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Chapter 8 - Management By Objectives

B-Com Part 2 Management Notes


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Default Chapter 8 - Management By Objectives


Chapter 8 - Management By Objectives

* Management by Objectives

* Benefits of Management by Objectives

* Limitation of Management by Objectives

* Steps for improving the prospects of Management by Objectives

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Default Re: Chapter 8 - Management By Objectives

Q.1. What do you mean by Management by Objectives? Explain the goal-setting process through Management by Objectives?

OR

Discuss the strengths and weakness of Management by Objectives. What are the minimum requirements of a Management by Objectives programme?

OR

Define Management by Objectives. Explain the Management by Objectives Cycle.


Meaning and Definition of Management by Objectives (MBO)

Management by Objectives (MBO) has become a widely used slogan. It is a basic mentality that a high-performance manager brings to the job of managing. Peter Drucker coined the term "Management by Objectives" in 1954. He profounded Management by Objectives concept and emphasized it and than it developed as a management philosophy. Some authors has used the term "management by results" interchangeable with Management by Objectives.

Management by Objectives is an overall philosophy of management that concentrates on goals and end results. Management by Objectives is based on the presumption that people perform better when they know what is expected of them and can relate their personal goals to organisation goals. It also assumes that people are interested in the goal setting process and in evaluating their performances against the target.

Some important definitions of Management by Objectives may be given as follows:


George S. Odiorne

The system of management by objectives can be described as a process whereby the superior and subordinate managers of an organisation jointly identify its common goals, define each individual's major ares of responsibility in terms of the results expected of him and use these measures as guides for operating the unit and assessing the contribution of each of its members.


Peter Drucker

He says that management by objectives and self-control is a philosophy of management, resting on a concept of human action, human behaviour and human motivation. Management by objectives applies to every manager at any level and to all business enterprises whether large or small. He says the Management by Objectives "ensures performance by converting objective needs into personal goals"


Heinz Weihrich and Harold Koontz

"Management by objectives is a comprehensive managerial system that integrates many key managerial activities in a systematic manner and that is consciously directed toward the effective and efficient achievement of organizational and individual objectives."


Essential Characteristics of Features of Management by Objectives

A careful study of the above definitions bring out the following features of Management by Objectives:

1. Management by Objectives is a philosophy or a system and not merely a technique.

2. It emphasizes participative goal setting.

3.It clearly defines each individual's responsibilities in terms of results.

4. It focuses attention on what must be accomplished (goals), rather than on how it is to be accomplished (methods).

5. It converts objectives needs into personal goals at every level in the organisation.

6. It establishes standards or yardsticks (goals) as operating guides and also as basis of performance evaluation.

7. It is a system intentionally directed toward effective and efficient attainment of organizational and personal goals.


Management by Objectives Process

There are four important and essential steps or elements in the Management by Objectives process as follows:


1. Setting Objectives

Goal setting or objective-setting is a multistage process. It starts with the examining of the current state of affairs, level of efficiency, threats and opportunities. Then the key result areas are identified, such as product markets, improved services, lowered costs, work simplification, employee motivation, profitability, innovation and social responsibility. The performance of these areas is critical for organisation in the sense that failure in these areas my result in failure of the organisation and this is why they are known as "key" results areas. Peter Drucker says, "Objectives are important in every area where performance and results directly affect the survival and prosperity of business."

Therefore interacting or joint goal setting takes place. Subordinates are actively involved in formulating goals at every level is the organisation. Such goals are finished with reference to the overall objectives of the organisation. Care is to taken establish goals that are measurable and contribute to the accomplishment of corporate objectives. Proper attention is given to "time" element also. Such goals may be long-range, medium-range or short-range. Further, resources availability also becomes an important consideration in goal setting. There is always need to decided priorities among the different objectives keeping in view the environment which business operates as well s possible future changes in it.


2. Developing Action Plans

Set objectives must be translated into action plans. It requires assignment of specific responsibilities to different departments, divisions and individuals. It also requires allocation of necessary resources needed to perform the assigned responsibilities. Time dimensions are also to be decided in order that targets are reached without any unwarranted delays.


