Management By Objective (MBO)

What Is Peter Drucker's MBO—Management by Objectives?

In the 90s, Peter Drucker put forward the significance of this organization management method ‘Management by Objectives (MBO)’ into perspective, when he said: “It’s just another tool. It is not the great cure for management inefficiency… MBO works if you know the objectives. 90% of the time, you don’t ……”

Peter Drucker is credited with inventing a concept known as Management by Objectives (MBO) in 1954. Drucker was a professor who had real-world experience as a consultant in variety of settings in the United States and elsewhere. He wrote several books including The Practice of Management, published in 1954, in which he introduced MBO.

Management by Objectives (MBO) is a key motivation technique in which both managers and employees cooperate in order to set a company’s goals within time-specific borders.

The basis for MBO lies in managers defining areas of responsibility for their workers. Measurable goals and objectives are set for these areas of responsibility, and these objectives are used as a standard to evaluate the results obtained.

An important question is, how hard the objectives should be to meet? If they are too easy, they will not challenge the worker. If they are too hard, the employee may not take them seriously.

Many management experts feel that they should be about 50 percent attainable. Notably, the fact that humans are irrational beings should imply that, methods solely applicable to the rationale will ultimately fail in the long run.

Peter Drucker’s Management by Objectives (MBO) relies on the defining objectives for each employee and then comparing and directing their performance against the objectives which have been set. It aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization.

Ideally, employees get strong input to identifying their objectives, time lines for completion, etc. MBO includes ongoing tracking and feedback in the process to reach objectives.

According to Drucker, managers should avoid ‘the activity trap’, getting so involved in their day to day activities that they forget their main purpose or objective.

One of the concepts of MBO was that instead of just a few top-managers, all managers of a firm should participate in the strategic planning process to improve the implementability of the plan.

Another concept of MBO was that, managers should implement a range of performance systems, designed to help the organization stay on the right track.

Clearly, Management by Objectives can thus be seen as a predecessor of Value Based Management Opens in new window! MBO principles are:

  • Cascading of Organizational goals and objectives,
  • Specific objectives for each member,
  • Participative decision making,
  • Explicit time period, and
  • Performance evaluation and feedback.

Management by Objectives also introduced the smart method for checking the validity of the Objectives, which should be ‘smart’: Specific, Measurable, Achievable, Realistic, Time-related.

Mbo requires planning and thus reduces some of the surprises that face managers. It encourages innovation and improves performance because people are working together to meet the unit’s goal.

Mbo has been challenged because it is labor intensive for managers; it places a heavy burden on them to plan, set goals, and provide a frank appraisal of the results. Many managers find that it is not worth the effort.