BY – Col AM Shende



It is a systematic & organised approach that allows management to focus on achievable goals & to attain the best possible results from available resources.

Management By Objectives (MBO), also known as Management By Results (MBR), is a process of defining objectives within an organisation so that management & employees agree to the objectives & understand what they need to do in the organisation in order to achieve them.

The concept of MBO is closely connected with the concept of planning.

MBO can be defined as “a process whereby the employees & superiors come together to identify common goals, the employees set their goals to be achieved, the standards to be taken as the criteria for measurement of their performance & contribution & deciding the course of action to be followed”.

The term “Management By Objectives” was first popularised by Peter Drucker in his 1954 book ‘The Practice of Management’.

Principles of MBO

  • Cascading of organisational vision, goals & objectives.
  • Specific objectives for each member.
  • Participative decision making.
  • Explicit time period.
  • Performance Evaluation & feedback.


  • To translate mission statements into operational terms.
  • To give directions & set standards for measurement of performance.
  • To set both long term & short term objectives.

Basic Tenets of MBO

  • Identification of objectives.
  • Result orientation.
  • Concept of human behaviour & motivation or aims at achieving the laid down

MBO Strategy: Three Basic Parts

  • All individuals within an organisation are assigned a special set of objectives that they try to reach during a normal operating period. These objectives are mutually set & agreed upon by individuals & their managers.
  • Performance reviews are conducted periodically to determine how close individuals are to attaining their objectives.
  • Rewards are given to individuals on the basis of close they come to reaching their goals.

MBO Process

  1. Setting of organisational purpose & objectives.
  2. Identify the key result areas (KRA’s).
  3. Establishment of the objectives of the superiors.
  4. Recommending objectives for subordinates by superiors.
  5. Subordinates statements of the objectives.
  6. Matching resources with objectives.
  7. Setting subordinates‘s objectives.
  8. Periodic review of the performance of the subordinates.
  9. Review of the performance by superiors.
  10. Final review of performance by the superiors.
  11. Performance appraisal by superiors.
  12. Providing feedback to the top level.
  13. Providing new inputs to subordinates.

Six Step MBO Process

Six Steps

  • Define Organisational goals
    Prior to start working on set goals, the managers should determine organisational goals with aim to create a potential management that must be capable of handling different kinds of goals easily.
  • Determining employees objectives
    After determining the organisational goals, the next thing to do is to know the individual‘s goals. It is the responsibility of the manager to ask employees about what goals they can accomplish within specific time period & what resources will they use to achieve the goal.
  • Constantly monitoring progress & performance
    There are certain things that help managers to monitor performance & progress

    1. Checking less – effective or ineffective programs by performing a comparison of performance with already prepared objectives.
    2. Using ZBB( Zero Based Budgeting)
    3. For measuring plans & individuals, implementing MBO concepts.
    4. Defining short & long term plans & objectives
    5. Eventually, composing completely sound structure of the organisation with all things at appropriate places such as responsibilities, decision making & so on.
  • Performance evaluation Performance evaluation is one the most important factors of the organisation that can help operating certain objectives smoothly.
  • Providing feedback Constantly providing feedback to employees regarding their performance & individual goals, so that they can monitor, correct & extra improve their skills & mistakes. Mostly, the feedback is provided in periodic meetings where supervisors & their subordinates review the performance & progress towards achievement of goals.
  • Performance appraisal It is the final step of the process of MBO. It helps in motivating employees.
  • The MBO style is appropriate for knowledge –based enterprises when your staff is competent.
  • It is appropriate in situations where you wish to built employees management & self leadership skills & tap their creativity, tacit knowledge & initiative.
  • MBO is also used by chief executives of multinational corporations (MNC’s) for their country managers abroad.


  • Better management of organisation:
    1. Clarity of objectives.
    2. Role clarity.
    3. Periodic feedback of performance.
    4. Participation by managers in the management process.
    5. Realization that there is always scope for improvement of performance in every situation.
  • Clarity in organisational action.
  • Facilitates effective planning
  • Acts as motivational force.
  • Facilitates effective control
  • Facilitates personal leadership
  • Personnel satisfaction
  • Basis for organisational change.


  • MBO can only succeed if it has the complete support of the top management.
  • MBO may be resented by subordinates. They may be under pressure to get along with management when setting goals & objectives & these goals may be set unrealistically high. This may lower their morale & they may become behind MBO.
  • There is considerable paperwork involved & it takes too much of manager’s time. Too many meeting & too many reports add to manager’s responsibility & burden. Some managers may resist the program because of this increased paperwork.
  • The emphasis is more on short term goals. Since the goals are mostly quantitative in nature, it is difficult to do long-range planning because all the variables affecting the process of planning cannot be accurately forecast due to the constantly changing socio-economic & technological environment which affects stability of goals.
  • Most managers may not be sufficiently skilled in interpersonal interaction such as coaching & counselling, which is extensively required.
  • The integration of MBO system with other system such as forecasting & budgeting etc is very poor. This makes the overall functioning of all systems mare difficult.
  • Group goal achievement is more difficult. When the goals of one department depend on the goals of another department, cohesion is more difficult to obtain. Eg, the production department cannot produce a set quota if it not sufficiently supplied with raw materials & personnel.

Suggestions for Improving Effectiveness of MBO

  • It’s important to secure top management support & commitment. Without this commitment, MBO can never really be success. This means that the superiors must be willing to relinquish & store the necessary authority with subordinates.
  • The objectives should be clearly formulated, should be realistic for the R&D department of on organisation to set a goal. These goals should be set with the participation of the subordinates. They must be properly communicated, clearly understood & accepted by all. MBO works best when goals are accepted.
  • MBO should be an overall philosophy of management & entire organisation, rather than simply a divisional process or a performance appraisal technique. MBO is a major undertaking & should replace old systems rather than just being added to it.
  • The goals must be continuously reviewed & modified, as the changed conditions require. The review technique should be such that any deviations are caught early & corrected.
  • All personnel involved should be given formal training in understanding the basics as well as the contents of the programme.
  • MBO is a major undertaking based upon sound organisational & psychological principles. Hence it should be totally accepted as a style of managing & should be totally synthesized with the organisational climate. All personnel involved must have a clear understanding of their role authority & their expectation .the system should be absorbed by all members of the organisation.

Pre- Requisites for Initiating MBO Programme

  1. Purpose of MBO
  2. Top management support
  3. Training for MBO
  4. Participation
  5. Feedback for self direction & self control
  6. Other factors:
    • Implementing MBO at lower levels.
    • MBO & salary decision.
    • Conflicting objectives.