Management by Objectives

Management by Objectives (MBO) is a process of agreeing upon objectives within an organization so that management and employees agree to the objectives and understand what they are.
Management By Objectives term was first popularized by Peter Drucker in 1954 in his book 'The Practice of Management'.

It is all too easy for managers to fail to outline, and agree with their employees, what it is that everyone is trying to achieve. MBO substitutes for good intentions a process that requires rather precise written description of objectives (for the period ahead) and timelines for their monitoring and achievement. The process requires that the manager and the employee agree to what the employee will attempt to achieve in the period ahead, and (very important) that the employee accept and agree to the objectives (otherwise commitment will be lacking).
For example, whatever else a manager and employee may discuss and agree in their regular discussions, let us suppose that they feel that it will be sensible to introduce a key performance indicator to show the development of sales revenue in a part of the firm. Then the manager and the employee need to discuss what is being planned, what the time-schedule is and what the indicator might or might not be. Thereafter the two of them should liaise to ensure that the objective is being attended to and will be delivered on time.

Organizations have scarce resources and so it is incumbent on the managers to consider the level of resourcing but also to consider whether the objectives that are jointly agreed within the firm are the right ones and represent the best allocation of effort. Also, reliable Management information systems are needed to establish relevant objectives and monitor their "reach ratio" in an objective way.

MBO is often achieved using set targets. MBO introduced the SMART criteria: Objectives for MBO must be SMART (Specific, Measurable, Achievable, Realistic, and Time-Specific). However, it has been reported in recent years that this style of management receives criticism in that it triggers employees' unethical behaviour of distorting the system or financial figures to achieve the targets set by their short-term, narrow bottom-line, and completely self-centered thinking.