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MANAGEMENT
BY
OBJECTIVES
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What Is an Objective?
Objectives are goals, aims or purposes that
organisation wish over varying periods of time
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Management By Objectives (MBO)
A method whereby managersand employees define
objectives for every department,project, and person and use
them to monitor subsequentperformance.
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WHAT IS MBO ?
4
MBO is a system in which specific performance
objectives are jointly determined by subordinatesand their superiors, progress toward objectives isperiodically reviewed, and rewards are allocatedon the basis of this progress.
Is a systematic and organized approach that allows
management to focus on achievable goals andattain the best possible results from availableresources
Management By Objectives term was firstpopularized by Peter Drucker, in 1954 in his book
'The Practice of Management'.
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Core Concepts of MBO According to Drucker managers should "avoid
the activity trap", getting so involved in their dayto day activities that they forget their mainpurpose or objective. Instead of just a few topmangers , all managers should:
participate in the strategic planning process, inorder to improve the implementability of theplan, and
implement a range of performance systems,
designed to help the organization stay on theright track.
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Concepts
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MBO involves subordinate managers participationin planning and controlling activities. It is a fact
that more of their involvement will result in morecommitment, which will lead to more and betterresults.
One of the concepts of MBO was that instead of justfew top managers, all managers of the firm shouldparticipate in the strategic planning process, inorder to improve the implement ability of the plan.
Aims to increase individual and organizationaleffectiveness by aligning organizational goals and
subordinate objectives Clarifies and quantifies objectives to allow for
monitoring, evaluation, and feedback throughoutthe hierarchy of objectives
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IN SIMPLE WORDS,MBO IS
MBO emphasises the importanceof objectives as a tool to be used
by managers in fulfilling theirmanagerial roles (accomplishtheir tasks)
Divide problem into manageable,bite-size chunks
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Main Principle of MBO The principle behind Management by Objectives
(MBO) is to make sure that everybody within theorganization has a clear understanding of the aims,or objectives, of that organization
As a awareness of their own roles andresponsibilities in achieving those aims.
The complete MBO system is to get managers and
empowered employees acting to implement andachieve their plans, which automatically achievethose of the organization.
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Where to Use MBO
The MBO style is appropriate for knowledgebased 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, tacitknowledge, and initiative.
Management by Objectives (MBO) is also used
by chief executives of multinational corporations(MNCs) for their country managers abroad.
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Setting Objectives In 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 ofthe organization must do to meet those aims, and how, asindividuals, they are expected to help. This presupposesthat organization's programs and methods have been fullyconsidered. If they have not, start by constructing teamobjectives and ask team members to share in the process.
"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.
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Setting Objectives For MBO to be effective, individual managers must understand the
specific objectives of their job and how those objectives fit in withthe 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 bedirected and controlled by the objectives of performance ratherthan by his boss."
The review mechanism enables leaders to measure theperformance of their managers, especially in the key result areas:
marketing; innovation; human organization; financial resources;physical resources; productivity; social responsibility; and profitrequirements.
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OBJECTIVE SETTING
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MBO is often achieved using set targets.
MBO introduced the SMART method for checkingthe validity of the objectives which should be
SMART Specific
Measurable,
Agreed / Achievable
Realistic, and Result Oriented Time-Specific or Time related
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Sspecific
Mmeasurable
A achievable
R result oriented
T time-related
WORK HAVE
S
U
C
C
E
S
S
In an MBO, good goals are SMART goals:
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GUIDELINES FOR SETTING OBJECTIVES:
SMART Criteria - Specific, Measurable,
Achievable, Relevant, Time-Specific
Clear and Realistic
Results oriented
Established before the fact
Verifiable
Agreed both by managers and the associatesWritten
Consistent with focus
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COMMON ERRORS TO AVOID WHEN
DEVELOPING OBJECTIVES:
Too many objectives
Too complex objectivesToo high or too low standards
Too long or too short time period
Objectives that are not measurableObjectives for which the cost is too
high
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MBO; PLAN VIEW
Vision
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MBO; CROSS SECTION
Vision
Mission
Tactical
Plans
Managementby
Objectives
OperationalPlans
StandingPlans
Single-UsePlans
Top
Managers
Middle
Managers
First-LevelManagers
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Single-use Plans are developed to achieve
objectives that are not likely to be repeated in the
future. Single-use plans include both programs
and projects.
Standing Plans are used to provide guidance for
tasks performed repeatedly within theorganization. The primary standing plans are
organizational policies, rules, and procedures.
Operational Plans are used to identify specificresults to be accomplished within a given short
term time period. Contain detailed information
used in the lower levels in an organization.
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Peter Drucker also stated that:For the business to succeed, the
managers and employees must worktowards a common goal
Managers must identify and agreetargets for achievement withsubordinates
Managers must negotiate the support
needed to achieve the targets withsubordinatesEvaluate the objectives over time
FEATURES OF MBO
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MBO AIM
Short and long-term planning
Optymalization of organization structure Better work and collaboration quality
Appraisal based on objective results
BONUSES
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MBO PRINCIPLES
1.Cascading of organizational goals andobjectives
2.Specific objectives for each team member
3.Participative decision making
4.Explicit time period
5.Performance evaluation & feedback
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CASCADING OF OBJECTIVES
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IS MBO SUITABLE FOR EVERYBUSINESS?
MBO could be suitable for a medium tolarge business, using a democraticapproach to management and
operating in a stable marketThe overriding issues therefore are
size of the business, the leadership
style it uses and the rate of change inthe market it operates.
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HOW MBO WORKS
Jointly identify common goals.
Define major areas of responsibility
in terms of results expected.Use measurements as guides for
operating and assessingcontributions of members.
