The term management by objectives was firstly described by Peter Drucker in his book “The Practice of Management” in 1954. It is a system whereby the subordinates and the superiors come together to identify common goals and objectives and deciding the course of action to be followed. The principle behind MBO is to make sure that everybody within the organization has a clear understanding of the goals and objectives. Management by objective is practiced around the world. It is an overall philosophy of management that concentrates on goals and end results.
Process of MBO
1. Setting objectives
The first step in MBO process is setting organizational goals and objectives. Subordinates are actively involved in formulating goals at every level in the organization.The top management tries to make these objectives realistic and specific.The goals may be long-range, medium-range or short-range. After setting such goals, they should be communicated to all the members. Time factor and availability of resources are also considered in setting goals and objectives. Further, in setting objectives, it is necessary to identify "Key Result Areas” (KRA).Key result area is an area where performance is essential for the success of the business.
2. Making Plan
After setting objectives, the superiors and subordinates collectively make an action plan. The plan is developed to achieve goals and directly relate to each goal. The management must ensure that the plan is attainable and achievable. Action plans are made for both individuals and for departments.
3. Implementation of plan
Once the plan has made, specific responsibilities are assigned to different departments, divisions and individuals to implement it. It also requires allocation of necessary resources to perform the assigned responsibilities. If any guidance is required by subordinates, they can take guidance from their superiors.
4. Monitoring performance
This is the last step in MBO process. Here, the superiors and subordinates periodically monitor performance with the planned objectives. If there are any deviations, then they discussed and take immediate corrective actions to avoid deviations from predetermined objectives. Usually,periodic review and monitoring are done at departmental levels.
Benefits of MBO
1. Development of effective control that measures performance and lead to take corrective action.
2. It helps in locating weak and problem areas because of improved communication and organized structured.
3. Encouragement of commitment to personal and organizational goals.
4. It is the basis for organizational change as there is a constant process of interaction between superiors and subordinates.
5. Orderly growth and development of organization by means of predetermined set of goals and objectives.