3. Periodic Review Or Monitoring the Progress

After setting objectives and developing action plans, it is necessary to establish a proper monitoring system with a view to regularly keeping the activities and efforts on a prescribed path leading to the ultimate objectives. The progress is monitored without day-to-day interference in subordinates functioning. At agreed intervals, results are measured in terms of quantity, quality, time and cost against the set objectives. It is ensured that the deviations found, if any are thoroughly discussed and immediate corrective actions are taken to set them right on the course. Such a regular monitoring and periodic review not only provide feedback, which is essential for completion of work in time, but also motivates the managers accountable for performance. Periodic review and monitoring are done at departmental levels generally.


4. Performance Appraisal

This is the last phase of Management by Objectives programme that evaluates performance annually. The annual review or appraisal is comprehensive and is done at the organizational level. The actual annual results are evaluated against the set objectives. Such assessment is also used for determining targets for next year for modification in standards (goals) if needed and for taking corrective actions in order to avoid deviations from predetermined objectives.


Management by Objectives Cycle and Recycling Objectives

When all the four steps or phases in the Management by Objectives as mentioned above are completed then one Management by Objectives cycle is said to be over. The last phase or the fourth step in the Management by Objectives cycle is used as an input for recycling objectives and other actions. Objectives are changed or modified in the light of the environmental changes and the experiences gained over the year. Then, revised action plans are developed as per needs, periodic review is done. And performance is gain evaluated. Thus goes on the recycling.

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Default Re: Chapter 8 - Management By Objectives

Q.2. Describe the benefits of Management by Objectives
Benefits of Management by Objectives

1. Balanced Stress on Objectives

Management by Objectives forces managers to set objectives with balanced stress on key result areas. Thus, crisis conditions are avoided to take place in the organisation.


2. Better Managing

Management by Objectives forces managers to think about planning for results, rather than merely planning activities or work. Managers are required to ensure that the targets are realistic and needed resources are made available to subordinates to achieve the targets. Clearly set objectives for the subordinates serve as evaluation standards as well as motivators for them. Thus, Management by Objectives results in improvement in managing.


3. Better Organizing

The positions in the enterprise can be built around the key result areas. Managers are required clarifying organizational roles and structures. Hence better organizing.


4. Greater Employee Involvement and Commitment

If Management by Objectives programme is installed in an organization, people are not just doing work, following instructions and waiting for guidance and decisions from "above" and the superiors do not dictate things. They are now individuals with clearly defined goals, which have been formalized through their own participation in the process. Moreover, they fully well understand the areas of their discretion - their authority. They are also confident of getting needed help from their superiors. There is clarity of roles. These elements together make for a feeling of greater personal commitment on the part of the subordinates. They become more enthusiastic in attaining the targets. There is high motivation; there is high morale too.


5. Orderly Growth of Organization

Management by Objectives provides for the maintenance and orderly growth organization by means of predetermined set of objectives for everyone involved. It is also provides in measurement of what is actually achieved. The progress and even the tenure of all responsible managers are dependent upon their producing the results. Management by Objectives emphasizes the ability, skill and achievement of managers rather than their personality. Thus, the orderly growth and development of the organisation is ensured.


6. Development of Effective Controls

Management by Objectives not only sharpens the planning, but also develops effective controls. It specifically provides for periodic reviews and annual performance appraisals serving as the needed feedback for further streamlining the objectives or targets. It makes possible for a manager to control his own performance, high degree of self-control resulting in stronger motivation. Control from "above" is substituted by control from "self" Management by Objectives facilitates coordinated effort and teamwork.


7. Generating of an Ideal Atmosphere

Douglas McGregor says. "The motivation, the potential for development, the capacity for assuming responsibility, the readiness to direct behaviour toward organisation goals are all present in people. Management does not put them there. The essential task of management is to arrange organizational conditions and methods of operations so that people can achieve their own goals best by directing their own efforts towards organizational objectives." This is an ideal atmosphere suitable for better industrial relations and ensured success of the enterprise.


