Read this article to get qucik notes on Management by Objectives (M.B.O):- 1. Meaning of Management by Objectives (MBO) 2. Steps in Setting up M.B.O. 3. Advantages 4. Limitations 5. Review 6. Problems in the Approach.

Management by Objectives: Meaning, Steps, Advantages and Limitations

1. Meaning of Management by Objectives (M.B.O):

Management by objectives is a systematic and organised approach that allows management to focus on achievable goals and to attain the best possible results from available resources. It aims to increase organisational performance by aligning goals and subordinate objectives throughout the organisation.

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

M. B. O. managers focus on the result, not the activity. They delegate tasks by ‘nego­tiating a contract of goals’ with their subordinates without dictating a detailed roadmap for implementation.


The M.B.O. style is appropriate for knowledge-based enterprises when your staff is compe­tent. It is appropriate in situations where you wish to build employees’ management and self- leadership skills and tap their creativity, tacit knowledge and initiative. M.B.O. is also used by chief executives of multinational corporations (MNCs) for their country managers abroad.

The M.B.O. operations are all compatible with empowerment. Further, different people have different hierarchy of needs and, thus, need to be managed differently if they are to be performed well and achieve their potential. M.B.O. is achieved through self-control. Today each employee is a self-manager whose decisions are of decisive importance for results.

In such an organisation, management has to ask each employee three questions:

(i) What we should hold you accountable for?


(ii) What information do you need?

(iii) What information do you owe the rest of us?

Management by Objectives is a style of managing an organisation which emphasises the achievement or results expressed in terms of objectives. The objectives must be specific, time bound, realistic and quantitative or measurable. This concept is gaining importance since last two decades as a style of management to improve business results.

As we know that management is an art of getting things done through people, and in a competitive economy things will not be done unless everybody in the enterprise knows his objectives and targets.


Therefore Management by Objectives (M.B.O.) is a process whereby the superior and subor­dinate jointly (a) identify common goals and (b) define individual’s responsibility in terms of results expected from him and help in getting resources required for achieving the goals.

Thus M.B.O. implies managing by identifying the objectives of an organisation.

These objectives may be short term, long term, specific or general. These can also be classi­fied as corporate objectives, major objectives, or departmental objectives.

The management by objectives is actually management by results and goals setting ap­proach. The goals are jointly established by the manager and his subordinates and agreed upon in advance. These goals may be either output variables or intervening variables, or some com­bination of both.


Thus it is an approach to management planning and evaluation. Specific tar­gets for a specified period are established for each manager which must be achieved if the overall objectives of the company are to be realised. At the end of the pre-decided time period, the actual results are measured against the targets.

If after evaluation, some discrepancy is noticed between the expected targets and the work accomplished, steps are suggested to overcome the problems. This sets the stage for determin­ing the objectives for the next time period.

2. Steps in Setting up M.B.O.:

In setting up Management by Objectives, following steps are followed:

(i) Identify common goals of the organisation.


(ii) In order to achieve these goals, if necessary changes are made in the organisation structure, duties, relationship, authority, span of control, responsibility etc.

(iii) Superior and subordinate jointly decides subordinate’s goals of his job. They decide about growth, greater efficiency, productivity, and profitability, elimination of wastage or problems.

(iv) Continuous monitoring is done for the achievement, and necessary adjustments are done if required, for inappropriate or unattainable goals from the point of view of available resources. Quarterly reviews are preferred.

3. Advantages of Management by Objectives:

(i) M.B.O. keeps a constant watch over company’s objectives or targets.


(ii) It is easy to understand by the persons who are to perform the task.

(iii) It motivates the people, because they work on the objectives decided with their own consent.

(iv) It provides a better co-ordination among various departments of the organisation.

(v) It identifies the point where more emphasis is to be given.


(vi) It leads to better understanding between the superiors and the subordinates.

(vii) The performance of every individual is evaluated in terms of the standards or end results clearly, agreed to by the superior and the subordinate.

(viii) In this, the superior does not evaluate the individual concerned but his performance in terms of the standards set in advance. Further, performance review is aimed to assist the subordinate to improve his performance in future. It also helps in setting goals for the next period.

(ix) It contributes for the installation of a democratic and participative set-up, which is very essential for the success of an organisation. The interaction that takes place between the superiors and subordinates is a good sign of human resource develop­ment in the organisation.

4. Limitations of M.B.O:

Management by objectives has following limitations:

1. Inflexibility.


2. Lack of top management involvement and support.

3. Difficulty in setting realistic and meaningful objectives.

4. Managers may not have the requisite skills for identifying the objectives.

5. It the reward, promotion, and such other incentives are not allowed then with the passage of time consistent good performance cannot be maintained.

6. MBO necessitates decentralisation of decision-making powers and delegation of au­thority so as to fulfill the objectives. Too much decentralisation is also problematic sometimes.

5. Review of Objectives:

At the end of each quarter or any other period mutually decided upon, a review meeting is held between the job holder and his boss to assess the performance towards the targets agreed mutually. Thus the manager reviews his own performance along with his boss to measure the progress towards the results.


The meeting helps:

(i) In ascertaining the areas where boss should provide additional facilities or help him in solving his problems and

(ii) To analyse, the causes which had been responsible for managers not achieving the target and remedial actions to be taken.

Annual review meetings are held to consider overall performance of the manager and to prepare the objective for next year.

The review thus provides the opportunity to judge manager’s strength and weaknesses and also his potential for further progress, thus the training and development needs are worked out.

6. Problems in the Approach of M.B.O:

Although it is an integral approach for the fulfillment of the overall objectives, but there are many difficulties in formulating and implementing management by objectives.


Some of these problems are listed below:

1. Mis-direction by the Boss:

The whole process of management by objectives is based on pleasing the boss; therefore, sometimes the interest of the enterprise and the self- interest of the boss pull in opposite directions.

2. Different angle of vision:

Same business is seen from different angles of vision by various level of management. Each discipline of management (production, finance, marketing, personnel etc.) will view the business in the perspective of its own activi­ties.

3. Decentralisation of Decision making powers and delegation of authority:


Management by objectives necessitates decentralisation of decision making powers and delegation of authority so as to fulfill the objectives. Too much decentralisation is also problematic.

4. Professional specialisation:

More and more specialisation is leading towards more and more departmentalisation, and creates problems of integration of various efforts. Hence functional manager measures his performance by his own professional crite­ria, instead of measuring his contribution to the enterprise.

5. Lack of financial benefits:

If the reward, promotion or increments are not allowed for good performance, then with the passage of time, consistent good performance cannot be maintained.

6. Self-control through management:


In the system of management of objectives, Manager controls his own performance. This self-control means desire to do the best then that prescribed. But difficulty is that the managers may put up the data and other information in distorted way to show good performance on papers only. This abuse may harm the enterprise by demoralising management and by seriously lower­ing the effectiveness of managers.