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UNDERLYING PURPOSESOF MBO
1. Clarify organizations goals andplans at all levels.
2. Gain better motivation andparticipation from organizationsmembers.
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MBO; FRAMEWORK CONCEPT
Jointly plan
Setting
objectives Settingstandards Choosingactions
Individually act
Performing
tasks(subordinate) Providingsupport(supervisor)
Jointly control
Reviewing
results Discussingimplications Renewing MBOcycle
Supervisor
Subordinate
and
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PHASES OF MBO
1. Top management team studiessystem.
2. Team sets up methods of
measuring performance.3. Goal-setting sessions are held at
all levels of organization.
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Essential Steps for MBO Set Goals
The most difficult step.
Develop Action Plan For both workgroups and individuals.
Review Progress/ Take corrective action Periodic during the year.
Appraise Overall Performance. Review Annual Goals.
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STEPS FOR MBO
Appraise
Performance
Corporate Strategic goals
Departmental goals
Individual goals
STEP 1: SET GOALS
STEP 4: APPRAISEOVERALL PERFORMANCE
Action PlansCourse of actionFor both workgroupsand individuals
Review Progress
&
Take Corrective Action
STEP 2: DEVELOP PLANS
STEP 3: REVIEW PROGRESS
How are we doing?
Do we need to restate our goals?
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ESSENTIAL STEPS FOR MBO
Set Goals (The most difficult
step) What are we trying to
accomplish? Develop Action Plans
What do we need to do to get
there? Groups and individuals
Review Progress How are we doing?
Periodically (How Often?) Does plan need to be tweaked?
Appraise Performance Rewards?
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Six MBO Stages
Define corporate objectives at board level
Analyze management tasks and devise formal jobspecifications, which allocate responsibilities anddecisions to individual managers
Set performance standards
Agree and set specific objectives
Align individual targets with corporate objectives
Establish a management information system tomonitor achievements against objectives
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The Five-Step MBO Process
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e.g. HOW TO SET CORPORATEOBJECTIVES
Mission statement
Corporate objectives
Departmental
objectives
Individuals and team
targets
To become the leading supplierof computers in London
To increase sales in Londonby 10% in the next 5 years
e.g. (marketing department) toachieve a 10% share of thecomputer market in London
within the next 5 yearse.g. to design questionnairesas part of market research
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SOURCES OF MBO FAILURES
1. Lack of top management commitment andfollow through on MBO.
2. Employees negative beliefs about
managements sincerity in its efforts toinclude them in the decision-making
process.
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Improves employee motivation
Improves communication in the organisation Flags up and highlights training needs required
to achieve objectives Improves overall performance and efficiency
Attainment of goals can lead to the satisfaction ofMaslows higher order needs MBO programs continually emphasize what
should be done in an organization to achieveorganizational goals.
A basis for promotion and compensation Better managerial planning and use of employee MBO process secures employee commitment to
attaining organizational goals.
ADVANTAGES OF MBO
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The employee has knowledge of the
managers goals, priorities anddeadline
He has a greater understanding of
where he stands with the manager inrelation to relative progress
There is a basis for better evaluation
than personalityIt stimulates higher individual
performance and morale
ADVANTAGES OF MBO
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DISADVANTAGES OF MBO
May demotivate staff if targets are too high and unrealistic,also if imposed rather than agreed
Requires the cooperation of all employees to succeed The development of objectives can be time consuming,
leaving both managers and employees less time in whichto do their actual work.
The elaborate written goals, careful communication of
goals, and detailed performance evaluation required in anMBO program increase the volume of paperwork in anorganization.
Can be bureaucratic and time consuming (meetings,feedback)
Can encourage short-term rather a more focused long-
term growth Objectives may go out of date and can restrict staff
initiative and creativity Setting targets for certain specialised employees may be
difficult
S G S O O
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DISADVANTAGES OF MBO
Difficulty in setting agreed, harmonized goals
Danger of inflexibility Individual over collective effort
It underemphasizes the importance of the environment inwhich the goals are set
It did not address the importance of successfullyresponding to obstacles and constraints as essential toreaching the goal
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MAKING MBO PROCESS EFFECTIVE
If MBO is to be successful, it must start atthe top of the organization
Employees must be educated about whatMBO is and what their role in it will be.
Managers must implement MBO in a way thatis consistent with overall organizational goals.
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Managers tell their subordinates what
organizational and unit goals and plans top
management has established.
Managers meet with their subordinates on a
one-to-one basis to arrive at a set of goals foreach subordinate that both develop and to
which both are committed.
Goals are refined to be as verifiable as possibleand achievable within a specified period of time.
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Goals must be written and very clearly stated.
Managers must play the role of counselors in
the goal-setting and planning meeting.
The meeting should specify the resources thatthe subordinate will need
Conducting periodic reviews
The employee is rewarded on goal attainment.
MASLOWS NEEDS THEORY
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MASLOWS NEEDS THEORY
We each have a hierarchy of needs that ranges
from "lower" to "higher." As lower needs are
fulfilled there is a tendency for other, higher
needs to emerge. Daniels,
2004
Maslows theory maintains that a person does
not feel a higher need until the needs of thecurrent level have been satisfied. Maslow's basic
needs are as follows:
MASLOWS NEEDS THEORY
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EsteemNeeds
Self-
Actualization
Safety
Social Needs(Love & Belonging)
MASLOWS NEEDS THEORY
Basic Human Needs(Physiological)
Food, Air, Water,
Clothing
Protection, Stability, Pain
Avoidance, Routine/Order
Affection, Acceptance,Inclusion
Self-Respect, Self-Esteem,
Respected by Others
Achieve full potential,
Fulfillment