Benefits of Mbo

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  • Topic: Management, Goal, Management by objectives
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  • Published : November 28, 2011
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Benefits of Management by Objectives (MBO)

Nicole I. Claro

Grantham University

In this research paper, I will explain Management by Objectives (MBO) as it has been developed and adapted throughout the years, but based on the works and theories of Peter Drucker, the inventor of MBO. I will also discuss in some depth, 5 benefits that come from implementing MBO within an organization. The MBO process has 4 major activities that must occur in order to be successfully achieved within an organization. These activities are to 1st set goals, 2nd develop an action plan, 3rd review progress and 4th appraise overall performance. The paper will explain why these steps are important in the achievement of MBO in an organization. In explaining the activities needed to achieve MBO I will also be explaining S.M.A.R.T. goals. S.M.A.R.T is a helpful method to help someone remember the steps needed to walk through the process of setting objectives. In conclusion I will have explained MBO and the key components that make up MBO along with showing examples of benefits of utilizing MBO within an organization.

Benefits of Management by Objectives (MBO)

Management by Objectives (MBO) is a systematic approach that focuses on specific goals set for an organization. These objectives are decided and agreed upon between all players within the organization, both management and employees. By doing this, it allows the employees to be fully aware of the organization’s goals and to understand what is expected of them individually. This is to encourage the employee to set their own personal goals and by doing so, they are helping to achieve the organization’s objectives. The MBO approach has been deemed by many to have originated in the book ‘The Practice of Management’ written by Peter Drucker in 1954 (Kotelnikov, 2011). MBO is an extremely popular way to manage an organization and is still widely used today. However, because it is such a well implemented system into most businesses, MBO has become part of the day to day process of a good management system within a company. Many do not recognize it as a management theory any longer; it has been changed to be called, ‘Goal Alignment’ as suggested in (Schermerhorn, 2011, p. 198-199). However, the end result is still the same; management by setting goals and implementing a plan to achieve those goals, both individually and as an organization. MBO requires four major activities to occur; however, some studies break the steps down into five. The four step procedure has been outlined in ‘Understanding Management’ (Daft & Marcic, 2011), these four steps are: set goals, develop action plans, review progress and appraise overall performance. Other studies have added a fifth step; continuous monitoring, this usually falls between the second and third steps. Essentially in the four step process this fifth step is incorporated into the third step. In order to understand MBO, we must first understand the four steps and why they are important. The first step setting goals, involves all the employees within the organization. Their focus is to determine what the main goals and organizational objectives are. Many times these objectives are also stated in the organization’s mission statement. An example of this is with the company Home Depot. Home Depot has a list of eight core values that are encouraged daily: excellent customer service, taking care of our people, giving back, doing the "right" thing, creating shareholder value, respect for all people, entrepreneurial spirit and building strong relationships (“Values”, n.d.). For MBO to work, it is necessary for the organization to be clear and concise about their objectives. Without it, the employees would not be able to set their individual goals to work towards the companies objectives. “Ideally the best situation would be for the organization and employees to...
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