What is Management By Objectives (MBO)? Concept and Importance of MBO

Introduction

Who would want to spend money and not get any returns? Whether investing in financial assets, or in human resources, the main objective is to fund the right resources that will grow over time and yield higher returns.

Employee performance has always been a crucial discussion among the HR teams and the management. The management wants to improve employee productivity and grow their business.

Management by Objectives (MBO) – Concept and Understanding

Management By Objectives is an effective HR technique of employee performance management where the employees and the employer collaboratively set specific goals, decide the timelines, create action plans, and monitor progress in achieving those goals. It is based on the premise that when employee goals are aligned with the organizational goals, the entire company works coherently and results in desired outcomes.

Management by Objectives, popularly known as MBO in HR, is used by many organizations of all sizes to help their teams improve performance and grow. It is also called Management by Planning by some. But these all refer to the process of setting goals and attaining them.

Purpose and Importance of Management by Objectives (MBO)

MBO has evolved to become a very crucial technique for employee performance management in recent decades. While it definitely aims to improve the management, it has a great impact on employees and their performance too. Here are 10 reasons why MBO is important for organizations.

1. It aligns the organization’s goals and employee goals

MBO aligns organizational objectives, team objectives, and individual objectives and binds them together in an inseparable system. The entire company moves in the same direction to reach the same destination. This alignment is crucial to achieving higher organizational goals.

2. It provides clarity to the management

By laying down clear expectations for its teams and employees, even management gets clarity on desired outcomes and the action plan to achieve the same. Without this knowledge, it is difficult to drive growth in the organization.

3. Provides the action plan to achieve objectives

Along with developing goals to achieve, an integral element of MBO is to prepare an action plan that will guide and help the employees and teams to achieve the set goals. This action plan is pivotal to accomplishing the tasks and reaching desired objectives.

4. Use of SMART Goals

One distinguishing aspect of MBO is the goals have to meet certain guidelines. These goals need to be SMART:

S – Specific

M – Measurable

A – Achievable

R – Relevant

T – Time-Bound

This guiding factor acts as a framework and helps managers and employees to set very specific goals and maintain their focus on attaining them within a defined timeframe.

5. Employee engagement and motivation

The process of goal setting in MBO is transparent. Employees are as much a part of this process as their managers. This employee engagement at the initial stage while deciding the goals motivates the employees and builds a sense of responsibility within them.

6. Imbibes a culture of continuous improvement

Like most performance improvement techniques, MBO also monitors performance regularly and fosters real-time feedback. It helps to engage in continuous improvement activities for all the employees. It ensures that measures are adopted on the go leading to improved efficiency in employee performance.

7. Provides a performance measurement framework

The 3 main steps in MBO include goal setting, action plan, and performance monitoring. Assessing and evaluating employee performance on a continuous basis is a crucial part of the MBO process. For this, MBO provides a very comprehensive framework that makes performance measurement easy as well as time effective. 

8. Fosters a collaborative culture

From goal-setting to action plan creation, everything is done collaboratively by the managers and the employees. It creates a positive work environment where the workforce does not feel that goals are enforced upon them. Also, this builds a collaborative mindset within the organization and helps build a great work culture.

9. Builds accountability

We feel emotionally attached to the goals set for ourselves. It happens in our personal as well as professional lives. Collaborative goal-setting builds accountability towards the objectives and results in higher commitments to fulfill them. It favorably leads to increased employee productivity and organizational growth.

Conclusion

MBO is a simple yet very effective technique that can be implemented at different levels in an organization of any size. However, the success of this method depends upon how well it is implemented and executed by the teams.

Read our blog on steps in the MBO process to know more about this.