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Unit-07 Management by Objectives Structure of Unit Structure of Unit 7.0 7.0 O Objectives b j e c t i v e s 7.1 7.1 I Introduction n t r o d u c t i o n 7.2 7.2 What is Management Objectives (MBO)? What is Management by Objectives (MBO)? by 7.3 7.3 Features of Management by Objectives (MBO) Features of Management by Objectives (MBO) 7.4 The Process of Management by Object ives (MBO) 7.4 The Process of Management by Objectives (MBO) 7.5 Import ance and Advant age of MBO 7.5 Importance and Advantage of MBO 7.6 Weaknesses and Criticism of MBO 7.6 Weaknesses and Criticism of MBO 7.7 Making MBO Effective 7.8 7.7 S Making MBO u Effective m m a r y 7.9 7.8 SelfSummary Assessment Questions 7.10 7.9 References Books Self Assessment Questions 7.0 7.10 Reference Books Objectives After completing t his unit , you will be able t o: " Understand concept of management by objectives; 7.0 Objectives the " Explain various characteristics of MBO; After completing this unit, you will be able to: " Assess the process of MBO and steps involved; Know Understand the concept objectives; " the advant age of management of MBO by in current dynamic environment ; Point Explain various of MBO; " outcharacteristics various limit ations of MBO; " Learn how t o implement an effective MBO programme. Assess the process of MBO and steps involved; 7.1 Introduction Know the advantage of MBO in current dynamic environment ; objectives (MBO) gained immense popularity during the past twenty to thirty Management Point outby various limitations ofhas MBO; years. Management by objectives is one of the modern approaches to management, which was intro Learn how to implement an effective MBO programme. duced by Peter Drucker in his book the practice of management in 1954. Later the concept was elaborated by various writers like: George S. Odiorne, Edward Schleh, Carrol, Toshi and Douglas McGregor. 7.1 Introduction Peter Drucker mentioned that what the business enterprise needs is a principle of management that will give full scope to by individual strength and responsibility andpopularity at the same time provide a common Management objectives (MBO) has gained immense during the past twenty to thirty direction to vision and effort, establish teamwork and harmonize the goals of the individuals with the years. Management by objectives is one of the modern approaches to management, which was introcommon organizational goals. duced by Peter Drucker in his book the practice of management in 1954. Later the concept was elaboMBO is a system in which specific performance objectives are determined through participative rated by various writersobjectives like: George S. Odiorne, reviewed Edward Schleh, Carrol, Toshi and Douglas McGregor. approach. Progress towards is periodically and rewards determined accordingly. In Peter Drucker mentioned that what the business enterprise needs is a principle of management other words it refers to a formal, or moderately formal, set of procedures that begins with goal setting and that will give full scope to individual strength and responsibility and at the same time provide a common continues through performance review. The key to MBO is that it is a participative process, actively direction to vision and effort, establish teamwork and harmonize the goals of the individuals involving managers and staff members at every organizational level. By building on the link betweenwith the the common organizational goals. MBO helps to overcome many of the barriers to planning. planning and controlling functions, Fig. 7.1 Management by object ives (MBO) achievement of organizational and individual objectives This approach is also known by other names such as 'Manaffgement by Results' (MBR), 'Goal Management', 'Planning by Objectives' (PBO), 'Results Management', 'Joint Target Setting', 'Work PlanEmployees get adequate and strong input ning and Review'. Today, MBO is used not only as a technique of goal setting but also as a total system of planning, motivation, performance goals appraisal and Objectives self-control. Synchronizing and subordinate 7.2 What is Management by Objectives (MBO)? MBO is difficult to define. Organizations useTracks it in different ways and for different reasons. In performance broad terms, it may be stated that MBO is both a philosophy and an approach of management. It is a process in which superiors and subordinates sit together to identify the common objectives and set the Enhances organizational performance goals which are to be achieved by the subordinates, assess the contribution of each individual and integrate individual objectives with those the organisation so as to make best use of the available resources Fig.of 7.1 Management by objectives (MBO) 87 of the organisation. " Get duly communicated to all who are concerned with it; " Align short-term objectives to medium and long-term objectives; and
MBO is a system in which specific performance objectives are determined through participative approach. Progress towards objectives is periodically reviewed and rewards determined accordingly. In other words it refers to a formal, or moderately formal, set of procedures that begins with goal setting and continues through performance review. The key to MBO is that it is a participative process, actively involving managers and staff members at every organizational level. By building on the link between the planning and controlling functions, MBO helps to overcome many of the barriers to planning. This approach is also known by other names such as 'Management by Results' (MBR), 'Goal Management', 'Planning by Objectives' (PBO), 'Results Management', 'Joint Target Setting', 'Work Planning and Review'. Today, MBO is used not only as a technique of goal setting but also as a total system of planning, motivation, performance appraisal and self-control.
