading objectives down to employees. To support the mission, the
organization needs to set clear goals and objectives, which then need to cascade down
from one organizational level to the next until they reach everyone. To make MBO goal
and objective setting more effective, we can use the SMART acronym (involving
Specific, Measurable, Attainable, Relevant, and Time-bound) to set goals that were
attainable and to which people felt accountable.

The next step in MBO is encouraging participation in goal setting. Through a

participative process, every person in the organization will set his or her own goals. By
pushing decision-making and responsibility down through the organization, you motivate
people to solve the problems they face intelligently and give them the information they
need to adapt flexibly to changing circumstances.

One of the most important steps for MBO is monitoring progress. Because the goals and
objective are SMART, they are measurable. They don’t measure themselves though, so
you have to create a monitoring system that signals when things are off track. This
monitoring system has to be timely enough so that issues can be dealt with before they
threaten goal achievement. With the cascade effect, no goal is set in isolation, so not
meeting targets in one area will affect targets everywhere.

The fifth step is evaluating and rewarding performance. As goals have been defined in a
specific, measureable and time-based way, the evaluation aspect of MBO is relatively
straightforward. Employees are evaluated on their performance with respect to goal
achievement. All that is left to do is to tie goal achievement to reward, and perhaps
compensation, and provide the appropriate feedback.

Having gone through this five-stage process, the cycle begins again, with a review of the
strategic, corporate goals in the light of performance and environmental monitoring.

Though some strong evidence indicating that specific employee goals are linked to higher
performance, not everyone support the value of setting objectives. Specific goals may, in
fact, do more harm than good because employees tend to focus on the goals by which
they will be judged, so that they may direct their efforts toward quantity of output and
away from quality. Specific goals also encourage individual achievement rather than a
team focus. In addition, when objectives are set, employees tend to view them as ceilings
rather than as floors; therefore, after achieving them, employees tend to relax.
Consequently, specific goals may have a tendency to limit employees’ potential and
discourage efforts for continuous improvement.

These criticisms of specific goals are potentially correct. However, they can be overcome.
Management by Objectives is a powerful tool for aligning employees’ actions with an
organization's goals. Instead of using goals to control, MBO uses them to motivate.
MBO’s overarching premise is that of employee empowerment. By empowering
employees to take responsibility for their performance and allowing them to see how
their achievements impact the organization as a whole, you increase people’s motivation,
dedication, and loyalty. When you bring that full circle and link performance to
evaluation and appraisal, you have a strong system that supports and values employees
and facilitates great performance.