Management by Objectives

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Management by Objectives

Motivating employees seems to be a challenge for managers - Discuss the advantages and disadvantages of the MBO program and provide at least one example to support your discussion.

Goal-Setting Theories have evolved since the 50s and have an impressive documented literature. The Goal-Setting Theory addresses the issues that goal specificity, challenge, and feedback have on performance (Robbins, 2009, p185). Setting goals and motivating employees are always an important issue for a manager, however in certain cases it is difficult to make it operational. A more systematic way to utilize goal setting is with the management by objectives program (MBO), which introduced the system of SMART method of goals that are specific, measurable, achievable, realistic and tangible. MBO itself was first outlined by Peter Drucker in 1954 in his book “The Practice of Management”, in which he highlighted the principles of MBO: cascading of organizational goals and objectives, specific objectives for each member, participative decision making, explicit time period, performance evaluation and feedback. The concept by Peter Drucker can be found here: The 5 step MBO process (Drucker, 1954, The Practice of Management)

As further detailed by Robbins (Robbins, 2009, p187-188) the organization’s overall objectives are translated into specific objectives for each succeeding level (divisional, departmental, individual) in the organization (Cascading of objectives (Robbins, 2009, Organizational Behavior, p188). Because all levels participate in setting their own goals this program can work both from the “top down” and also from the “bottom up”, which at the end results in a hierarchy of goals and objectives among the different levels.

Indeed, Management by Objectives can be a very efficient tool for management inefficiency when objectives are known, however as Drucker later in the 90s highlighted in an interview, in reality 90% of the time objectives are not known.

MBO systems differ greatly. Some are used for the organization as a whole; others are prepared for only sub-units. Methods and approaches used by managers can vary also significantly, for instance “in the US the emphasis appears to be more on human needs and motivation and increasing subordinates’ participation in setting objectives while in the UK, MBO is used mainly for corporate strategy and planning” (Martin Hahn, 2007:1).

Effective use of MBO depends on every manager having very clearly defined objectives. These objectives must also be part of the contribution to other objectives of the company. The important thing is to ensure that the individual’s objectives are related to the common goal of the organization. Although the method Management by Objectives was largely used in the 60s and 70s, it needs to be highlighted that it is not the only method and like any process or tool it also has its advantages and disadvantages which are worth to be considered before used.


• Employees are involved in setting of objectives, thus their involvement improves communication and morale

• Collective contribution toward goals, motivation for team-work

• All levels have clear idea on their goals and on the work that needs to be done to achieve these objectives, thus proposals on improvements can come from all levels

• Goals are clearly specified and measurable, thus they seem more approachable as well

• Commitment toward achieving unit or company objectives

• Continuous feedback on performance and monitoring

• Feedback and monitoring can serve as a good base for staff appraisal


• The introduction of the process needs time

• Planning and development of clear objectives for all levels can be lengthy

• Too much paperwork

• Difficulties of measuring certain activities/actions

• The achievement of certain goals may be at the expense of others

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