Everything you need to know about the process of management by objectives.
MBO has been described as a “process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individual’s major areas of responsibility in terms of results expected of him and use these measures or guides for operating the unit and assessing the contributions of each of its members.
MBO has an objective in itself that focuses on changing behaviour and attitudes towards getting the job done. MBO is essentially results-oriented, it is performance that counts. It is a management system and philosophy that stresses GOALS rather than METHODS.
It provides responsibility and accountability and recognizes that employees have needs for achievement and self-fulfillment. These needs are met by providing opportunities for participation in goal setting process. MBO believes in involving subordinates in this way in planning their own careers.
The process of management by objectives involves:-
1. Defining Organisational Objectives 2. Goals of Each Section 3. Fixing Key Result Areas 4. Setting Subordinate Objectives or Targets 5. Matching Resources with Objective 6. Periodical Review Meetings 7. Appraisal of Activities 8. Reappraisal of Objectives.
Process of Management by Objectives: Steps, Process and Stages
Process of Management by Objectives – Establishing Goals, Action Plan and Performance Review
Process # 1. Establishing Goals:
The first step in an MBO programme is the establishment of clear and concise goals of performance which are understood and accepted by both superior and subordinate. Initially, the superior determines his objectives and general programme. Then, he meets his immediate subordinates and explains his objectives and plans for the group. There is little emphasis on specific goals at this stage.
The focus is on transmitting the information. Once a second-level subordinate knows what his objectives are, i.e., what is expected of him by the superior, he schedules a meeting with his operating and staff personnel. He informs the group the goals and the action plans that he has agreed to with his superior.
In all these goals-setting sessions, the emphasis is on setting measurable goals. For example, goals might be defined in terms of specific increase in sales volume, production, output or quality improvement.
According to George Odiorne, successful MBO programme must establish two types of goals- performance goals converting overall organisational objectives into specific objectives for organisational units and individual members (production quotas, sales volume); and personal development goals allowing the individuals to develop their knowledge, skills potential, etc. and prepare them for future.
The goals which are fixed ultimately should have certain important characteristics:
(i) Clear, concise and unambiguous;
(ii) Accurate in terms of the true end-state or condition sought;
(iii) Consistent with policies, procedures and plans as they apply to the unit;
(iv) Within the competence of the personnel; and
(v) Interesting, motivating or challenging, wherever possible. Setting objective is a difficult task.
“It requires intelligent coaching by the superior and extensive practice by the subordinate.” Superiors must avoid the temptation of setting ‘blue-sky’ objectives for subordinates and avoid the practice of imposing goals on subordinates by dominating the goal-setting sessions. As far as possible, they must listen to, and help subordinates develop clear and mutually agreed-upon goals.
The key to success is the ability to walk the fine line; allowing meaningful participation to subordinates. To avoid ambiguity, it is necessary to spell out areas in which subordinates have some latitude, so that they understand what their decision limits are.
Process # 2. Action Plan:
The action plan is the means by which an objective is achieved. The action plan will set out in detail exactly what is to be done, how the subordinate will proceed, what steps will be taken, and what activities will be engaged in, as the subordinate progresses. There are two ways of developing specific action plans, they may be developed by both manager and subordinate or by the subordinate alone.
To ensure success, the superior must be willing to sit with each subordinate and review action plan, once it has been developed. The periodic review process helps the superior to monitor progress toward goals achievement.
It helps in searching for better and more efficient methods of accomplishing goals, finding out the feasibility of implementing the earlier objectives, uncovering barriers to accomplishment, etc. If the subordinate does not appear to be on the right course, the performance objective can be modified or the subordinate can be redirected to display more productive behaviour.
Process # 3. Performance Review:
MBO explicitly incorporates periodic and quantitative appraisal within its framework.
According to Levinson, such an appraisal can:
(i) Provide feedback to personnel regarding their actual performance;
(ii) Provide the basis for identifying more effective job behaviour; and
(iii) Offer vital information to managers relevant to future job assignments and to compensation decisions.
In MBO process, performance appraisal involves short-range and long-range evaluation in which superiors discuss with subordinates and find out problems encountered in efforts to achieve predetermined goals.
In actual practice, this type of give-and-take session is extremely difficult to achieve and rarely reaches its potential value, unless managers are gifted with necessary interpersonal skills.
