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Management by Objectives (MBO)

Definition

Management by objectives is a dynamic system which seeks to integrate the company's need to clarify and achieve its profit and growth goals with the manager's need to contribute and develop himself. It is a demanding and rewarding style of managing a business.

Explanation

Since the best managers have always practised management by objectives, the cynic's view that it is merely old wine in new bottles is perhaps valid. However, it is timely and useful to restate basic principles and to demonstrate that there is a practical approach which will help all managers to improve their performance. Companies are meeting increased pressures of competition and rising costs and management’s task is becoming more complex with accelerating changes in markets, technology, and social environment. Yet, many companies are content to follow tradition based on past success. The explosive growth in knowledge had led to more specialisation, with the result that fewer general managers and entrepreneurial types are being produced. Moreover, the time span and range of objectives set by companies is often dangerously restricted. Management by objectives must create a climate of opinion in which these and other problems are recognised as well as providing the framework of techniques for solving them.

Illustration

When a worthwhile system of management by objectives is operating in a company there is a continuous process of:

  1. Reviewing critically, and restating, the company’s strategic and tactical plans.
  2. Clarifying with each manager the key results and performance standards he must achieve, in line with unit and company objectives, and gaining his contribution and commitment to these.
  3. Agreeing with each manager a job improvement plan, which makes a measurable and realistic contribution to the unit and company’s plans for better performance.
  4. Providing conditions in which it is possible to achieve the key results and improvement plans, notably:
    1. An organisation structure which gives a manager maximum freedom and flexibility in operation.
    2. Management control information in a form, and at a frequency, which makes for more effective self-control and better and quicker decisions.
  5. Using systematic performance review to measure and discuss progress towards results, and potential review to identify men with potential for advancement.
  6. Developing management training plans to help each manager to overcome his weaknesses, to build on his strengths, and to accept a responsibility for self-development.
  7. Strengthening a manager's motivation by effective selection, salary, and succession plans.
[figure “Management development - Selection succession….” to be inserted here]

These techniques are interdependent and the dynamic nature of the system can be shown as in the diagram above. It follows that the development of managers, which is a matter of vital importance to every company, only makes sense if it is integrated with the purpose of the business. Looked at in this way, management development is a valuable by-product of running a business efficiently.

Some further comments can be made on: setting company objectives; key results analysis; management development and training.

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