The concept of management by objectives (MBO) was introduced by Peter Drucker in 1954 as a means of using goals to improve people rather than to control them. It is based upon the assumption that involvement leads to commitment and when an employee participates in goal setting as well as setting standards for measurement of performance towards that goal then the employees will be motivated to perform better and in a manner that directly contributes to the achievement of organizational objectives. Management by objectives can be informal but typically it refers to a formal and comprehensive appraisal program.
The first step in creating an MBO is to establish the organizations strategic plan for the upcoming year and then create company specific goals. Next, create departmental goals together with each department head or supervisor. Each departmental goal must be discussed with all subordinates and then ask employees to set their own preliminary goals. This is how each employee can contribute to the departmental goals.
It’s important to clearly define the expected results. The departmental supervisors and their employees should set their short-term individual performance targets and the supervisor should also compare the employee’s actual and targeted performance goals.
The final step in the MBO process is to provide feedback and evaluate the individual progress.
There are some problems associated with MBO. Setting unclear objectives is one. The MBO must be specific, using an objective like “will do a better job in business operations” is useless. Secondarily setting up the MBO’s are very time-consuming and the entire process can take many hours for each employee, each year and this is in addition to the annual job performance appraisal. Also, setting the objectives with the employee sometimes turns into a battle. The more you know...