Performance appraisals must be based on mutual trust and confidence between managers and subordinates. In actual practice, however, appraisal takes place for the purpose of determining rewards and punishment; judging the personal worth of subordinates and not the job performance.
As a result, appraisal sessions become awkward and uncomfortable to the participants and intensify the pressure on subordinates while giving them a limited choice of objectives. Insecure subordinates may come to ‘dread’ the sessions and they may not feel free to communicate honestly and openly without fear of retaliation.
Often, as pointed out by McGregor, managers do not like to assume the evaluator’s role and have face-to-face confrontations with subordinates.
Process of Management by Objectives – Setting Objectives at the Top, Clarifying Organisational Roles, Setting Subordinates Objectives, Periodic Review & Final Performance
MBO is used to plan goals for the employees through their own participation. The goals will act as motivational factor and help in increasing employee efficiency. The setting of goals is not a simple thing. It requires lot of thinking and planning.
The setting of objectives requires following steps:
Step # 1. Setting Objectives at the Top:
The first step in MBO process is to analyse the purpose or mission of the organisation. This exercise is undertaken at the top level. The mission of the organisation will be converted into goals for a given period, it may be for a quarter, half year, a year, 5 years or more. In many cases objectives are set to coincide with the completion of a project or with an annual budget. This may not be desirable.
Some goals may be set for a short period while some may be for a longer period. Generally as we go downward in the hierarchy the period for objective setting is short. At the operative level the objectives may be for a week or a month.
Step # 2. Clarifying Organisational Roles:
Sometimes organisational roles are not properly clarified and specific responsibility for attaining the objectives is not fixed. There should be clear cut assignment of tasks and fixation of responsibilities. In some cases the responsibility of one person for a particular task may not be fixed.
For example, the development of a new product may be the responsibility of research, production and marketing managers. Such activities can be put under the overall command of a particular person, say product manager. In the absence of such a command specific responsibilities for taking up separate tasks be given to concerned managers. So organisational roles should be clearly, spelt out.
Step # 3. Setting Subordinates Objectives:
The subordinate managers should be informed of general objectives, planning premises and strategies of the company. The superior should then discuss with the subordinate about the objectives which he can accomplish, time frame for them and the resources required. The feasibility of such goals for the company is also discussed. The superior has to play an important role while interacting with the subordinate.
He should ask questions like what will be his contribution to the organisational goals? How can he improve his performance? What are the hurdles he faces in reaching has objectives? What changes he expects from superiors? How can the superior help him in his task? The answers to such questions can help in deciding the specific objectives of subordinates. The goals should be such which are practicable, realistic or achievable.
Step # 4. Periodic Reviews:
The objectives should be periodically reviewed to assess the performance. The superiors and subordinates have regular meetings and review the progress of objectives. In case the progress is not as per the plans then remedial measures are taken immediately. The weaknesses are identified and steps are taken to improve the working.
The review meetings do not find faults for slow performance but concentrate on improving the work so that stated organisational objectives are achieved. These meetings make the subordinates conscious that their progress is regularly reviewed and helps them to keep their performance as per the schedules decided earlier with his consent.
Step # 5. Assessing Final Performance:
At the end of a specified period the performance of individuals and departments is assessed. If the performance is as per the plans then all those involved are complemented. In case the objectives are not reached then reasons for low performance are identified. The performance of workers may not be up to the mark due to their skill or training.
Then they are given additional training and targets along with the things they need to improve their performance. There may be problem of resources or lack of co-ordination between persons or departments, all these causes are discussed and remedial measures are taken so that goals are reached in future.
Process of Management by Objectives – With Steps in Setting Up MBO
Fig. 34.1 shows different steps in setting up MBO.
(1) The first step is to clarify and set the common goals of the entire-organisation,
(2) To achieve the goals of the organization, any appropriate changes in the organization structure may be made; changes in titles, duties, relationships, authority, responsibility, span of control, and so forth, and
(3) Superior sets down goals for his subordinates; subordinates also propose goals for their jobs and select the areas in which they must be effective during the period of Company plan. Usually there are five or six vital areas where the subordinates concerned must think to obtain the desired results.
