MBO – more popularly known as Management By Objective, is a term that was first coined by Peter Drucker in 1954 in his book The Practice of Management. The essence of MBO is to define clear objectives within an enterprise, that helps management and employees work towards a common goal. The process involves setting short term and long term goals, choosing a corrective course of action and making strategic decision.
In any organization, typically all employees should be involved with the goal setting process and should choose the appropriate course of action to be followed. That way they are more likely to fulfill their responsibilities and in-turn achieve organizational goals.
The first step in implementing MBO is to establish long-range company goals in such areas as production, marketing, services, sales, R&D, human resources, finance, information systems etc. A business owner should begin by defining the company’s current business status and looking for emerging market trends that may require adaptation. This is kind of long term planning provides a framework for forecasting the organization’s future staffing levels, marketing approaches, financing needs, product development focus, and facility and equipment usage.
Typically, companies should plan yearly and then break down these long term plans into department wise objectives and eventually as achievable goals for employees. A point to note here is to make sure employees from all departments clearly understand and support the overall goal of the organization. As a manager or business owner, it is important to be involved in such goal setting activities, from the very beginning, as this will increase their commitment to achieving the goals, allow them to communicate the goals clearly to subordinates, and help them to create and align their own goals to support the company goals.
Overall, establishing an MBO system in any organization may be difficult, but it is usually worth it. It is always advisable to introduce MBO slowly into an organization, and all employees should be given the opportunity to set short terms goals to start.
The most difficult aspect of implementing MBO may be simply getting people to think in terms of results rather than activities. Therefore, a formal training program for business owners is always a necessary tool that helps them understand the importance of MBO. Hiring an outside consultant to explain the process of setting an MBO program within an organization is always a good start.
MBO is not a definite theory, but more of a collective goal setting activity. It helps business owners actually analyze their actual goals by looking at the bigger picture.