Access a huge variety of world-class coaching programs at an affordable price.
It’s also a surprisingly positive outlook on doing business.
Like many frameworks and philosophies in the business world, it was coined by uber-influential management writer Peter Drucker back in 1954. His book, The Practice of Management, explained how this method can be used to align an organization's goals with its resources, bringing a unified direction to the often chaotic world of business.
It might not sound like the most groundbreaking or exciting way of doing things, but the ultimate aim of MBO is success. And pretty much everyone wants that in some form or another.
Believe it or not, some companies and their owners can shy away from setting definite objectives, even when large sums of money are involved. The 'visionary' attitude that goes hand-in-hand with exciting startups can be hampered by a lack of realistic goal-setting, so Management by Objectives can bring some much-needed clarity to pioneering entrepreneurs.
But does this 1950's doctrine still hold up in today's business landscape? Is it a useful way of doing things for progressive, mission-based enterprises? Or is it an outdated work theory for a world gone by? Let’s take a look.
Management by Objectives (MBO) is a business strategy that is used to provide direction to business activity. It helps managers and employees work together to improve performance, make better decisions, and focus on their most important objectives.
The theory behind it is that employees will be more committed and productive if they're involved in the process of setting goals.
It's a process of decision-making, delegating responsibility, and then executing on those decisions. It's a more systematic way of doing things than some people might be used to; I've certainly had roles where a good portion of my job involved looking for things to do before I did them. MBO would have prevented that kind of situation by providing a more structured set of goals, over timelines going from days to weeks to months to a year.
So rather than having a general idea of what you need to do at work (with the burden of constantly figuring out the specifics), MBO provides you with clearly defined objectives that you and your management agree on.
These would be, in Drucker's view, objectives that are challenging but achievable, with rewards built in as incentives rather than fear of failure as a motivator. They should be aligned with positive experiences of growth and development, and should work just as well for the individual as they do for the company.
Although the method was formulated many decades ago, it can still fit in nicely to modern corporate cultures, including high-tech startups and entrepreneurial environments that are all about the positive vibes.
Let's have a look at the benefits and drawbacks of MBO, and how it actually works out in practise.
So does MBO actually work? Considering it's still talked about 70 years after its inception, you'd have to assume it's had a significant impact on the business world.
Large-scale studies on specific MBO programs aren't so common, so there isn't a ton of quantifiable evidence to justify it with, but some of the concepts MBO is built on are so intrinsic to organizational performance that it's obviously been practised by countless companies without formalizing it as an actual doctrine.
That said, one 2018 study, published in the European Journal of Business and Management, looked at MBO in the context of the Kenyan Department of Tourism. The study assessed the influence of MBO-related performance appraisal techniques on the motivation of civil servants working there.
The values and goals of the organization anchored the program; it was intended to maximize performance and service delivery within the Department, "promote transformative leadership within the Government of Kenya", and "improve public service delivery that meets expectations of the citizens and other clients". The program intended to align those broader goals with the individual efforts of workers.
The result? A significant majority of employees agreed that objective setting in an MBO context led to increased motivation at work for them. A majority also agreed that performance feedback within the program boosted their motivation. Combined overall performance increased, too, throughout the studied cohort. The combination of helping to achieve organizational goals, as well as incentives for their own performance such as salary increases, promotions, praise, recognition, and extra training, made for a positive, determined workforce.
Most companies can make a success out of MBO if it's implemented smartly. But in the interests of balance, let's take a look at the advantages and disadvantages of the MBO methodology.
The most noticeable thing about MBO is that it's a collaborative method. That might not gel with your corporate culture if you're used to high power distance - having a large gap between the power of subordinates vs. their superiors.
But it's absolutely worth trying if you want more enthusiasm and buy-in from your workers, even if you don't think full creative autonomy is something that'll work for them.
We'll go through the steps to actually implementing MBO below, but these are the fundamental aspects of the method that Drucker recommends to make it work.