These results may be a straight drive to:
i. Some targets of growth,
ii. Achievement of greater efficiency, productivity or profitability, and
iii. Elimination of certain problems etc.
(4) Superior and subordinates sit together, discuss the objectives and reach on joint agreement on a subordinate’s goals to be achieved by him during a stated time period. In other words, the goals are jointly established and agreed upon in advance.
(5) Throughout the time period what is to be accomplished should be compared with what is being accomplished; necessary adjustments should be made and inappropriate goals or unattainable goals should be discarded so that resources are not unnecessarily wasted.
(6) The performance of all subordinates against their MBO plan (or targets) must be formally reviewed at predetermined times during the plan.
Usually a major review is made annually but it is advisable for quarterly reviews to be undertaken. In the latter, attention is given to the areas where progress has been slow or where some unforeseen bottlenecks have occurred. These may be due to poor performance of some other subordinate’s MBO achievements.
(7) Ultimately the performance of the entire organization should be reviewed with respect to the objectives set at the start. If there is a discrepancy between the objectives decided and those achieved, efforts should be initiated to determine the steps to be taken to overcome the problems responsible for the discrepancy. This sets the stage for the determination of objectives for the next time period and the entire cycle of MBO is started again from step 1.
Process of Management by Objectives – With Steps Necessary
The following steps are necessary in Management by Objectives (MBO):
1. Formulating Organizational Objectives:
The first step in MBO program is to determine main objectives of the business. The major objectives of the business. The major objectives of the business are survival and expansion. To achieve there major objectives, derivative objectives are set up. Different departments set departmental objectives. The objectives from top level to individual level are aimed at achieving the main business objectives.
2. Setting-Up Sub-Ordinate Goals:
The sub-ordinate goals are set at department level, section level, unit or individual level etc. The sub-ordinate objective will assign specific responsibilities to persons at various levels. Everybody in the organization should know what is expected of him? The sub-ordinate goals, in no way should be inconsistent with the overall objectives of all business. These goals should aim at contributing towards the overall business goals.
3. Periodic Meeting:
The ultimate aim of various objectives may be at any levels, should be to achieve overall business objectives. There should be periodic meetings to know the views of subordinate staff. The top level management will be able to know the views and difficulties faced by the staff in achieving need any modification, it should also be done to make the objectives realistic.
4. Performance Appraisal:
Evaluation of performance at the end of a period is essential to assess the work. The superior should evaluate the work of the sub-ordinates and find out deviations, if any. The persons whose performance is below the standard performance are penalized and those whose performance is outstanding are rewarded. The process of appraisal will enable the management to take collective measures if there are deviations in performance.
Process of Management by Objectives – 6 Step Process
MBO is a system which aims at achieving objectives of the organization, facilitating employee participation and making them more committed. As a process, MBO begins at the top level of the organization with the establishment of specific organizational objectives. Subsequently, objectives at the various other levels down the hierarchy are decided by mutual discussions and consultations by both superior and subordinates.
Thus, the process includes the following steps:
1. Establishment of overall organizational goals.
2. Establish specific goals for various departments, subunits and individuals.
3. Formulate action plans- identifying problem areas
4. Implement and maintain self-control
5. Conduct periodic review of the plans
1. Developing Overall Organizational Goals:
Define clearly the overall objectives of the organization. Such goal setting requires SWOT analysis. Goals must be set for all Key Result Areas and should be flexible. The methods of achieving the objectives also should be clearly stated. It should be clearly laid down that what business we are in? Why does our organization exist?
2. Establish Specific Goals for Various Departments, Subunits and Individuals:
Set goals for various levels in such a way that they contribute to the achievement of overall objectives. Manager at one level develops specific objectives in joint consultation with the subordinates, i.e., the manager at the next level. This process is repeated for all the hierarchical level in the organization. Every manager is both a superior and subordinate except for the top level and lower level managers. It enables each manager to know in advance what is really expected from him and what he will have to achieve.
3. Formulate Action Plans Identifying Problem Areas:
Action plan states what is to be done and how, when, where and by whom in order to achieve a goal. It focuses on methods of doing things. It identifies the resources and assistance required. It is generally developed by subordinates in conjunction with superiors so that different action plans do not work at cross purpose.
