Management by objectives was popularised by notable management consultant Peter Drucker in his 1954 book The Practice of Management. Management by objectives (MBO) is a model used to improve organizational performance by defining objectives agreed upon by both management and employees.
Understanding management by objectives
The methodology suggests first defining organizational objectives management can convey to subordinates.
Both parties subsequently work together to determine how each objective will be achieved in a sequence.
Using this management system, individual goals are synchronized with organizational goals and a calm and productive work environment is created by leaders.
Ultimately, the model suggests employees involved in goal setting and action plan formation are more likely to behave in ways that align with organizational objectives.
Better communication between the manager and the employee also increases motivation and buy-in.
Management by objectives in practice
There are five generally accepted steps to management by objectives:
Define organizational goals
These must be realistic, achievable, and well defined.
Setting one to three organizational goals that can be achieved in the long-term is most effective.
Define employee objectives
In other words, the measurable steps the employee must take to achieve organizational goals.
Managers must work with subordinates on an individual basis to establish goals they can realistically achieve using the available resources.
Each employee must also be willing to participate in the process.
Monitor progress and performance
Consider tracking sheets to monitor progress and periodic team meetings to recognize incremental achievements or tackle challenges.
Evaluate performance and provide feedback
Managers must then return to the measurable steps defined in the second phase to evaluate employee performance.
Extra guidance should be provided if performance is below par.
Positive feedback should also be given at every opportunity to maintain motivation and productivity.
This involves the work of each employee being assessed over the life of the project.
Appraisals highlight where an individual excelled and where there is still room for growth.
Used correctly, these reviews can be an important driver of personal and professional growth.
Make your goals S.M.A.R.T.
A SMART goal is any goal with a carefully planned, concise, and trackable objective. To be such a goalneeds to be specific, measurable, achievable, relevant, and time-based. Bringing structure and trackability to goal setting increases the chances goals will be achieved, and it helps align the organization around those goals.
Within management by objectives, the SMART Goals framework can help make sure these goals are:
This is precisely what management by objectives tries to achieve, with a core difference, as the SMART goals framework helps you check these goals with reality.
In short, management by objectives is a great methodology.
However, it might lead to a few issues, such as vagueness and unattainability.
Thus integrating a few steps process like SMART Goals when defining management by objectives plan might help make it even more effective.
Management by objectives Vs. OKRs
Andy Grove, helped Intel become among the most valuable companies by 1997. In his years at Intel, he conceived a management and goal-setting system, called OKR, standing for “objectives and key results.” Venture capitalist and early investor in Google, John Doerr, systematized in the book “Measure What Matters.”
OKR is the goal-setting method that was popularized by VC John Doerr, and it was created by Andy Grove, as he managed Intel.
Implement continuous A/B testing of landing pages.
Human resources
Maintain a quarterly retention rate of 95%.
Hold a minimum of two interviews for new hires.
Assign at least a third of all managerial positions to internal applicants.
Product management
Maintain an 85% customer satisfaction (CSAT) score.
Meet with at least five high-value clients to gauge product feedback.
Analyze the product strategies of three direct competitors.
Customer success
Decrease the number of customer support tickets during onboarding by 40%.
Decrease customer churn rate by 20%.
Maintain a detailed profile for each premium client.
Key takeaways
Management by objectives is a model used to improve organizational performance by defining objectives agreed upon by both management and employees. It was developed by notable management consultant Peter Drucker in 1954.
Management by objectives suggests employees involved in goal setting and action plan formation are more likely to behave in ways that align with organizational objectives. This also fosters better communication and relationships between managers and subordinates.
Management by objectives can be described by five general steps: define organizational goals, define employee objectives, monitor progress and performance, evaluate performance and provide feedback, and performance appraisal.
Andy Grove, helped Intel become among the most valuable companies by 1997. In his years at Intel, he conceived a management and goal-setting system, called OKR, standing for “objectives and key results.” Venture capitalist and early investor in Google, John Doerr, systematized in the book “Measure What Matters.”
A SMART goal is any goal with a carefully planned, concise, and trackable objective. To be such a goalneeds to be specific, measurable, achievable, relevant, and time-based. Bringing structure and trackability to goal setting increases the chances goals will be achieved, and it helps align the organization around those goals.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
