Management By Objectives (MBO)

Set, agree and review goals

Management By Objectives (MBO) is a term generally credited to Drucker from his work in the 1950's.

This way of working was later developed by McGregor who advocated it as an effective way of linking the setting of goals and targets to the performance appraisal.

MBO or variants of it have been widely deployed since its first conception across many industries.

MBO is a way of describing the system of goal setting and performance management that links the delivery of high level organisational goals to individual actions and performance targets.

It has three simple building blocks:

• Set the goals
• Agree the objectives and performance measurements
• Continually review and appraise results

Although the basics of MBO are used in many organisations, they must be accompanied by the following to be truly effective:

• Recognition process
• Reward processes
• Training, development and career progression

All of which must be fair and reflect the individual's true contribution and impact.

The simplicity of the model and the requirement to involve people in the objective setting and review process led to its attractiveness.

Although intrinsically attractive, the MBO process has received a fair amount of criticism.  Those that do not agree with all the merits purported by the system point to MBO being:

• Like Taylorism and scientific management just updated for the 21st century
• Does not cater for any conflict between an individual's goals and those set at the top of the organisation
• Has very high demands on data and diligent performance appraisal
• Is very focused on history and past results and not on behaviour, approaches taken and the future
• Inflexible as it discounted individuality and flexibility as circumstances and situations changed
• The ability of the system itself to cope with change was limited
• It was not able to cope with 'softer' roles such as support or care where the measures of performance were more difficult to measure

As the 'set' results stood no matter what else changed it led to people attempting to achieve the results 'set' no matter whether they made sense or not and the ends justifying the means.

Although MBO is widely deployed there are large differences of opinion about its effectiveness. Some studies like Rodgers and Hunter suggest that MBO can only be effective with the full support and participation of top management.  This of course is true of many significant company wide change or improvement systems and initiatives.

Results range from showing improvements through to companies abandoning the system altogether.  Writers such as Heller suggest that:

'MBO had only one defect:  It didn't work.'

He points to corporate targets being invariably missed.

MBO as a system may have lost its gloss and overt presence but many of its principles underpin today's performance management systems.

Some writers such as Naylor point to the system having changed its names and changed slightly to reflect the more flexible and higher trained work forces of today whilst retaining some of its core elements.

The basic principles of MBO are apparent in many appraisal and performance management systems today.  Examine the elements of MBO and look at the systems you manage and are part of.  Do any of the criticisms of MBO apply in your organisation?  If they do, examine other goal deployment methods and see if they offer a better fit.  Even if you stay with MBO or use it yourself, be aware of its limitations and look to other processes to ensure the problems identified above do not inhibit your organisation's performance.

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