4. Implementing and Maintaining Self-Control:
Subordinates should be given considerable freedom to carry out their activities and implement their plans. Superiors need not get involved in the day-to-day activities. If subordinates encounter any problem, then the superiors can provide assistance and support.
5. Conduct Periodic Review of the Plans:
Periodic appraisal is required to measure whether the subordinate achieves his objective or not. It is normally carried out by the superior and subordinate jointly. In case of deviations, measures are taken immediately to correct them.
6. Appraise Performance of the Subordinates:
Periodic review acts as an input for recycling objectives and other actions. MBO is a not only a joint activity but also an interactive process. Therefore, what happens at one level may affect the other levels also. The outcome of appraisal at one level can be recycled to see that objectives have set properly at all levels.
Process of Management by Objectives (MBO)
(i) Preliminary Setting of Objectives at the Top Level:
The managers at the top level set the overall objectives by taking planning premises into account. These objectives set by the superiors are preliminary as they must be regarded as tentative and subject to modification as the entire chain on verifiable objectives is worked out by subordinates. Verifiable objectives are developed in terms of profits, market share, growth, expansion etc.
(ii) Clarification of Goals:
The relationship between the results expected and the responsibility for attaining them should be established as every goal and sub-goal should be someone’s clear responsibility and accountability.
(iii) Setting of Subordinates’ Objectives:
The organisation’s objectives should be accomplished by a number of individuals, if all the individuals are to be jointly made responsible for attaining its overall objectives. Therefore, each individual should be assigned a specific task and he must know in advance what he is expected to achieve.
In view of this, the subordinates’ objectives should also be set in conformity with the preliminary objectives of the company. In some cases, the preliminary objectives of the organisation may be modified or changed in view of abilities, strengths and weaknesses of the subordinates and their objectives.
(iv) Recycling of Objectives:
In fact, the final objectives are neither set at the top nor at the bottom, they are set after thorough consultations and discussions between the superiors and subordinates. Thus, it is a joint process requiring interaction and recycling among staff. This process creates a feeling of commitment and involvement of all staff at various levels.’
(v) Performance Appraisal:
Each employee should evaluate his accomplishment with the objectives set with the help of his superior. This appraisal provides him scope for correction and further improvement.
Process of Management by Objectives – Setting of Objectives, Revision of Organisational Structure, Establishing Check Points and Appraisal of Performance
The process of MBO revolves around the setting up of organisational goals and goals of various division and subdivisions. It is a never-ending process. The continuous nature of the process of MBO not only answer sustained concentration of efforts towards organisational objectives, but also helps in modifying objectives to suits the changed situation.
Steps in MBO:
Management by Objectives system comprises the following essential steps:
The first step while installing the system of ‘Management by Objectives’ in an organisation is to establish veritable objectives for various positions at various levels. Formulating goal, discussing them with subordinates and providing feedback based on these goals will do more to make the program work.
In order to set objectives of the enterprise, a detailed assessment has to be made of the various resources at its disposals. A market survey must be conducted to know what types of goods and services are required by the community. Proper forecasts should be made to estimate the demand and the business conditions in the country.
This detailed analysis would lead to highlighting of desirable objectives, both long range and short range. An attempt should be made to set specific goals in various key areas on which the survival and growth of the business depends. These are the objectives which the top management will tend to achieve.
The major activities of every enterprise are divided on some basis of departmentalisation; the top management must determine the objectives of every department. At this stage, the top management should discuss the objectives with their departmental managers so that a statement of agreed objectives may be evolved.
Each department sets its both long range and short range objectives with the approval of top management; this process of setting objectives is reported at lower levels of management.
At each level, objectives are set in verifiable units so that performance of every department and individual may be reviewed after the end of a particular period. Once this process is complete, there will exist a meeting of minds of each superior and his/her subordinates as to what is to be accomplished and why it is to be accomplished.
2. Revision of Organisational Structure:
When the goals for each individual are reset under MBO, there is a considerable change in the job description of various positions. This may call for a revision of the existing organisational structure. The organisational charts and manuals should be suitably amended to depict the change brought by the introduction of management by objectives. The job description of various jobs must clearly lay down the relationship with other job positions in the organisation.
Management by objectives ensures periodic meetings between the superior and the subordinates to review the progress towards the accomplishment of target of the subordinates. For this, the superior must establish check points or standards of performance for evaluating the progress of the performance of the subordinate.