may be done to achieve the expected objectives. Peter Drucker writes, "MBO may properly be called a 'philosophy' of management because it rests on a concept of human action, behaviour, and motivation. Finally, it applies to every manager, whatever his level or function, and to every organisation, whether large or small." 2. MBO as an Approach: MBO is an approach to management. Approach refers to various tools or techniques used in order to achieve the objectives. MBO introduces several new techniques of management. It also enhances the relevance and utility of existing ones. It is thus, a joint application of a number of principles and techniques. It works as an integrating device. Many principles and techniques of planning and control are used in an organisation in the normal situation, but in MBO the focus is more on these techniques. 3. Organizational and Individual Goals Determination: MBO is a participating and interactive process whereby superiors and subordinates jointly determine common objective for the organisation and also define each individual's areas of work and responsibility. 4. MBO Emphasizes Participatively Set Objectives that are Tangible, Verifiable, and Measurable: Kreitner writes, "The common denominator that has made MBO approach so popular in both management theory and practice is the emphasis on 'objectives' that are both measurable and participatively set. 5. MBO is a Top-down or the Bottom-up Approach in Results Management: which aims at optimum use of organisational resources. Thus MBO is a systematic and rational technique that allows management to attain maximum results from available resources. It allows the subordinate plenty of room to make creative decisions on his own. 6. MBO has Multiple Uses: MBO is a way of promoting managerial self-control and it applies to total management system. It has multiple uses. There are various managerial sub-systems that can be integrated with MBO process; they include performance appraisal, design of organisational structures, management development programmes, organisational change programmes, and budgeting. 7. BO has Some Relationship with Every Management Technique and It is a Universal Tool: In fact, MBO provided the stimulus for the introduction of new techniques of management and enhances the utility of the existing ones. MBO is the joint application of a number of principles and techniques. It works as an integrating device. It is a valuable management tool for profit as well as non-profit organizations. It is a simple, non-technical, operational management approach which can be applied to every type of organizations. 8. MBO as a Performance Appraisal and Review: As a performance appraisal and review, MBO is intended to measure and judge performance, to relate individual performance to organisational goals and to foster the increasing competence and growth of the subordinates. 9. A Comprehensive System Approach: MBO has become a comprehensive system. It considers both economic and human aspects of an organisation. It applies to managers and employees in any kind and size of organisation at all levels and in all functional areas. Koontz and Weihrich write, "MBO, to be effective, has to be viewed as comprehensive system. It must be considered as a way of managing, and not an addition to the managerial job." 10. Guidelines for Appropriate System: MBO has a thrust achieved on the objectives. Therefore it provides guidelines for appropriate systems and procedures. Resources allocation, delegation of authority etc. 89
are determined on the basis of objectives. Similarly, reward and punishment system is attached with the achievement of objectives. Finally we can say that the salient features of MBO are - cascading of organizational goals and objectives; specific objectives for each team/group and member; participative decision making process; explicit time period deadlines; and performance evaluation and feedback. Activity A: 1. 2. Discuss the area of objective setting in specific concern to your study plan for final examination. "Is the philosophy of MBO really works?" Explain with suitable examples.
3. Setting of Subordinates Objectives: Organisational objectives are achieved through individuals. Therefore, every individual must know in advance what he is expected to achieve. Objectives for each subordinate should be set in consultation between that subordinate and his or her supervisor. A degree of recycling is required in setting of objectives. This means that a degree of interaction, consultation, and discussion among top level managers, departmental heads, superiors and subordinates is necessary. In such joint consultations, subordinates help managers develop realistic objectives since they know best what they are capable of achieving. Managers help subordinates "raise their sights" toward higher objectives by showing willingness to help them overcome obstacles and confidence in subordinates' abilities. 4. Revision of Organizational Structure: When the goals for each individual are reset under MBO there is a considerable change in the job description of various positions. This may call for a revision of the existing organization structure. The organization charts and manuals should be suitably amended to depict the change brought about by the introduction of management by objectives. The job description of various jobs must be defined with their objectives, responsibilities, and authorities. They must clearly lay down the relationship with other job positions in the organization. 5. Matching Objectives and Resources: It should be noted that without a proper balance between the objectives and resources, the achievement of goals will be difficult. Hence, the superiors must ensure combination of goals with available resources. All managers at various levels require these resources to accomplish their goals. By relating these resources to the goals themselves, superiors can better see the most effective and most economical way of allocating them. 6. Conducting Periodic Progress Reviews: Management by objectives ensures periodic meetings between the superior and the subordinate to review the progress towards the goal attainment. For this the superior must establish check points or standards of performance for evaluating the progress of the subordinate. The reviews should be held monthly or quarterly. These reviews serve as a built-in feedback mechanism for an MBO system. Since individual or group goals are specifically defined, usually in quantifiable terms, employees can compare their progress at review time against the specified goals. This periodic check-up allows managers and employees to see whether they are on targets or whether some change is necessary. During the review, managers and employees decide what problems exist and what they can do to resolve them. 7. Performance Appraisal: While informal performance appraisal of a subordinate is done by his immediate superior almost everyday, formal appraisal at periodic interval, usually once or twice a year, does ensure that a thorough evaluation of a manager's performance is done and his achievements are carefully analyzed against the background of prevailing circumstances and given objectives. The design and format of the performance review form will depend on the nature of the enterprise. Performance appraisal can serve three purposes: Feedback to employees concerning their actual performance; Provide the basis for identifying more effective job behaviour; Supply information to managers relevant to future job assignments and to compensation decisions. 8. Feedback: On the basis of overall evaluation, the feedback is provided to higher level of hierarchy. Feedback information helps in taking decisions to make necessary changes in MBO programme and to shape goals for the next year. The MBO cycle repeats itself on an annual basis. 91
Activity B: 1. 2. Suppose you have a garment store in the main market of your city, draw a MBO programme with the above steps for diversification. What is 'Performance Appraisal'? Explain.
5. Other Benefits: Other specific benefits of MBO are as follows: It increases the effectiveness of management process. It effectively and efficiently uses the human resources. It encourages commitment towards goal attainment. It is a self appraisal and self management technique which leads through self motivation and control. It inbuilt the result oriented attitude in employees. It is a path which encourages personal development and provides opportunities for career development. It reduces duplication of efforts. It advocates trust, cooperation and supportiveness that are central to human nature. It develops a greater sense of identification in employees. It improves communication and organization structure which helps in locating weak and problem areas. It serves as a device for organization control and integration. It provides a realistic means of analyzing training needs and opportunities for growth on the basis of measurement of performance against accepted standards.
because of fear of resistance from the subordinates. Koontz and Weihrich state, "It is foolish and dangerous for a manager to strive for a goal that has been made obsolete by revised corporate objectives, changed premises, or modified policies." 5. Increases Pressure and Frustration on the Subordinates: According to some critics MBO actually increases pressure on the subordinates and sometimes, MBO creates frustration among managers. This is due to the reasons that (a) many organisations could not implement MBO properly and even the organisation is not able to work with its old system, and (b) introduction of MBO arouses high expectations in young managers. They are over-enthusiastic in making rapid change in terms of growth and profitability for organisation and career development for themselves. If rate of change is slower than the expected, then they feel frustrated. 6. Short Term Nature of Goals: In most MBO programmes, managers set goals for the short run usually for a year or even less. This is dangerous for the long term development of the organisation. It is also found that strategic goals are displaced by operational goals. 7. Quantitative Bias: In order to have verifiable and measurable goals, managers overuse quantitative goals and attempt to force the use of numbers in areas where they are not applicable. They may also downgrade important goals that are difficult to state in quantitative terms or end-results. 8. Time Consuming: A great deal of time to carefully set objectives at all levels of the organization is required in MBO. Initially to built confidence in subordinates in the 'new system' superiors may have to hold many meetings. The formal, periodic progress and final review sessions also consume time. So MBO is a time consuming process. 9. Increases Paperwork: MBO programmes introduce a tidal wave of newsletters, instruction booklets, training manuals, questionnaires, performance data, and reports into the organization. To know of what is going on in the organization, managers may demand regular reports and data in writing, thus MBO imposes burdensome paper work. 10. Lack of Follow up: Lack of follow-up by the superior at the appropriate time is another hurdle in the successful implementation of MBO. It is most easy to procrastinate. The superior must get to the subordinate at the appropriate time. The subordinate should be prepared to tell the boss exactly what has been accomplished and how. 11. Other Weaknesses: It can be used as a threat by overzealous managers. Managers turn MBO into a sham, and start playing games. The programme is used as a 'whip' to control employee performance. Top managers provide inadequate support. It leads to a tug-of-war in which the subordinate tries to set the lowest possible targets and superior the highest. Activity C: 1. 2. 3. "MBO provides an opportunity for self control." Explain your views. "MBO is a base to bring organizational changes effectively". Is the statement right? How? "There are no limitations as such of a MBO programme, if it is carefully planned and imple-mented". Comment. 94
Improved managerial performance; Concentration on wealth maximization; Improved morale and sense of purpose in personnels; Easier recognition of management potential; More effective managerial development; Better delegation and communication. Activity D: 1. In an organization A, top management implemented a MBO programme. In B organization, the personnel department implemented it. After a year it was evident that the company that imple mented through the stronger power and authority structure, top management, had achieved greater job satisfaction for the participants. Express your opinion with reasons.
2.
7.8 Summary
The essence of an MBO system lies in the establishment of common goals by managers and their subordinates acting together. Each person's major areas of responsibility are clearly defined in terms of measurable expected results (objectives). These objectives are used by subordinates in planning their work and by both subordinates and their superiors for monitoring progress. Performance appraisals are conducted jointly on a continuing basis, with provisions for regular periodic reviews. To conclude we can say, MBO involves managers and subordinates in jointly establishing specific objectives and periodically reviewing progress toward meeting those targets. The salient features of MBO are - cascading of organizational goals and objectives; specific objectives for each team/group and member; participative decision making process; explicit time period deadlines; and performance evaluation and feedback. The basic elements of effective MBO programs include- formulate clear objectives, support and commitment of top management to the MBO system, encourage active participation of subordinates in goal setting, educate and train managers about MBO, autonomy in implementing plans, periodic review of performance, make feedback effective,. MBO is not a panacea, for organizational problems. Quite often many organizations look MBO as an instant solution to their problems. They fail to recognize that MBO demands careful planning and proper implementation. Many organizations have been overwhelmed by problems of MBO. Some of the problems are present in MBO system itself and others emerge due to wrong implementation like incomplete understanding of MBO philosophy in personnel, poor planning and lack of guidelines for implementation, practical difficulty in setting objectives, increases pressure and frustration on the subordinates, quantitative bias, lack of follow up. MBO programs have achieved considerable acceptance, even though they require a great deal of time and energy, because they appear to result in improved performance and higher morale. Today, MBO is used not only as a technique of goal setting but also as a total system of planning, motivation, performance appraisal and self-control. 96
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