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Management By Objectives Explained

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Last editedOct 20212 min read

Management by objectives (MBO) is a technique companies use to boost employee morale and drive business performance. It’s a strategic goal-driven approach which aims to align an employee’s objectives with overall business goals. Managers and employees sit down together to outline individual objectives and tasks, and progress is tracked on a regular basis. In this post, we’ll aim to explain management by objectives and outline the key benefits of using a management by objectives model.

Steps to creating a management by objectives approach

Management by objectives is generally carried out as part of a company-wide initiative where managers at all levels meet with team members to hammer out goals that make sense in terms of the team’s and company’s assigned objectives.

Creating a management by objectives model generally involves the following five steps:

  1. Setting of organisation-wide goals: These are strategic goals set by senior managers based on the overall organisational vision.

  2. Setting of departmental goals: Goals need to be set for each level of the organisation. Managers set specific objectives for their individual departments and create an action plan for achieving these goals.

  3. Discussion of departmental goals: One of the characteristics of management by objectives is transparency around goal setting, especially in terms of how goals align with the company vision. Managers need to explain management by objectives clearly, so employees understand what’s expected of them.

  4. Setting individual goals: Managers and employees determine the individual tasks for each employee which can be done on a one-to-one basis. Employees discuss which goals they can achieve in a given time frame and with which resources.

  5. Providing feedback: As part of an effective employee management process reviews are carried out to ensure plans are being implemented correctly. If necessary, goals can be changed in order to fit with the plan. Employees are appraised on the performance regarding individual goals to prevent them from falling into difficulties.

Characteristics of management by objectives

The following are characteristics of a management by objectives approach:

  • All contributors can see how their individual work accomplishments are connected to the company’s top priorities.

  • A management by objectives management style is a useful way of building self-leadership skills and enables employees to tap into their creative sides.

  • A management by objectives (MBO) approach offers companies a way to allocate rewards based on an individual employee’s progress towards their objectives. Management by objectives is therefore useful when it comes to motivating individuals on the basis of their performance and encouraging them to succeed.

MBO is a working arrangement that enables companies to break down overall goals into actionable objectives for departments and team members. This approach should lead to improved productivity and reduced operating costs for a business.

Benefits of a management by objectives model

Management by objectives (MBO) is a strategic approach to boosting organisational performance. An important aspect of the MBO approach is the monitoring and evaluation of each employee’s performance. The idea is that if individual employees are themselves involved in the setting of their own goals they’ll be more likely to fulfil their obligations. Key benefits include:

  • Employees are better able to appreciate their roles and responsibilities.

  • Key result areas (KRAs) can be planned for each employee depending on their interests, skills and specialities.

  • Management by objectives often results in better teamwork, engagement, and communication.

  • Each employee feels they are playing a valuable part in helping the company achieve overall goals, which instils a sense of loyalty.

  • Managers are tasked with ensuring their subordinates attain their goals.

Employees are invested in the process and have a clear understanding of their roles and responsibilities. To ensure success with management by objectives it’s essential that the initial objectives are adequately designed. Then management by objectives (MBO) will help ensure concrete goals are implemented and acted upon.

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