Evaluation should be defined quantitatively as far as possible and the subordinates must understand them fully. This practice should be followed by every superior for each of its subordinates and it should lead to key result analysis, as targets and goals are represented in terms of results. The key result analysis should be reduced into writing.
It should contain the following information:
(i) The overall objectives of the job of the subordinate.
(ii) The key results achieved to fulfill the objectives.
(iii) The long-term and short-term priorities of tasks.
(iv) The scope and extent of assistance one may expect from the superior and related departmental managers and the assistance she/he must extend to other departments.
(v) The nature of information and reports she/he will receive to carry-out self-evaluation.
(vi) The standard by which his/her performance shall be evaluated.
4. Appraisal of Performance:
While informal performance appraisal of a subordinate is done by the immediate superior almost every day, formal appraisal at periodic intervals, needs to ensure that a thorough appraisal of performance is being done at least once or twice a year when the achievements are carefully analysed against the background of prevailing circumstances and given objectives.
The design and format of the performance review form will depend on the nature of the enterprise. The important benefit of MBO is that it does away with the judgemental role of the supervisor. The performance of every individual is evaluated in terms of the standards or end-results clearly agreed by the superior and the subordinate. Whenever MBO has been introduced, it has led to greater satisfaction, more agreement, greater comfort, and less tension and hostility between the superiors and the subordinates.
Under MBO the superior does not evaluate the individual concerned but his/her performance in terms of the standards set in advance. Moreover, the performance review is aimed to assist the subordinate to improve his/her performance in the future. It also helps in setting goals for the next period.
The continuous nature of management by objectives not only ensures sustained concentration of effort but also flexibility in adapting objectives to suit changing environment.
Process of Management by Objectives – With 6 Stages of the Process
The following are the stages of the process of the management by objectives:
Stage # 1. Organisational Objective Setting:
The first stage of the MBO is setting of the organisational objectives. The chief objective of every business is its development and extension. For the achievement of the chief objective, many subsidiary objectives are laid down. The activities done under the chief objective and the subsidiary objectives are extensively evaluated. These objectives are determined by the superior managers with the advice of the subordinate managers.
While determining these objectives case must be taken that they can actually be realised. Once these objectives are determined, every individual working in the enterprise must be informed about them so that they should understand the final goal of the enterprise of which they happen to be a part.
Stage # 2. Determination of Key Result Areas – KRAs:
After setting the organisational objectives, the key result areas are decided upon. Key result areas are those areas and activities in which the owners of the business have a special interest. These areas determine the priorities of the business. In short, it can be said that they are those areas which require special attention. Usually the chief key result areas in all the business are managers’ performance, profitability, market goodwill, social responsibility, financial resources, etc.
Stage # 3. Subordinates’ Objectives Setting:
After setting the organisational objectives, the subordinates’ objectives are determined. Subordinates’ objectives are determined at the departmental and individual level. While determining objectives at the departmental and individual level, it should be kept in mind that they are not different from the organisational objectives. Setting of the objectives at every level should be finalised only after consulting the subordinates. Such consultations motivate the subordinates.
Such motivated and inspired employees are helpful in the attainment of the objectives. Objectives determined at this level are short-term objectives. At this stage the actual work standards are also determined with the help of the subordinates.
Stage # 4. Matching Objectives and Resources:
The setting of the objective is meaningful only when the resources to achieve them are available. At this stage of MBO process the objectives and resources are matched. It is ensured as to what objective needs what resource for its attainment. This facilitates the distribution of resources. Like the setting of the objectives, the distribution of resources should also be done in consultation with the subordinates. In conclusion, it can be said that in the absence of proper distribution of resources the setting of proper objectives is meaningless.
Stage # 5. Periodic Meeting:
At this stage of MBO process the seniors and the subordinates hold occasional meetings in order to find out whether the expected work progress is being achieved or not. If it is not being achieved, the causes for it are found out along with the possible remedy. These meetings are held at regular intervals. Their purpose is to find out the weaknesses of the organisation so that immediate remedial action can be taken to avoid any loss.
