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Management by Objectives

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Management by Objectives (MBO) was first introduced by Drucker in the 1950’s as a system called ‘management by objectives and self-control’ (Dinesh & Palmer, 1998.) The original basis for the system, as defined by Drucker, was that an organisation would be more successful if “their efforts all pull in the same direction, and their contributions fit together to produce a whole, without gaps, without friction, without necessary duplication of effort…” (Drucker 1955, sited in Dinesh & Palmer, 1998.) The focus was on goal alignment as a way to improve organisational performance, and was thought, at the time to be the best way to increase profitability (D’Aveni, 1995.)

Drucker’s ideas were expanded on and implemented in 1960 by McGregor at General Mills and became known as ‘management by objectives.’ McGregor held that if an employee is directly involved in the goal setting process, they can be relied upon for self-control. Therefore productivity can be best improved by clarifying strategically aligned goals and coupling this with a related rewards system for achievement (Dinesh & Palmer, 1998.) Hence the concept of MBO (based on goal congruence) was held to be of most benefit at improving employee productivity if undertaken collaboratively.

Since its successful application at General Mills, MBO became increasingly popular during the 1960’s and 1970’s (Dinesh & Palmer, 1998.) The common elements of an MBO system are; objectives are established for all jobs in the firm; the use of joint objective setting; the linking of objectives to strategy; emphasis on measurement and control; the establishment of a review and recycle system (Reddin & Kehroe, 1974.) Hence MBO plays an integral part of the planning process for an organisation as it seeks to involve all employees in the process with the view that by collaboratively setting goals an increased commitment to attaining them will be achieved. It encourages employees to view their contribution to the organisation in a more holistic way, and in doing so positively affects motivation and hopefully leads ultimately to increased job satisfaction. It ensures that all members of an organisation are making contributions that are aimed at achieving the same organisation-wide goals and objectives.

Apart from the planning process, MBO plays a large role in the control process. By holding individual employees personally responsible for achieving pre-determined goals and objectives; that are ideally specific, time defined, challenging and measurable, (Schermerhorn et al, 2004) MBO provides a clear standard of what is expected in regards to employee ‘performance.’ Employees are able to effectively ‘self-control’ on the basis that they have a clear idea of what is expected of them in the form of objectives that they participated in setting.

When implemented effectively (which is problematic in itself; discussed later) MBO has definite advantages for an organisation. A major one relates to goal congruence and the fact that all employees’ efforts are geared towards achieving certain objectives that have been determined to be the most positive for the business. This is achieved by clearly focussing subordinates work efforts on the most important tasks and objectives and supervisors efforts on areas of support that will help the subordinate reach the agreed-upon objectives (Schermerhorn et al, 2004.) It is also suggested that MBO can have a positive affect on employee relations by involving subordinates and supervisors in face-to-face communication aimed at reaching collaborative conclusions. In this way it encourages people to work together, although not directly in teams, involving team-work. It can contribute to employee motivation and garnish powerful enthusiasm to fulfil one’s performance obligations as a result of the collaborative approach to goal setting (Schermerhorn et al, 2004.)

MBO is not, however, without its problems and failures. Many organisations that adopted MBO as a performance management system later claimed that it was more of a hindrance than a help (Van Tassel, 1995.) However, research into these early failings has indicated that it was more of an implementation problem than a problem with the basic philosophy of MBO. Bechtell (1996) and Reddin & Kehroe, (1974) find that the failure of MBO may be attributable to the fact that two core premises, namely goal congruence and focus on the human elements have simply been ignored.

One criticism that MBO has faced is that it is incompatible with TQM (total quality management) practices that emphasise collaboration, empowerment and teamwork. It is held that MBO places too much focus on individual performance (therefore de-emphasising teamwork) and too much focus on quantitative goals rather than the goal of continuous improvement (Dinesh & Palmer, 1998.) However, MBO in its intended form does emphasise collaboration and empowerment and can be easily adapted to involve teamwork. So it would again seem that it is the implementation, by focusing too much on scientific management principles, as opposed to the human relations model promoted by MBO, that is the problem here and not the basic premises of MBO.

One possible problem that relates to MBO is due to the increasing complexity and rapid change associated with today’s business environment. Current management theory emphasises flexibility and adaptability as the key to maintaining a competitive advantage over time. Therefore extreme care must be taken that objectives set in the MBO process don’t take too narrow a view of work tasks and goals. Because these are subject to rapid change/adjustment, perhaps MBO is seen as too time-consuming a process to justify if the goals and objectives themselves are subject to change within the time-frame set out for achievement of objectives. Despite this, MBO can still be used to target desired areas within an organisation, such as education, training and development. In this way organisations will be well equipped to deal with rapid change and the workforce will become more adaptable.

The major problem faced by MBO is in the actual setting of goals that are specific, time defined, challenging and measurable. Specific and measurable goals are becoming increasingly difficult to set due to a changing environment and the changing nature of work. Specific goals themselves reduce the adaptability of employees. Measurable goals indicate an easily determined output from an employee, which may be difficult given the nature of work, with many managerial and support roles not lending themselves to easily determinable output. Despite the problems this raises, with careful consideration, they can more often than not be overcome with a bit of lateral thinking as to what actually constitutes a ‘goal.’

Despite its problem, the MBO system, which is well aligned with the statement “if you want high performance from individual contributors, you must hire the best people, work with them to set challenging performance objectives, give them the best possible support, and hold them accountable for results,” (Schermerhorn et al 2004, p. 197) can still provide many benefits to organisations today. It may need to be slightly modified to fit in with a particular organisation, but the basic principles still hold true. By giving each employee clear goals, organisations can ensure each individual effort is sufficiently focussed on the tasks that are determined to be of the greatest importance in regards to achieving business objectives. Although it does seem to be focussed mainly on individual contributions, which may not fit in with the current climate aimed at team-building and effort, it can be modified to allow for an even more collaborative approach. By involving teams of people in the goal setting and holding teams responsible for achieving set objectives, MBO can foster greater relationship building and focus team effort towards the one (or more) goal.


Bechtell, M.L. 1996, ‘Navigating organisational waters with hoshin planning’, National productivity review, spring, pp. 23-42.

D’Aveni, R.A. 1995, Hyper-competitive Rivalries: competing in highly dynamic environments, free press, New York.

Drucker, P.F. 1955, Practice of management¸ William Heienemann Ltd, London.

Dinesh, D. & Palmer, E. 1998, ‘Management by objectives and the balanced scorecard: will Rome fall again?’, Management Decision, vol. 36, iss. 6, pp. 363-369.

Reddin, W.J. & Kehroe, P.T. 1974, Effective MBO for Irish managers, Mount Salus press, Dublin.

Schermerhorn, J.R., Campling, J., Poole, D. & Wiesner, R. 2004, Management: An Asia-Pacific perspective ,John Wiley and Sons Australia, Milton, QLD.

Van Tassel, J.D. 1995, ‘Death to MBO’, Training and development, vol. 49, iss. 3, pp. 2-5.

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