8. Objective Appraisal

Management by Objectives provides a scientific basis for evaluating a subordinate's performance, because goals (standards) are jointly set by the superior and the subordinates.

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Default Re: Chapter 8 - Management By Objectives

Q.3. Describe the limiatation of Management by Objectives.
Limitations of Management by Objectives

In spite of its many advantages, the Management by Objectives has some weaknesses as follows:


1. Unfavourable Attitude of Managers

Some managers have an attitude that the regular attention required of them by Management by Objectives system, draws heavily on their busy time-schedule and is not consistent with their roles. They feel that it is not so effective a way as some other approaches. Some managers view their roles as principally involving policy-making, budget formulation etc.


2. Excessive Paper Work

Management by Objectives programme involves a huge amount of newsletters, instruction booklets, training manuals, questionnaires, performance date, review and appraisal reports to be prepared by the superiors and subordinates. Thus, Management by Objectives is said to have created one more "paper mill" in the organisation added to the already existing large amount of paper work.


3. Problems about Goal Setting

Management by Objectives requires issuance of proper, exhaustive guidelines to goal-setters. However, managers responsible for practicing Management by Objectives do not themselves understand and appreciate a good deal about it, expecially about the concept of self-control and self-direction which is basic to Management by Objectives. Similarly, there are several other difficulties in goal setting:

* Positive and active participation from subordinates is not easily forthcoming.

* Truly verifiable goals are not easy to formalize.

* Empahasis is put on short-range goals, where as long-range goals are avoided, though long-range goals are vital for growth and development of the organisation.

* Goals remain inflexible and rigid. For example, changes desirable in annual budgets are not easily accepted in the middle of the year.

* Over-use of quantitative goals jeopardizes the qualitative aspect which may even more important the quantification is some case.

* Goals tend to take precedence or priority over the people who uses them. Any action is acceptable if it serves in the attainment of goals, without caring of its impact on people. Thus, all these difficulties come in the way of making management by objectives operational in an organisation. Further, managing involves more than goal setting.


4. Time-Consuming Nature of Management by Objectives

Management by Objectives system is time-consuming especially in the early phases of its introduction when employees are unfamiliar with its process. Since managers also have to learn the necessary skills it is commonly estimated that it takes 2 years to take an management by objectives programme working smoothly. A few management by objectives programme working smoothly. A few management by objectives programmes have failed because managers could not spare adequate time needed for its various phases.


5. Difficulties in Making Organizational Changes

Management by Objectives system requires to be integrated with other systems in the organisation, such as budgeting, forecasting, communication, control etc. Sometimes current practices may have to be changed. Thus, greater decentralization may become a necessity. Moreover, some systems may required to be changed, for example, control system, data processing system etc. Managers feel such changes as time-consuming, distributing there "status quo" (or as it is) facilities and difficult in different other ways.


6. Failure to Teach Management by Objectives Philosophy

Management by Objectives as a concept is simple but it is deceptively so. It is much easier to explain this principle than to introduce it to an organsation, especially in a very dynamic and changing environment. Moreover, management by objectives is still building toward achieving a fully institutionalized system of management to be used by the entire key manager. Sometimes managers fail to use objectives as a constructive force, even with the full participation and assistance of their superiors. In order to understand the philosophy of management by objectives, managers have to make themselves professionals.















Q.4. Describe the steps for improving the prospects or effectiveness of Management by Objectives.
Steps for Improving the Prospects Or Effectiveness of Management by Objectives Application

1. Top Management Support and Commitment

Management by Objectives should be used by a strong power and authority structure, i.e. by the top management, so that "planning for work" may be rightly shifted to "planning for goals or results". David Hampton says, "If you want to make Management by Objectives work, you must integrate it into the real systems of work and influence." Management by Objectives must be considered a way of managing and not to an addition to the managerial job. Harold Koontz points out. "An effective programme of managing by objectives must be woven into an entire pattern and style of managing. It cannot work as a separate technique standing alone." In this whole content, top management support and commitment to management by objectives programme is essential and vital.


2. Other Important Steps

* