Impact of Management by Objectives (MBO) in organizational Management Theory

The principle of management by Objectives was first stated by Peter F.Drucker in 1954 in his book Practice of Management. After that, it was developed by many various writers like John Humble, George Odiorne, and Douglas McGregor.


A process whereby superior and subordinate managers of an organization jointly define is common goals, define each individual major areas of responsibility in terms of results expected of him, and use these measures as guides for operating the unit and assessing the contribution of each of its members, this concept written by – George Odiorne

Under MBO, the goals of the organization must be set by both superior and subordinate managers of an organization jointly. The role of subordinates should not be ignored because they are nearer to the action. According to the following are the main eight areas of accomplishment:

  • Market standing
  • Innovation
  • Productivity
  • Physical and financial resources
  • Profitability
  • Worker’s performance
  • Management performance and development
  • Public or social responsibility

Process of MBO

The process of MBO in the following stage:

Setting organizational objectives: The 1st step in MBO is the definition of organizational objectives. Under the process of Setting objectives beings at the top level and moves to the lowest managerial level in the order as mission, long-range objectives, short-range objectives, departmental objectives, and individual objectives.

Key Result Areas(KRAS): Next step in MBO is KRAs, which are critical to the firm’s long-term success and identified. These areas are known as Key Result Areas (KRAs). Some KRAs areas are market standing, Profitability, financial and physical resources, innovation, productivity, workers performance, managers performance, and public responsibility, it’s the main step in MBO.

Setting subordinates Objectives: After that, the step is subordinate’s objectives, these organizational objectives are achieved through individuals. Thereafter, each individual is given a different opportunity to make recommendations about the objectives. After that, there are many rounds of meetings, negotiations, and adjustments in the order

Fixing Standards: Next step is fixing standards, standards are determined against which actual performance can be evaluated. Standards are set in numerical terms of the organization’s performance can be undertaken. At the same time, everyone in the organization should be communicated about the standards.

Matching Resources with objectives: Thereafter, resource availability is an important aspect of objectives setting because it is the proper application of resources that ensures the achievement of objectives. Therefore, resources are allocated to different departments and individuals in consultation with subordinate managers in order to ensure their optimum use.

Developing Action Plan: Setting objectives on paper is not sufficient. This requires the allocation of responsibilities to different departments. The superiors and subordinates jointly determine an action plan in terms of time, resources, etc.

Conducting Periodic Review: Thereafter, Superiors and subordinates meet periodically to review progress in terms of quantity, quality, time, and cost. Periodic review measures the performance of each individual and department against the objectives and deviations are reported and corrective actions are taken.

Performance Appraisal: Performance Appraisal may be undertaken semi-annually or annually. Therefore, superiors and subordinates meet to review subordinates’ overall level of performance. During the appraisal, failure to achieve goals is discussed logically, problem areas are identified, and corrective action for the future.

Achievement of Objectives: the last step in MBO, past performance has important implications in the future. If overall performance in past is good and satisfactory then people in the organization feel confident of doing better in the future. Which help to achieve objectives are planning, commitment, hard work, good understanding, and patience.

Limitations of MBO:

The Limitations of MBO are as under:

Time-consuming: MBO is a time-consuming process. The pr7of goals setting, the frequent interaction between superiors and subordinates negotiations, adjustments, evaluation, reviews, feedback, etc.

Inconsistent with Managerial Philosophy: The general management philosophy is that managers set goals on behalf of subordinates.

Increase paperwork: The success of MBO depends upon the information system which generates a large volume of paperwork. An innumerable number of forms, instructions, reports, etc.

Routine and Mechanised: Newly introduced MBO may generate enthusiasm, in the process of goal setting and reviewing may become too rigid leading to loss of opportunities.

Qualitative Goals: It mainly focuses its attention on the achievement of objectives rather than Qualitative goals related to Job satisfaction and employee attitudes.

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