Management by Objectives (MBO)

Keywords: mbo program disadvantages, benefits of mbo program

Motivating employees seems to be a challenge for managers – Discuss the advantages and disadvantages of the MBO program and provide at least one example to support your discussion.

One of the basic principles of management based on the idea that an individual’s performance depends on its level of competence and motivation.

The motivation is an element of encouragement and incentive that allows to effectively mobilize the efforts of employees towards achieving its objectives.

Like participation, motivation is often presented as a panacea, a solution for dealing with absenteeism, lack of energy and the sluggishness of staff. But before being a solution, the motivation is primarily a problem for managers.

Management by objectives (MBO) is one of the existing management styles which a manager may use to motivate its employees.

What is Management By Objectives (MBO)?

Management by objectives (MBO) is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources.

It aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees get strong input to identify their objectives, time lines for completion, etc. MBO includes ongoing tracking and feedback in the process to reach objectives.

This fundamental model does not represent a universal solution for all organizational problems, but a model among others, to manage an organization.

Origin

Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in his book ‘The Practice of Management’. The fundamental principles which this management philosophy lies on, aim at helping both the organization and employees to develop.

The emphasis must go from the management of activities themselves to management focused on organizational goals.

It concerns, among other things, the strategic planning, marketing, finance, accounting, human resources management, management of operations and so on.

Coming back to the source allows noticing that we often move away from the origin principles.

It can be criticized for its approach focused only on the outside organization client satisfaction, thus neglecting those situated within the organization.

Also, we notice a very quantitative approach omitting behavioural elements related to the achievement of objectives.

Usage

The MBO can serve over the four classical phases of management namely planning, organizing, direction and control. Managers at all levels and sometimes even employees can use it, as long as their positions leave a room for some initiatives. As a tool for planning and control, it is hard to find better.

It is also an excellent method of performance evaluation to be used alone or in addition to another based ideally on behaviour. However, the fundamental process of MBO must be used.

Indeed, it sometimes makes people falsely believe that they work by objectives. This situation happens often for employees who receive a portion of objectives from their manager without a compromise.

As it is shown in the below diagram, the organization systemically can be seen as a place of transformation of inputs into outputs.

OUTPUTS

Transformation

INPUTS

The following diagram shows how the organization planning is done contrary to the execution.

Activities

Clients

Objectives

Needs

Resources

Execution

Planning

According to the diagram above, it is clear that our work is driven and oriented by client needs.

The clients’ needs are evaluated as far as possible then comes the formulation of objectives that meet their needs depending on the following criteria:

Specific

Measurable

Achievable

Realistic, and

Time-related

Advantages

Involving employees in the whole process of goal setting and increasing employee empowerment increases employee job satisfaction and commitment.

The goals thus set are clear, motivating and there is a linkage between organizational goals and performance targets of the employees.

For individual

The MBO can help in developing different qualities in a given person: honesty, self-confidence, professionalism, discipline, independence, maturity, realism, logic, sense of negotiation, ability to write documents, etc…

He becomes master of its action within the organization; he knows where he goes and can easily manager his time. He avoids falling into the Activity Based Management system where he let himself lead by others in the preparation of its tasks. At this time, he sails until someone pushes him in a specific direction. The visualization of his objectives helps the manager to better communicate with his subordinates what he is expecting of them.

At the evaluation level, which will focus on results and not on his personality, the individual becomes involved from beginning to end. Indeed, he participates in determining norms for success (writing objectives at the beginning of a period), measuring results (reports at end of period), the comparison norms- results and finally, the ensuing discussion. His manager becomes an advisor instead of a judge, both manager and individual work to build the future by analyzing the past. Thus the evaluation turns into instructive rather than punitive.

For Organization

The organization should benefit from the improvement of productivity through better time management. The link between resources given to the managers and

concrete results can be established. The spreading of objectives through periodic reports creates a coaching effect, because everyone can see the contribution of others to the progress of the organization. The manager knows who does or who has the best production. He has a starting point to make the restructuring of teams or to fix the remuneration. Generally, the evaluated individuals will accept the decisions made about them. However, if the system is too punishment oriented, it may be boycotted by the persons concerned whose the collaboration is proving to be essential. The organization does not need to establish a

daily monitoring system, since managers will be accountable for achieving their goals at a given date. The manager plays a more positive role to his subordinates than in a conventional system, so that we can see an improvement in the organizational climate.

Disadvantages

For individual

If he can not develop the qualities required for the method, the individual may not be active properly, suffer stress because his incompetence might appear one day and finally, the organization could fire him or he will consider himself to change his job.

The establishment of objectives takes time and effort, as well as writing reports explaining the level of achievement. It therefore increases the formality of the administrative procedure.

Being evaluated only according to the quantifiable results achieved can be frustrating, since one can reach several others which are not quantifiable. Similarly, the evaluation of behaviour is neglected as an important dimension.

For Organization

Implementation typically takes several years and costs quite expensive, since it operates in the steps of an organizational development. In addition, you can invest without success if the resistance to change is too great.

As we ignore the non-quantifiable results and fail to measure the behaviour of managers, focusing only on the quantifiable results, we neglect certain dimensions

of evaluation and we can evaluate some people unfairly. They can negotiate lower targets than their competences, so they can always achieve. For example, a salesperson might set a goal of increasing customer orders by 1 percent in dollar terms over the course of a year even if he is able to do more.

Q2. It’s not what you say, think, or believe but what you do that really counts. Discuss your opinion on this subject as it relates to Leadership. Using the Denny’s case study presented in your course documents, please identify where this statement may be applicable.

Denny’s case summary

This case concerns allegations of racial discrimination at Denny’s restaurants and the corporate response to those allegations. It turns on the point of how Denny’s parent company can make its goodwill response public after using a traditional behind-the-scenes approach.

