Management by objectives

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Management by objectives (MBO), also known as management by planning (MBP), is a management style involving the defining of specific objectives within an organization and subsequent deciding how to achieve each objective in sequence. It was first popularized by Peter Drucker in his 1954 book The Practice of Management. In this system of management, individual goals are synchronized with the goals of the organization, with employee performance being measured and compared with set standards. According to MBO theory, when employees themselves have been involved with the goal-setting and choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities.[1]

According to George S. Odiorne[citation needed], the system of management by objectives can be described as a process whereby the superior and subordinate jointly identify common goals, define each individual's major areas of responsibility in terms of expected results, and use these measures as guides for operating the unit and assessing the contribution of each of its members.

History

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Peter Drucker first used the term "management by objectives" in his 1954 book The Practice of Management.[2] While the basic ideas of MBO were not original to Drucker, he pulled from other management practices to create a complete system.[3] MBO draws on Mary Parker Follett's 1926 essay, The Giving of Orders. Drucker's student, George Odiorne, continued to develop the idea in his book Management Decisions by Objectives, published in the mid-1960s.[4][5] MBO was popularized by companies like Hewlett-Packard, which claimed it led to their success.[4][6] While the practice is used today, it may go by different names.[4]

The most recent research focuses on specific industries, specifying the practice of MBO for each.[7][8]

Framework

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Management by objectives is the process of supervisors attempting to manage their subordinates by introducing a set of specific goals that both the employee and the company strive to achieve in the near future, and working to meet those goals accordingly.[2] In the MBO paradigm, managers determine the enterprise's mission and strategic goals based on an analysis of what can and should be accomplished by the organization within a specific period of time. The functions of these managers can be centralized by appointing a project manager who can monitor and control the activities of the various departments.[9] If this cannot be done or is not desirable, each manager's contributions to the organizational goal is spelled out .[10] The five steps of MBO comprise:

  1. Review organizational goasl
  2. Set worker objectives
  3. Monitor progress
  4. Evaluation
  5. Give rewards

Application

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Many other corporations praise the effectiveness of MBO, including Xerox, DuPont, Intel.[11][12] In many large Japanese corporations, beginning in the late 1990s, MBO was used as the basis of "the performance-based merit system” (seika-shugi) which used clear numerical targets to measure performance in contrast to the previous system of non-specific contracts in Japanese companies.[13] MBO implementations often use management information systems to establish relevant objectives and monitor their "reach ratio" objectively.[14]

Limitations

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W. Edwards Deming argued that a lack of understanding of systems commonly results in the misapplication of objectives.[15] Deming also stated that setting production targets will encourage workers to meet those targets through whatever means necessary, which usually results in poor quality.[16] Point 7 of Deming's key principles encourages managers to abandon objectives in favour of leadership because he felt that a leader with an understanding of systems was more likely to guide workers to an appropriate solution than the incentive of an objective. Deming also pointed out that Drucker warned managers that a systemic view was required,[17] but he felt that Drucker's warning went largely unheeded by the practitioners of MBO.

In a 1991 comprehensive review of thirty years of research on the impact of MBO, Robert Rodgers and John Hunter concluded that companies whose CEOs demonstrated high commitment to MBO showed, on average, a 56% gain in productivity. Companies with CEOs who showed low commitment saw only a 6% gain in productivity.[18]

The limitations mentioned above, combined with the challenges faced by modern service companies, have led to the development of methods that integrate aspects of MBO but appear to be significantly more effective in application. These include, for example, the objectives and key results (OKR) method, which was developed by John Doerr (among others) and has been used successfully in many companies, notably at Google.[19] Agile management techniques also have a strong emphasis on goals. The group of management techniques that are based on goals, with a strong focus on engagement, team motivation and leadership, can be summarized as Management by Goals methods.

See also

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References

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  1. ^ Thomson, Thomas M. "MANAGEMENT BY OBJECTIVES" (PDF).
  2. ^ a b Drucker, P., The Practice of Management, Harper, New York, 1954; Heinemann, London, 1955; revised edn, Butterworth-Heinemann, 2007
  3. ^ LaFollette, William R.; Fleming, Richard J. (1977-08-01). "The Historical Antecedents of Management by Objectives". Academy of Management Proceedings. 1977 (1): 2–5. doi:10.5465/AMBPP.1977.4976584. ISSN 0065-0668. Archived from the original on 2017-03-09. Retrieved 2016-04-13.
  4. ^ a b c "Management by objectives". The Economist. ISSN 0013-0613. Retrieved 2016-04-27.
  5. ^ Lambert, Bruce (1992-01-23). "George S. Odiorne Is Dead at 71; Developed Theory of Management". The New York Times. ISSN 0362-4331. Retrieved 2016-04-27.
  6. ^ Hindle, Tim. Guide to Management Ideas and Gurus. New York: Bloomberg Press, 2008. Print
  7. ^ Xihuai, L. (2014). On Application of MBO in College.
  8. ^ Nouiri, Issam "Objective optimization tol for integrated groundwater management." Water Resource Management. November 2015. vol. 29 issue 14.
  9. ^ Raj, Ritu (October 24, 2012). "The Concept Of Management By Objectives". Ritu, Inc. Archived from the original on August 1, 2018.
  10. ^ "Multi-objective Optimization Tool for Integrated Groundwater Management (PDF Download Available)".
  11. ^ "Masterclass on Mission Statement from Gordon Moore, co-founder, Intel Corporation > Gtmhub team blog". 14 September 2016.
  12. ^ "Examples of Managerial Objectives". Small Business - Chron.com.
  13. ^ Gagne, Nana Okura (2017-10-06). ""Correcting Capitalism": Changing Metrics and Meanings of Work among Japanese Employees". Journal of Contemporary Asia. 48 (1): 67–87. doi:10.1080/00472336.2017.1381984. S2CID 158161722.
  14. ^ "基于动态平均数的烟草企业目标管理". 中国烟草学报. 21 (3). doi:10.16472/j.chinatobacco.2014.457. Archived from the original on 2018-02-13. Retrieved 2016-04-13.
  15. ^ Deming, W. Edwards, Out of the Crisis, Press, 1994, ISBN 0-262-54116-5
  16. ^ Deming’s 14 Points and Quality Project Leadership J. Alex Sherrer, March 3, 2010
  17. ^ Drucker, Peter, "Management Tasks, Responsibilities, Practices", Harper & Row, 1973
  18. ^ Robert, John E.; Rodgers, Hunter (1991). "Impact of management by objectives on organizational productivity". Journal of Applied Psychology. 76 (2): 322–336. doi:10.1037/0021-9010.76.2.322.
  19. ^ McGinn, Daniel (2018-05-04). "How VC John Doerr Sets (and Achieves) Goals". Harvard Business Review. ISSN 0017-8012. Retrieved 2022-03-08.