The special thing about these periodic meetings is not to punish the non-performers and reward the true performers. It is an integral part of the MBO concept and an effort is made through its medium to ensure that the work is being carried out in a planned way and that the objectives of the organisation will be achieved.
The periodic meetings send a message to the employees that their boss is taking interest in their work. This raises their morale. In addition to this, the periodic meetings increase the possibility of the attainment of the objectives.
Stage # 6. Final Performance Appraisal:
At the end of a definite period, the actual work done by the subordinates is evaluated on the basis of the pre-determined standards. On the basis of the work evaluation the deviations are known. Those employees who do not achieve their objectives effectively are given the facilities of training so that they are able to perform better in future.
Management by objectives is repeated time and again in a regular business. The moment the work of a particular session is completed, the same process has to be observed in the next session.
Process of Management by Objectives (MBO) – Step by Step Process
The step by step process of management by objectives includes the following:
1. Setting Overall Objectives:
Top management sets the overall objectives for Keyresult Areas (KAs). A detailed forecast is made for five years. Keyresult Areas are specified areas which have greater impact on the organization, e.g., sales, production, customer service, capacity utilization, acquisition of funds, survival growth and so on.
While fixing objectives in Keyresult Areas, top management has to factor in behaviour of environmental variables, like change in Government policy, shift in consumer preferences, level of competition, technological advancement, potential demand for the product and the like.
These goals are communicated to all concerned in the organization. The goals fixed at this level should be measurable. It should be adapted to the requirements of changing business environment. In fixing objectives, top management engages with those groups which are concerned with implementation of such objectives.
2. Allocation of Objectives among the Departments:
Having determined overall objectives, targets, strategies and action plans are evolved and they are broken down department wise. In this phase, each departmental head sits with the subordinates and fixes the objectives for different leaders working in a given domain.
Both jointly determine the objectives in the light of skill level of employees, resources availability facilities availability, and so on. While fixing objectives, all other aspects like process of implementation, time of implementation, method of reporting performance and other matters are deliberated and determined.
3. Objective Setting in Unit:
Third phase involves supervisory managers sitting with their respective subordinates and determining the objectives. In this phase, objectives are set for each individual employee working in different segments of a department. Supervisors or team leaders fix objectives keeping in view the skill level, knowledge, competence and capability of individual employee concerned.
4. Action Programmes:
Having determined the objectives in various levels, action plans, are devised and the duties are allocated among the employees. Procedures for utilisation of resources and facilities are drawn up. Organization charts, job description, manuals are suitably adapted. Authority and responsibility associated with the job are defined. Areas meant for review are established in the stage.
5. Periodic Review:
As agreed upon in the action plan, superior and subordinates sit together and assess the level of performance in the light of targets willingly taken up by the subordinates. The constraints faced by the subordinates in accomplishing objectives set for the period are addressed and remedial measures are deliberated. Sometimes, if the target is perceived to be excessive, it is revised suitably. The superiors counsel die subordinates in sustaining the momentum in accomplishing the objectives.
6. Final Appraisal:
Final appraisal is made at the end of year. Total assessment of objectives unit wise and individually is made. When the target is achieved, suitable rewards are given to the achiever. Suitable remedial actions are initiated where the target is under achieved. Action plans are revised so as to accomplish the objectives.
Process of MBO – As Explained below
The MBO process is characterised by the balance of objectives of the organisation and individual.
The process of MBO is explained below:
1. Defining Organisational Objectives:
Initially, organisational objectives are framed by the top level employees of an organisation. Then, it moves downwards. The definition of organisational objectives states why the business is started and exists. First, long-term objectives are framed. Short-term objectives are framed talking into account the feasibility of achieving the long-term objectives.
2. Goals of Each Section:
Objectives for each section, department or division are framed on the basis of overall objectives of the organisation. Period within which these objectives should be achieved is also fixed. Goals or objectives are expressed in a meaningful manner.
3. Fixing Key Result Areas:
Key result areas are fixed on the basis of organisational objectives premises. Key Results Areas (KRA) are arranged on a priority basis. KRA indicates the strength of an organisation. The examples of KRA are profitability, market standing, innovation etc.