Jerry Richardson failed to bring change in his organization through his communication way.

It’s not what you say, think, or believe but what you do that really counts

What we say, think or believe

These represent only and only my thinking and my opinion. In such circumstances, when you are a leader, there is high risk of of loosing participation of stakeholders in decision making, which will impact on ownership of the decision. It is only when you understand, that you can implement (execution). The lack of ownership of the decision will have a considerable impact on sustainability of the decision in future course. This is a very critical issue in most of enterprises such as Denny’s restaurant where all decisions have to be dictated. Managers or leaders need to learn on how to involve their members in any decision related to company’s life; otherwise, implementation of those decisions will not bring the expected results.

What you do that really counts

Yes, because it is like a demonstration. Some times it is difficult to explain a scientific or philosophic idea as it is difficult to implement decisions taken in non participative condition even if the analysis has demonstrated the success. In such cases, there is need to demonstrate that this or that one can work out.

Such approach can have the following advantages:

Knowledge transfer: This facilitate the quick understanding because you can compare the theory from a live example.

Secondary, the beneficiaries or stakeholders can easily replicate the idea because they can see correctly how this is organised and made. Of course this requires a minimum of accompanying measures such as training or field visit where the project has been implemented.

Thirdly, when subalterns understand and can practice what their leaders shown as a demonstration.

In conclusion,

Even if leadership has to bring new idea, attitude and believe to move forward, there is high demand to ensure that the new idea has got enough time to be disseminated to the beneficiaries so that they can understand its importance in regards to their livelihood and then because they are the one to implement it, it will make life easier (ownership and sustainability). Activities such training, sensitization, mobilisation, study tours are important in case only new innovation/technologies, otherwise, we have to demonstrate what we think so that people can easily adopt and own it.

It is helpful to have an understanding of why Denny’s employees resist change, because understanding this might allow managers to plan strategies to reduce resistance. As top manager Jerry Richardson should be aware that not all resistance is about emotion, to win employee’s commitment for change, he must engage them on both a rational level and an emotional level.

Q3. Managing selecting and managing people is key responsibility of the manager, please review the Vidsoft case study presented under Course Documents (midterm) and discuss what you think the following people should have done differently to prevent this type of situation from occurring again:

a. Babatunde

b. Keith Nash

Introduction

Promoting from within Vidsoft was good business practice and a powerful employee motivator. Internal promotion policies can generate loyalty through the recognition of individual merit and improved morale by fulfilling employees’ need for increased status.

The Vidsoft case

The Vidsoft case deals with an interpersonal conflict created by the protagonist’s decision to promote one of his staff. While the decision made good business sense, it created a host of issues between two team members and potential implications for the rest of the group. Given the multicultural staff, the conflict and its resolution are especially complicated.

Alaji Babatunde, senior manager at VidSoft faces a potential “Crucible of leadership” as he is now placed in a position of deciding the fate of two members of his staff. If handled correctly, this could define his career as a manager. If handled incorrectly, this could prove to be his downfall. In order to resolve the current problem, Brabatunde’s options are; to grant Alex Hsu’s request to be transferred to another team that does not directly report to Jenna Li (granting this request may send the negative message that upper management does not support Jenna Li’s abilities); allow Jenna Li to manage the situation as she sees fit; or escalate the matter to his senior manager, James White, in order to resolve this stalemate?

Babatunde has done away with the “status quo” by employing an alternative reporting structure for his team than was previous the practice at VidSoft. As his team grew due to Vidsofts’s expansion, Babatunde assessed that the standard reporting structure did not serve his objectives, which were primarily to maintain a high level of productivity with a larger team while still maintaining a close and personal reporting line. However, with this new reporting structure came a new challenge, mainly the current conflict between Alex Hsu and his new manager, Jenna Li.

Alex Hsu’s request to be transferred to another team that does not report to Jenna Li appears to be a request made based on a clash of personalities. However, on closer inspection, it appears that it may stem from the fact that both he and Jenna Li are of Chinese decent. Alex Hsu’s reluctance to accept Jenna Li as a manager goes beyond his initial argument that, due to Li’s lack of experience as a manager and her technical background, he can not learn anything from her.

a. Babatunde

The effective management of people in Vidsoft requires an understanding of motivation, job design, reward systems, and group influence.

It’s Babatunde responsibility to prevent and resolve conflict of his team. However there is no guarantee that he could be able to prevent conflict. A key issue, therefore, in preventing conflict is the importance of ensuring that communication takes place as effectively as possible.

That conflict could have been prevented by making sure that there is a suitable forum for dealing with any differences and tensions in the early stages before they develop into much more serious conflicts. This, therefore, involves creating a working environment in which openness, honesty and trust are valued – something which requires leadership skills.

Preventing conflict is therefore an issue closely associated with leadership. A good leader is someone who is able to nip conflicts in the bud wherever possible, and to deal with them positively and constructively in those situations where they cannot be avoided.

Team members should all be treated in a comparable way without favorites or discrimination.

Different team members have different skills and these differences should be respected. Involve all team members and make sure that people’s views are considered. He should always be honest about what is going well and what is going badly in his team.

b. Keith Nash

As a top manager, he could set guidelines for promoting an employee within Vidsoft and making sure everyone in Vidsoft knows what’s on the list. Then monitor how employees match up, be it in formal annual reviews or on an ongoing basis as the situation dictates. Encourage employees to suggest others in the Vidsoft Company they think hit those guidelines.”Employees should never really be surprised about any sort of promotion decision. It’s important to have an open dialogue on an ongoing basis so that everyone knows where he or she stands pretty much all the time.”