This setup allows managers to pace work accordingly and create a more productive environment. As a result of the ongoing feedback efforts, employees see their own accomplishments as they complete each objective, reinforcing their sense of achievement.
That's the bones of it. Interested in implementing Management by Objectives into your organization, company, project or team? Here's what you need to know about making it happen.
Start at the start: the first step is to decide what you want to achieve as an institution.
Organizational objectives are going to be based on the mission and the vision of the company, so you'll have to start high up in the abstract. Your vision might be something like "inspire humanity", "accelerate regional transition to sustainable energy" or a similar lofty intention. This is a great starting point, but we need to drill down from here.
After your vision is identified, get more specific by drawing up objectives that help make that vision a reality. If you want to inspire humanity, how do you define 'inspire', which demographic can you realistically reach, what action do you want people to take, and in what time period?
At this point it's time to bring out an old favorite: SMART criteria. This is all about making sure your goals aren't pie-in-the-sky intentions, but realistically doable targets. Make sure they are:
Now, it's time to translate these organization-wide objectives to employee goals that serve the same purpose.
The organizational objectives have to be understood by employees. If they're given tasks without really understanding why they're being asked to do them, motivation won't come easily.
The overall philosophy behind MBO hinges on this critical part: essentially, it's about defining and opening communication channels between managers and employees to set up the democratic nature of the project.
So, in step two, you must translate the organization objectives into operations-level employee objectives collaboratively - discussing with employees to determine what's acceptable, how responsibility will be shared, and what benefits they'll get out of it. Goals can't be set by one side - they have to be agreed upon by both. Understanding and setting expectations properly is key here.
Once everyone is aware of their objectives and willing to participate, it's time to start executing on them and see how things work.
The focus of this part is on doing the work needed to achieve the desired outcome, and deepening the joint involvement between the parties in achieving the goals that have been defined.
By now, plans should now have been discussed properly with the employees, and expectations of responsibility set, so it's time to get them moving.
During execution of the plans, it's really important for management to provide the resources and support necessary to help workers achieve what's being asked of them. Without this, failure and resentment can appear and blame can be thrown around.
Another crucial part of MBO is the monitoring of progress - if it's not measured, it's not managed.
Compare the goals that were set with timelines for completion. Are you behind or ahead of schedule? Did you use the expected amount of resources? Were there any unexpected obstacles that you can better prepare for?
Observe projects as they happen to make sure tasks are being delegated properly and are aligning with personal objectives. Remember, this is all about engagement and worker buy-in, so if you find that employees aren't enjoying or learning from these experiences, it's time to change things up - otherwise you risk losing them.
The system can fall apart if it's left alone unchecked, so be diligent with recording and monitoring - just don't feel tempted to micromanage, which often ends up with resentment and inefficiency.
Finally, it's time to recognize the achievements that have been made and reward them accordingly. Remember, MBO is about positive reinforcement, rather than negative punishment, so if things haven’t gone to plan, constructive criticism is the way to go.
After a successful performance evaluation, employees need to be rewarded right - and you need to deliver on your promises. Whether it's small gestures of appreciation or significant financial bonuses, keeping to your word ensures everyone will trust you and be more likely to enthusiastically participate next time you're making plans.
The warm glow of a job well done will emanate through the workplace, and when this happens, it's just a much nicer place to be. Properly rewarded success can really lift a company, and after an appropriate rest, your employees should be raring to go again for another taste of glory.
So are you going to implement Management by Objectives in your business? It's not the most fashionable methodology in business. In fact, Peter Drucker himself downplayed the importance of adhering to its structure:
"MBO is just another tool. It is not the great cure for management inefficiency … Management by objectives works if you know the objectives: 90% of the time you don't."
But even if you don't follow it exactly by the book, you can still take inspiration from its practical, results-based outlook. Knowing your objectives is surprisingly easy to dismiss when you're awash with creative ideas and enthusiastic colleagues. But getting smart about things and defining what you want to get before you get it - that's a pretty good way to make great things happen.