Explain Management by Objective at the departmental level.
"MBO is the motivating factor or controlling technique". Critically evaluate this statement. Compare and contrast between MBO and MB
Objectives and MBO
The objectives state what is to be accomplished within a given period of time. Objectives
are end results; they do not state how the objective will be accomplished. How to
achieve the objective is the plan. Some writers define goals and objectives differently; we
do not. You will learn the five criteria objectives should meet, how to write objectives, and
how to use management by objectives (MBO).
Criteria for Objectives
To motivate people to high levels of performance, objectives should be:
Difficult but achievable. Individuals perform better when assigned difficult objectives
rather than easy ones, or when there are no goals, or if they are simply told do your
best. If they are going to motivate people to high levels of performance, objectives
must be challenging. However, if people do not believe that the objectives are achievable
(expectancy theory), they will not be motivated to work for their accomplishment.
Observable and measurable. If people are to achieve objectives, they must be able to
observe and measure their progress regularly. Individuals perform better when
their performance is measured and evaluated.
Specific, with a target date. To be motivated, employees must know exactly what is
expected of them and when they are expected to have the task completed. Employees
should be given specific objectives with deadlines. However, some objectives do
not require or lend themselves to target dates. For example, the objectives in the
skill-building exercises do not list a target date.
Participatively set when possible. Groups that participate in setting their objectives
generally outperform groups with assigned objectives. Managers should use the
appropriate level of participation for the employees capabilities. The higher the
capabilities, the higher the level of participation.
Accepted. For objectives to be met, employees must accept them. Without acceptance,
even meeting the above four criteria can lead to failure. If employees are not
committed to strive for the objective, they may not meet it. Using participation
helps get employees to accept objectives.
A. Difficult but achievable C. Specific, with a target date
B. Observable and measurable
16. To increase production of widgets during the fiscal year 20__.
17. To increase total sales by 40 percent during 20__.
18. To increase the companys image by June 20__.
19. To write objectives within two weeks.
20. To pass this human relations course this semester
To _ Action verb _ Specific, measurable, and singular behavior _ Target date
Example Objectives for a Student:
To _ receive _ a B as my final grade in human relations _ in December/May 20__.
To increase my cumulative grade point average to 3.0 by May 20__.
Example Objectives for a Manager:
To produce 1,000 units per day.
To keep absences to three or fewer per month.
To decrease accidents by 5 percent during 20__.
Example Objectives for an Organization:
COMCAST: To offer phone service to 40 million households by year-end 2006.112
TOYOTA: To sell one million hybrids per year by 2010.
FORD: To offer hybrid systems on half our models by year-end 2010.
Writing Objectives Objectives should be written.
Management by Objectives (MBO) Pointing workers to a common goal is what managers
need to do. This is what MBO attempts to do.
Management by objectives (MBO) is
the process in which managers and their employees jointly set objectives for the employees,
periodically evaluate the performance, and reward according to the results.
For a program to truly be MBO, it should be organizationwide. MBO starts at the top
of the management hierarchy and works its way down to the workers. Each level of managements
objectives must contribute to the next levels objectives. To be successful, MBO
takes a lot of commitment, time, and participation. You can use the MBO process successfully
with subordinates if you are truly committed and willing to involve employees.
The three steps of MBO are as follows:
Step 1. Set Individual Objectives and Plans Each subordinate jointly sets objectives with
the manager. The objectives are the heart of the MBO program and should meet the five criteria
Step 2. Give Feedback and Evaluate Performance Xerox Learning Systems states that giving
feedback is the most important management skill. Employees must know how they are progressing
toward their objectives. Thus, the manager and employee must meet frequently to review
the latters progress. The frequency of evaluations depends on the individual and the
job performed. However, most managers probably do not conduct enough review sessions.
Step 3. Reward According to Performance Employees performance should be measured
against their objectives. Employees who meet their objectives should be rewarded through
recognition, praise, pay raises, promotions, and so on. Many organizations now link pay to
MBO is a motivator (not a hygiene) because it meets employees needs for esteem/selfactualization,
growth, and power/achievement. MBO empowers employees to increase
responsibility with an opportunity for creating meaningful, challenging work to help them
grow and accomplish what they and the manager want to accomplish. MBO creates a
In a union situation, such as the opening case, using MBO may not be possible without
union consent and input.