4. Setting Subordinate Objectives or Targets:
The objectives of each subordinate or individual are fixed. It is preferable to fix the objectives at lower level in quantitative units. There should be a free and frank discussion between the superior and his subordinates. Subordinates are induced to set standards themselves by giving an opportunity. If subordinates are allowed to do so, they may set high standards and the chances of their accomplishment are higher. In this way, the objectives or targets of the subordinates are fixed.
5. Matching Resources with Objective:
The objectives are framed on the basis of availability of resources. If certain resources (technical personnel or scarce raw material) are not adequately available, the objectives of an organisation are changed accordingly. So, there is a need for matching resources with objectives. Next, the available resources should be properly allocated and utilized.
6. Periodical Review Meetings:
The superior and subordinates should hold meetings periodically in which they discuss the progress in the accomplishment of objectives. The fixed standards may be changed in the light of progress. But the basic conditions do not change. The periodical review meeting is held during the period set for achieving the objectives.
7. Appraisal of Activities:
At the end of the fixed period for achieving the objectives, there should be a discussion between the superior and subordinates. The discussion is related with subordinates’ performance against the specified standards. The superior should take corrective action. According to Earl P. Strong, “Only by bringing company objectives down from long range to short range, from company level to individual position level, from pre-performance to post-performance and by penalizing for failure and rewarding for success can the effective programme of managing by objectives be accomplished.”
The superior should identify the reasons for failure of achieving objectives. The problems faced by the subordinates should be identified and steps should be taken to tackle such problems.
8. Reappraisal of Objectives:
An organisation is living in a dynamic world. There are a lot of changes within short period. The survival and growth of a modern business organisation largely depends upon putting up with the changing conditions. So, the top management executive should review the organisation’s objectives to frame the objectives according to the changing situation. According to Newman, Summer and Wanen, “Every manager must frequently reappraise the emphasis he gives to his various objectives. The job is like that of a captain of a large ship who is continually changing his speed and direction in relation to his present position, tides, winds and other conditions.”
Process of Management by Objectives – Setting of Objectives, Developing Action Plan, Establishing Check Points and Review of Performance
1. Setting of Objectives:
The process of MBO revolves around the setting up of organisational goals and the goals of various divisions and sub divisions. The goals of individuals are derived from the divisional or departmental goals. Major activities of every, enterprise are divided on some basis of departmentation. The management must determine the objectives of every division. At this stage, the top management should discuss the objectives with the divisional managers so that a statement of agreed objectives may be evolved.
Each department sets its long-range and short-range objectives with the approval of top management. This process of setting objectives is repeated at lower levels of management also. Objectives are set invariable units at each level so that performance of every division, department and individual may be reviewed after the end of a particular period. Once this process is over each supervisor and his subordinates meet together to discuss and formulate the objectives to be achieved, how and why.
2. Developing Action Plan:
As soon as the objectives and targets are set and approved, next step is to prepare action plan for their accomplishment. Both of them have, once again, to meet for the purpose. The meeting will lead them to key result analysis as goals are represented in terms of results.
The key result analysis should contain the following information:
i. Overall objectives for the subordinates.
ii. The key results that are to be achieved to fulfill individual’s objectives.
iii. Task priorities, long-term and short -term both, adherence to which is a must.
iv. The scope and extent of assistance that is expected from the superior and related departmental managers as well as the assistance that is expected to be provided to other departments.
v. Nature of information and reports expected to be received to carry out self-evaluation.
vi. The standards for performance evaluation.
3. Establishing Check Points:
MBO ensures periodic meetings between, the superior and the subordinate to review the progress towards the accomplishment of targets of the subordinates. The superior must establish check points or standards of performance for evaluating the progress of the subordinates. The standards should be defined quantitatively as far as possible and the subordinates must understand them clearly.
4. Review of Performance:
While informal performance appraisal of a subordinate is done by his immediate superior almost every day, formal appraisal at periodic intervals is usually done once or twice a year. The design format of the Performance review Form will depend on the nature of the enterprise. The performance of every individual is evaluated in terms of the standards and /or results clearly agreed to by the superior and the subordinates.
Whenever MBO has been introduced, it has led to greater satisfaction, more agreement, greater comfort and less tension and hostility between the superiors and the subordinates, Under MBO the superior valuates not the individual concerned, but his performance. Moreover the performance review is aimed at assisting the subordinate to improve his performance in the future. It also helps in setting fresh goals for the next period.