Management By Objectives

What Is Management By Objectives? The Management By Objectives In A Nutshell

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.

Performance appraisal

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.

smart-goals
A SMART goal is any goal with a carefully planned, concise, and trackable objective. To be such a goal needs 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

what-is-okr
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.

OKR is based on four key tenets:

While management by objectives and OKR both are:

  • Ambitious.
  • Qualitative.
  • Time-bound.
  • Actionable by the team.

OKRs, though, have some key features which make them a good fit for startups:

  • Measurable and quantifiable.
  • Make the objective achievable.
  • Lead to objective grading.
  • Difficult but not impossible.

The OKR Cycle follows these steps:

  • Brainstorm.
  • Communicate.
  • Share.
  • Track.
  • Reflect.

And below are the primary differences between management by objectives and OKRs:

mbo-vs-okr

OKR has proven quite effective for startups, as it sets ambitious (yet achievable) goals while ensuring the whole team is aligned around them.

Management by objectives examples

To get a better sense of management by objectives, we have listed some key organizational objectives below by department.

Company performance

  • Become a member of the Fortune 500 group of companies.
  • Increase asset to debt ratio by 10%.
  • Achieve a payback period of 18 months for new products.

Marketing

  • Increase marketing ROI by 9.5%.
  • Increase landing page conversion rates by 26%.
  • 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.

Other Goal-Setting Frameworks

OKR

what-is-okr
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.”

SMART Goals

smart-goals
A SMART goal is any goal with a carefully planned, concise, and trackable objective. To be such a goal needs 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.

Balanced Scorecard

balanced-scorecard
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Backcasting

backcasting
Businesses use backcasting to plan for a desired future by determining the steps required to achieve that future. Backcasting is the opposite of forecasting, where a business sets future goals and works toward them by maintaining the status quo.

Maslow’s Hierarchy of Needs

maslows-hierarchy-of-needs
Maslow’s Hierarchy of Needs was developed by American psychologist Abraham Maslow. His hierarchy, often depicted in the shape of a pyramid, helped explain his research on basic human needs and desires. In marketing, the hierarchy (and its basis in psychology) can be used to market to specific groups of people based on their similarly specific needs, desires, and resultant actions.

Herzberg’s Two-Factor Theory

herzbergs-two-factor-theory
Herzberg’s two-factor theory argues that certain workplace factors cause job satisfaction while others cause job dissatisfaction. The theory was developed by American psychologist and business management analyst Frederick Herzberg. Until his death in 2000, Herzberg was widely regarded as a pioneering thinker in motivational theory.

Lightning Decision Jam

lockes-goal-setting-theory
The theory was developed by psychologist Edwin Locke who also has a background in motivation and leadership research. Locke’s goal-setting theory of motivation provides a framework for setting effective and motivating goals. Locke was able to demonstrate that goal setting was linked to performance.

Nadler-Tushman Congruence Model

nadler-tushman-congruence-model
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.

Personal SWOT Analysis

personal-swot-analysis
The SWOT analysis is commonly used as a strategic planning tool in business. However, it is also well suited for personal use in addressing a specific goal or problem. A personal SWOT analysis helps individuals identify their strengths, weaknesses, opportunities, and threats.

OGSM Framework

ogsm-framework
The OGSM framework is a means of creating a well-structured and actionable marketing strategy. Fundamentally, the OGSM framework allows businesses to first define what they want to achieve and then determine how they will get there. To provide direction for marketing teams, the acronym of OGSM (objectives, goals, strategies, measures) should be followed in sequential order. Here is a look at each in more detail.

McKinsey 7-S Model

mckinsey-7-s-model
The McKinsey 7-S Model was developed in the late 1970s by Robert Waterman and Thomas Peters, who were consultants at McKinsey & Company. Waterman and Peters created seven key internal elements that inform a business of how well positioned it is to achieve its goals, based on three hard elements and four soft elements.

Personal Mission Statement

personal-mission-statement
A personal mission statement clarifies what is important in life to an individual. A personal mission statement is a written statement of purpose that allows individuals to define their calling in life. It helps clarify goals, values, beliefs, or passions, communicate them, and better execute a personal growth strategy.

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