Combine. Doing more than one thing at a time often saves time. Make one trip to the
mail room at the end of the day instead of several throughout the day.
Change sequence. Often a change in the order of doing things results in a lower
When used appropriately, work simplification can be effective at motivating employees.
However, the danger lies in making a job too simple and boring rather than making it
more interesting and challenging, as suggested under job enrichment.
W O R K A P P L I C A T I O N S
What is MBO?
Management by objectives (MBO) is a systematic and organized approach that aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization.
It allows management to focus on achievable goals and to attain the best possible results from available resources.
One of the concepts of MBO is that all managers should participate in the strategic planning process for better implementation of plans. It includes ongoing tracking and feedback in the process to reach objectives.
Core Concept of MBO:
managers should "avoid the activity trap", that is, getting so involved in their day to day activities that they forget their main purpose or objective.
MBO is primarily a tool for strategic planning, employee motivation, and performance enhancement.
It intends to improve communication between employees and management, increase employee understanding of company goals, focus employee efforts upon organizational objectives, and provide a concrete link between pay and performance.
The emphasis is on the results achieved by employees rather than the activities performed in their jobs.
Basic Principles of MBO:
Unity of management action is more likely to occur when there is pursuit of a common objective.
The greater the focus on results on a time scale, the greater likelihood of achieving them.
The greater the participation in setting meaningful work with accountable results, the greater the motivation for completing it.
These call for: Clarification Specific Participative Explicit Performance of objectives Decision time Evaluation Organization for each Making and feedback al objectives period member
Applications of MBO:
The MBO concept is appropriate for knowledge-based enterprises where staff is competent.
Appropriate in situations where one wishes to build; employees management and self-leadership skills and tap their creativity, tacit knowledge and initiative.
Used by Chief Executives of Multinational Corporations for their country managers abroad.
Process of MBO:
Setting Objectives Setting Employees Targets Monitoring Performance Evaluating PerformancePerformance based Incentives
In MBO systems, objectives are written down for each level of the organization, and individuals are given specific aims and targets.
It provides focus and emphasizes on team and individual targets in congruance with organizational goals.
For MBO to be effective, individual managers must understand the specific objectives of their job and how those objectives fit in with the overall company objectives set by the Board of Directors.
Setting Employees Targets:
The management has to set the targets for each employee and outline their accountability for the timely fulfillment of the same.
Thus, the organizational goals are bifurcated into individual objectives and targets.
A successful MBO program requires each employee to produce five to ten specific, measurable goals.
Each target should be supported with a means of measurement and a series of steps toward completion.
These targets should be proposed to the employees manager in writing, then discussed and approved.
Monitoring and Evaluating Performance:
To monitor the performance of employees in pursuit of the targets assigned to them, a proper review system and Management Information System has to be designed and made operational.
Periodical and strict performance appraisals form a crucial part of the MBO process. Actual Performance is compared to the standards and employees are appraised accordingly.
Performance Based Incentives:
The performances of employees at all levels of management are assessed and evaluated and based on the same, performance incentives are given to employees. These incentives can be: Negative Incentives Positive incentives Reprimand Rewards Fines and penalties Bonus Warnings Promotions Retrenchment
Advantages of MBO:
Better utilization of resources,
Aid in Planning,
Development of personnel,
Better Team Work,
Concentration on Key Result Areas,
Sound Organizational Structure.
Disadvantages of MBO:
Incurs Time & Cost,
Failure to teach MBO Philosophy to employees,
Problems in Objective setting,
Emphasis on short-term objectives,
Frustration of employees.
Strengths of MBO:
One of the best reviews on the strengths of MBO programs is reported by Henry J.Tosi and Stephen J. Carroll. They opine:
MBO stresses collaborative efforts between managers and subordinates which aids in planning.
MBO lets subordinates know what is expected of them by forcing managers and subordinates to establish attainable objectives within specified periods of time.
MBO improves communication between managers and subordinates and makes individuals cognizant of organizational objectives and goals.
