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Management by Objectives

Management by Objectives (MBO): 5 Pros and Cons Managers Need to Know

Management by objectives (MBO) is a popular approach to performance management that has been used worldwide for decades. MBO is a process of setting specific, measurable, achievable, relevant, and time-bound objectives aligned with the team’s overall goals. By setting clear objectives and monitoring progress towards them, management by objectives can help to improve employee motivation, performance, and accountability.

In this blog, we will explore the concept of MBO in more detail and the process involved in implementing it. We will also examine the advantages and disadvantages of management by objectives Finally, we will discuss why teams use MBO and how it can improve overall performance. If, as a manager, you are looking for a more structured approach to performance management or an employee seeking to improve your performance and contribute to your team’s success, understanding the principles of MBO can be a valuable asset for you. So keep reading to explore and understand the importance of MBO. 

What is Management by Objectives?

Management by Objectives (MBO) is a management technique that aims to align the goals and objectives of a team with the goals and objectives of individual employees. The process involves setting specific, measurable, achievable, relevant, and time-bound (SMART) objectives for each employee and then monitoring their progress toward those objectives over a set period.

Management by Objectives (MBO) is a typically participative objective-setting process, with employees involved in developing their objectives and being held accountable for achieving them. The progress toward the objectives is monitored and reviewed regularly, and feedback is provided to help employees improve their performance. The MBO process aims to enhance communication and collaboration between managers and employees, align individual goals with organizational objectives, and provide a framework for measuring and evaluating performance.

Find more helpful goal-setting frameworks for managers here: Top 9 Goal-Setting Frameworks Every Team Manager Must Know

Examples of MBOs in Action

  • Sales Team – Increasing Quarterly Revenue: The manager sets a specific objective for the sales team to increase quarterly revenue by 15% compared to the previous quarter. They work with team members to define individual targets, allocate leads, and develop strategies to achieve the revenue goal. Regular check-ins are held to monitor progress and provide support, and at the end of the quarter, results are evaluated against the set objective.
  • Marketing Team – Launching a New Product Campaign: The manager collaborates with the marketing team to create an MBO centered around launching a new product campaign. They define specific objectives, such as increasing brand awareness by 20%, generating 500 leads, and achieving a 10% conversion rate. The team creates a detailed plan, assigns responsibilities, and tracks key performance metrics throughout the campaign to ensure they’re on track to meet their objectives.
  • IT Team – Enhancing System Security: The manager of the IT team sets an MBO focused on enhancing the security of the company’s systems. The objective includes reducing security vulnerabilities by 30%, implementing multi-factor authentication for all critical systems, and conducting regular security audits. The team members collaborate on improving security protocols, conducting trainings, and implementing necessary upgrades to meet the established objectives.

Creating MBOs: The Process

The MBO process typically involves the following steps

Management by Objectives
  • Defining team objectives: The first step in the management by objectives process is determining the team’s overall objectives. These objectives should be specific, measurable, achievable, relevant, and time-bound. Example: Let’s say you manage a customer service team. A SMART team objective could be to “Increase customer satisfaction ratings by 10% within the next quarter.”
  • Defining Employee Objectives: After the team objectives have been defined, managers and employees work together to set individual employee objectives aligned with the team’s objectives. Example: To achieve the team objective of boosting customer satisfaction, an individual employee objective for a customer service representative might be to “Reduce average call handling time by 30 seconds per call within the next quarter.” This directly contributes to the team’s goal by improving the customer experience and potentially reducing call volume.
  • Action Planning: Once the employee objectives have been set, the employee creates an action plan outlining the steps to achieve their objectives. The action plan may include specific tasks, deadlines, and resources required to achieve the objectives. Example: The customer service rep’s action plan might include tasks like attending training on active listening techniques, using new customer satisfaction survey tools, and collaborating with colleagues to develop more efficient call scripts.
  • Monitoring Progress: Managers monitor employee progress toward their objectives regularly. This may involve weekly or monthly meetings where the employee reports on their progress and the manager provide feedback and support. Example: The manager might hold weekly check-ins with the customer service rep to discuss their progress on the action plan, address any challenges, and offer guidance.
  • Performance Review: At the end of the performance period, managers evaluate employee performance against the set objectives. They provide feedback on the employee’s overall performance, identifying strengths and areas for improvement. Example: At the end of the quarter, the manager reviews the customer service rep’s performance against their objective of reducing call handling time. They discuss areas where the rep excelled, like implementing the new call scripts, and identify areas for further development, such as mastering a particular aspect of active listening.
  • Performance Appraisal: The final step in the MBO process is the performance appraisal, where the manager evaluates the employee’s overall performance and provides recommendations for future development. Example: Based on the performance review, the manager might recommend additional training on active listening or suggest the rep participate in a mentorship program with a more experienced customer service representative.
By following these steps and using the SMART criteria, MBO ensures everyone in the team is working towards a common goal and that individual objectives contribute to the overall success of the team

