Management by objectives (MBO) is a system which was first described by the American Peter Drucker, in 1954, in his book The Practice of Management. Since then, MBO has attracted enormous interest from the business world, and its principles have been applied in many of the worlds largest companies.
In his book, Peter Drucker emphasized that an organization and its staff must have clear goals. Each individual must understand the goals of the enterprise he/she works for, and must make a contribution to them. It is also vital, in Druckers view, that the individual knows what his/her manager expects of him/her. He/she must know what sort of results he/she is expected to achieve.
The organizations use various kinds of MBO systems. There are a lot of benefits of Management by Objectives. The system helps the subordinate to see clearly his/her role in the organization and the tasks he/she must carry out. He/She has a say in how his/her job is performed, and what his/her goals should be. As a result he/she feels more responsible and motivated and is therefore likely to be more committed to the objectives of the organization.
MBO is a good technique for assessing an individuals performance. He/She is judged on results, rather than on the personal feelings or prejudices of the manager. An MBO programme should lead to better coordination and communications within an enterprise. The subordinate must liaise closely with his/her manager. The manager acts as teacher and guide. The individual is encouraged to identify with the goals of the organization. Most important of all, MBO makes the individual think of results, of the contribution he/she is making or should make to the enterprise. The main limitations of the system are that it is time-consuming and may create a lot of paperwork. In practice, MBO programmes are often not fully supported by managements. This could be because managers are not always skilled at interviewing and giving guidance.
In spite of this, there is little doubt that MBO has helped to increase the efficiency of both subordinates and their managers.
If an organization uses the Management by Objectives approach, it must pay careful attention to planning. The planning process is the first basic managerial function that organizations must address. With an understanding of the environmental context, managers develop a number of different types of goals and plans.
Goals serve for basic purposes: to provide guidance and direction, to facilitate planning, to inspire motivation and commitment, and to promote evaluation and control. Kinds of goals can be differentiated by level, area, and time frame. All managers within an organization need to be involved in the goal-setting process. Managers need to pay special attention to the importance of managing multiple goals through optimizing and other approaches.
Goals are closely related to planning. The major types of plans are strategic, tactical, and operational. Plans are developed across a variety of time horizons, including long-range, intermediate, and short-range time frames.
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Strategic (long-range) planning determines the major goals of the organization and the policies and strategies for obtaining and using resources to achieve those goals. In this definition policies are broad guides to action, and strategies determine the best way to use resources. At the strategic planning stage, the company decides which customers to serve, what products or services to sell and the geographic areas in which the firm will compete.
Tactical (short-range) planning is the process of developing detailed short-term decisions about what is to be done, who is to do it, and how it is to be done. Just as objectives are specific plans to meet broad goals, tactical planning involves defining specific plans to achieve broad strategic plans. Tactical planning is normally done by managers at lower levels of the organization, whereas strategic planning is done by the top managers of the firm (for example, the president). Tactical planning involves setting annual budgets and deciding on other details of how to meet the strategic objectives.
Another important type of planning is the development of contingency plans. Contingency planning is the determination of alternative courses of action to be taken if an intended plan of action is unexpectedly disrupted, or rendered inappropriate. The economic and competitive environments change so rapidly that it is wise to have alternative plans of action ready in anticipation of such changes.