MBO improves the performance review and evaluation process by focusing on results and by providing systematic feedback.
MBO at Hyundai Motors:
Like many organizations, Hyundai Motors applies the concept of MBO in their managerial spans.
Annual, quarterly and weekly targets are determined for employees at all levels of the organization and various constraints and performance measurement criteria are explained to them.
Periodical reviews are done to evaluate the degree of achievement of employees targets and their congruance with the organizational goals.
Hyundai Motors incentivizes employees performances through non - monetary rewards and punishments.
Management by Exception
What is MBE?
Management by Exception (MBE) is a "policy by which management devotes its time to investigating only those situations in which actual results differ significantly from planned results.
The concept of MBE was propounded by: Frederick Winslow Taylor. Attention and priority is given only to material deviations requiring investigation and correction. It is a part of motivational and control techniques.
Its objective is to facilitate managements focus on really important tactical and strategic tasks.
Significance of MBE:
Proper and timely decision making and appropriate flow of action and employees activities.
Better utilization of managers time by bringing to their attention only those conditions that appear to need managerial action.
Easy identification of discrepancies.
Benefit to customers since MBE makes it easier for the business to grow and improve its service rather than use valuable resources on routine tasks.
Types of Exceptions:
There are two types of exceptions which are identified and managed through MBE: Problems Below Opportunities Above standard standard performance performance and results. and results. Need to be strategized and Need to be identified and solved in time. tapped.
Process of MBE:
Identifying and specifying Key Result Areas (K.R.A.s)Setting standards and outlining permissible deviations, especially for K.R.A.s Comparing actual results with the standards Computing and analyzing deviations Identifying non - permissible, that is, critical deviations in K.R.A.s Strategizing and taking corrective actions
Variance Analysis and Management By Exception:
Variance analysis and performance reports are important elements of MBE.
MBE aims at directing the managers attention towards those parts of the organization where plans are not working out for one reason or another.
If actual results do not conform to the budget and to standards, the performance reporting system sends a signal to the management that an "exception" has occurred.
Variances may and do occur for a variety of reasons. But, only some of them are significant and warrant management attention and action.
The materiality of a variance may be determined by:the size of a variance.the size of the variance relative to the amount of spending involved.Plotting variance on a Statistical Control Chart.
Statistical Control Chart
Some random fluctuations in variances from period to period are normal and to be expected even when costs are well under control.
A variance should only be investigated when it is unusual relative to the normal level of random fluctuation.
Typically the standard deviation of the variance is used as the measure of the normal level of fluctuations.
A rule of thumb is adopted such as "investigate all variances that are more than X standard deviations from zero, where X is the permissible Standard deviation.
Statistical Control Chart Above - plusFavorable one Plus - - onePermissible S.D. Zero (+1 to - 1) S.D. of the Minus Variance - one BelowUnfavorable minus - one 1 2 3 4 5 Weeks
MBE At Cisco Systems: Cisco Systems is a Multinational Corporation with its Headquarters in San Jose, California. It designs and sells consumer electronics, networking, voice, and communications technology and services. Ciscos network of contract manufacturers, component suppliers and distributors for its Internet Routers business are linked through Ciscos extranet to form a virtual, just-in-time supply chain. Application of MBE: When a customer orders a router through Ciscos website, the order triggers a flurry of messages to contract manufacturers of printed circuit board assemblies. Meanwhile, component suppliers are alerted to supply the generic components of the router, such as a power supply.
MBE At Cisco Systems: Continued Soon after the contract manufacturers reach into Ciscos extranet, the extranet starts looking around the contractors assembly line to make sure everything is in order. Factory assemblers slap a bar code on the router, scan it and plug in cables that simulate those of a typical corporate network. One of those cables is a fire hose for Ciscos automated testing software. It looks up the bar code, matches it to a customers order and then probes the nascent router to see if it has all the ports and memory that the customer wanted. If everything checks out and only then - Ciscos software releases the customer name and shipping information so that the subcontractor can get it off the shop floor. The chain runs itself until theres a problem, in which case the system alerts some employee to fix the problem. Nothing needs to be done unless there is something wrong.