For every organization, there comes a time when they need to evaluate the performance of their employees to ensure that the team is heading in the right direction. This is where performance appraisal systems have become the Apple in the Eye for Human Resource departments across organizations. Irrespective of the industry most of these appraisal systems follow the famous Management by Objectives philosophy to evaluate employee performance and ascertain how well the organizational and management objectives are being met by the staff. Management by objectives or MBO as it is more widely known is not a new philosophy. The word was coined by none other than the famous Peter Drucker, one of the pioneers in management lessons. He used it in his famous book “The Practice of Management” way back in 1954.

So what is management by Objectives?

By definition, according to the Peter Drucker MBO standards, it is a management model conceived to create positive changes in the performance of an organization by creating a well-defined objective compliance framework between employers and employees. Both the employee and their employer would have to agree to the objectives that are set. Based on the set objectives, the employee is assessed periodically from time to time to see the progress and appraisal discussions are held to identify lags and gaps and take appropriate action. In theory using MBO should create an ideal scenario wherein both employees and employers have a say in goal setting based on objectives and this would ultimately lead to better commitment, loyalty and transparent governance within the organization. For businesses this would allow them to align their entire organization to their desired objectives which were defined in a combined participation of all stakeholders.

Management By Objectives

So what exactly are the MBO criterion that top performing organizations follow?

Across HR circles, MBO is widely adopted by following the SMART practice. SMART stands for

  • Specific
  • Measurable
  • Achievable
  • Relevant
  • Time-Specific

The practice of SMART can be followed effectively by organizations that want to have a great work culture. Peter Drucker himself has laid out five important steps that an organization must execute to follow this SMART practice. Let’s have a look at the 5 steps:

Step 1: Make sure that the objectives to be followed are established clearly by all managerial stakeholders and that these objectives are in tune with the actual vision and mission goals of the company.

Step 2: It is to be made an absolute necessity that every single employee of the organization, irrespective of the department that he or she works in, is made aware of the clear cut definition of the organizational objectives and that they understand it fully and clearly.

Step 3: While setting individual or personal objectives, ensure that the concerned employee is involved right from the initial thinking phase to the final defining phase as they would have more interest in following an objective that has been created with their active contribution as well. These personal goals are the stepping stones to achieving the larger corporate goal of the company and as such it is very essential to get their involvement.

Step 4: This is the part where employees are continuously monitored and their performance is measured. Both the monitoring and measurement are done by comparing actual work they do with the specified goals and objectives that have been set for them and was agreed for commitment as well by the employee.

Step 5: This is where employees are rewarded for achieving their goals and in the process meeting corporate objectives that have been set for them. Feedback integration is also done here, where managers and peers reveal feedbacks about interactions with each other and these are collated by concerned HR personnel for further analysis and decision making.

The key behind the success of the MBO system is the transparency it ensures in the decision making process. However several experts claim that the management by objectives process has many flaws and is often one sided with employees at the receiving end of the disadvantages. Many a time MBO enabled human resource management policies will result in managerial stakeholders enforcing tight and unrealistic objectives on employees (which is a clear violation of the SMART principle) in order to keep a check during performance appraisals.

On this note, let us have a sneak peek into the management by objectives advantages and disadvantages to get a clear idea.

Advantages of management by objectives

The biggest advantage is that MBO provides a framework to identify and plan for organizational goals to be realized in due time. Unclear goals and objectives are one of the major drawbacks of enterprises today with respect to their workforce management and with MBO a great deal of this problem is solved. With the correct planning, scope of errors are reduced and it allows for greater collaboration and proactive contribution to teams from employees. Besides it also facilitates a disciplined and well laid out path to achievement of personal and corporate organizational goals. This would help companies to prepare for worse scenarios like emergencies or in other words create a perfect contingency plans for any kind of hindrances. With increased efficiency, resources can be better utilized and higher satisfaction levels of employees (If MBO is followed strictly) would result in overall employee morale improvement.


Disadvantages of Management by objectives

MBO as we said before comes with its own share of disadvantages which arise mainly due to the incorrect implementation of the SMART principles as laid down by the Peter Drucker management by objectives processes and theories. There would be instances where tasks would be small and setting goals for them would sound very odd. But if goals are mandatorily set for such tasks just for the sake of setting goals, then the entire picture would turn bad. At times individual tasks need to make way for collective responsibility and in such cases setting individual priorities and goals do not make sense. The biggest disadvantage however is the organization failing to acknowledge changes in their business that have to be brought about for competence and ultimately failing to update their objectives according to these changes.

So as you can see, management by objectives is a great way to bring about an organizational compliance and management but it is not without its share of flaws. Successful companies ensure that their performance appraisal mechanisms make use of the best practices of MBO to gain best results. For this to happen, it is always necessary to have a streamlined performance appraisal management tool like SuccessDart to effectively cater to your workforce needs. Get in touch with our experts today to find out how SuccessDart can help your organization implement MBO easily in the shortest time frame and economically.


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