What Is MBO: Effects of the Introduction of New Management Technology?

Active development of business, which has been observed in recent years, has given impetus to the spread of a new approach to managing the company. Every manager is interested in knowing beforehand what results the firm that has chosen certain way will come. This stimulated the emergence of innovation conceptions, one of which is the MBO.

The term was first introduced and popularized by Peter Drucker in 1954. The author describes the basic principles and approaches to the formulation and recommendations for monitoring the fulfillment of goals revealing the MBO meaning.

Features of Management by Objectives

There are several basic principles that allow you to effectively use the MBO system. Chiefly, purposes must be delivered not only for the organization but for every laborer who works there. In doing so, they should be a direct consequence of the overall corporate one. The MBO method provides two basic ways of setting tasks: a) one-time and b) functional. One-time tasks include those that are set once and, accordingly, the fulfillment of each of them must be controlled by the head separately. Functional tasks include ones whose fulfillment is “tied” to functions that the laborer is required to perform periodically, in accordance with his/her job responsibilities.

Priority tasks are set on the SMART principle. Thus, the objective should be unambiguous, so that the worker does not have a wrong understanding. It also needs to clearly articulate the criteria by which the results will be measured. These criteria can be both quantitative (in percent, money, pieces, etc.), and qualitative (in this case, it is necessary to accurately describe what we will consider worthy of the fulfillment of the aim). To do this, you need to create a working group that offers different indicators. Such union must necessarily include managers, financiers, HR and department managers, since people “from the outside” may not fully understand all the nuances and omit the very significant indicators.

Also, the goal needs to be achievable. If an employee finds it impossible, then most likely he/she will not make enough effort to fulfill it. The laborer should understand how the introduction of stated task contributes to the achievement of company’s plans, and to be limited in terms of its realization. There should not be many objectives in each level. The optimal number is considered to be 3-5 basic ones.

In order to ensure the alignment of aims to the company's strategy, they are developed “from the top down,” and for obtaining relevance to the employee – “from the bottom up.” The worker needs to be involved in decision-making. In other words, the forming a set of goals for staff should take place in the format of each employee's dialogue with the immediate supervisor. The discussion helps both the manager and the laborer to comprehend better what actions need to be taken to achieve the maximum result.

Benefits of MBO

Thus, the MBO method allows us to present a system of staff management in the format of a business process within the general supply chain and provides the opportunity to learn how to manage workforce using standard tools. Of course, the management by objectives is most effective in the organization when the whole company is subject to change, although a phased approach also has many advantages. First, it helps to rationalize the costs of restructuring the managerial system, and secondly, to get practical results before the completion of MBO principles and to minimize financial risks. So, it can distinguish the next benefits of MBO system:

  • increase the manageability of the firm;
  • work out quality standards for goods, services, and requirements;
  • improve the efficiency of employees; direct them to achieve results;
  • broadcast the strategy to personnel;
  • improve the system of interfunctional interaction, etc.

To “weak” sides, as a rule, carry:

  • Development costs, because the MBO requires a lot of time, effort, and resources;
  • This tool assumes the presence of a large team of participants;
  • The installation of the system requires more time than maintaining its work in the future.

The complement to the MBO system is performance management and measurement (PMM), which most fully systematized the issues related to evaluation, staff motivation, and its development. The result of PMM assessment is a list of tasks for the next period, as well as a development plan, employee training, and career advancement.

Thus, with the help of the Peter Drucker management by objectives, you can create a perfect system for motivating employees of the firm. But its introduction requires the company to have “mature” supervision. I.e., managers need the following skills such as planning, setting tasks, assessing subordinates, identifying development areas, the ability to provide feedback, etc. Therefore, the implementation of new control systems is often accompanied by extensive training programs for managers.