Advantages of Management by Objectives

  • Alignment with team goals: MBO helps to align the goals of individual employees’ goals with the team’s goals, which helps ensure that everyone is working towards the same objectives.
  • Employee Engagement: By involving employees in the objective-setting process, MBO helps to increase employee engagement and motivation. When employees feel like they have a say in the goals they are working towards, they are more likely to be committed to achieving them.
  • Performance Measurement: MBO provides a framework for measuring and evaluating employee performance against specific, measurable objectives. This helps managers identify areas where employees excel and areas where they may need additional support or development.
  • Accountability: MBO holds employees accountable for achieving their objectives, which helps to create a culture of responsibility and accountability within the team.
  • Improved Communication: By regularly monitoring progress towards objectives and providing feedback, management by objectives helps to enhance communication between managers and employees. This can help to build stronger working relationships and promote collaboration and teamwork.
Pros and Cons of Management by Objectives
This image shows the Pros and Cons of MBOs

Disadvantages of Management by Objectives

  • Time-Consuming: Implementing an MBO process can be time-consuming, particularly in the initial stages when objectives are being set, and action plans are being created. This can be a challenge for teams already stretched for time and resources.
  • Resistance to Change: Employees may resist the MBO process, particularly if they feel it is imposed on them without input. This can lead to low levels of engagement and resistance to the objectives set.
  • Overemphasis on Objectives: In some cases, focusing on achieving specific objectives can lead to employees neglecting other important aspects of their job. This can create a narrow focus that may be counterproductive in the long run.
  • Emphasis on Measurement: The emphasis on measurement in the MBO process can sometimes lead to an overreliance on quantitative data and neglect of qualitative factors that may be equally important.
  • Unrealistic Objectives: Employees may become demotivated or discouraged if objectives are set too high or unrealistic. This can lead to low morale and reduced performance.

5 Reasons why managers should use MBO in their teams

The following are some of the main reasons why teams use management by objectives to manage performance:

  • Clarity and Focus: MBO provides a clear and specific framework for setting objectives and aligning them with the team’s overall goals. This helps to ensure that everyone in the team is focused on what needs to be achieved and how it can be accomplished.
  • Employee Motivation: MBO can motivate employees by giving them a sense of ownership and control over their work. By involving employees in the goal-setting process and providing regular feedback on their progress, MBO can help increase job satisfaction and engagement.
  • Performance Improvement: MBO provides a structured approach to performance management that can help to identify areas where performance improvement is needed. By setting specific objectives and monitoring progress towards them, MBO can help to improve productivity and quality.
  • Accountability and Evaluation: MBO provides a framework for holding employees accountable for their performance and evaluating their team contributions. By setting specific objectives and measuring progress towards them, MBO can help identify high-performing employees and those needing additional support or training.
  • Communication and Collaboration: MBO provides a common language and framework for communication and collaboration within the team. By setting clear objectives and providing regular feedback, management by objectives can ensure that everyone is working towards the same goals and that there is a shared understanding of what needs to be accomplished.

Conclusion

In conclusion, Management by Objectives (MBO) is a well-established and effective approach to performance management that has helped countless teams to achieve their goals and objectives. By providing a structured framework for setting specific objectives, monitoring progress, and aligning individual performance with team goals, management by objectives can help improve employee motivation, performance, and accountability while promoting communication and collaboration within the team.

While there are some disadvantages to MBO, these can be managed through careful planning, implementation, and ongoing evaluation. By understanding the advantages and disadvantages of MBO, managers can make informed decisions about whether or not to use this approach and how to tailor it to their specific needs and circumstances. Overall, management by objectives is a valuable tool that can help teams to achieve their strategic objectives, improve performance, and foster a culture of excellence and accountability. In addition, by embracing the principles of MBO, managers can create a more effective and efficient workplace that can better adapt to changing market conditions and emerging challenges. 

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Frequently asked questions

What are the principles of MBO?

Some of the key principles of MBO are:
Goal specificity: Objectives should be specific and measurable, with clear timelines and outcomes.
Participative goal setting: Managers and employees should collaborate to set objectives, with input and feedback from both parties.
Explicit performance criteria: Objectives should be tied to specific performance criteria and metrics that can be measured objectively.
Regular progress reviews: Managers and employees should meet regularly to review progress towards objectives and make adjustments as needed.
Performance feedback: Feedback should be provided regularly to help employees stay on track toward achieving objectives.

What is MBO also called?

MBO is also known as Management by planning in some organizations.

What are the types of MBOs? 

There are two types of MBO: strategic MBO and operational MBO. Strategic MBO focuses on long-term objectives and aligning goals with the organization’s overall strategy, while operational MBO focuses on day-to-day objectives and improving operational efficiency.

What are the advantages of MBO?

Some advantages of MBO include the following:
Improved communication and collaboration between managers and employees.
Increased clarity and focus on objectives and priorities.
Greater alignment of employee goals with organizational goals.
Improved motivation and engagement among employees.
Enhanced performance monitoring and evaluation.


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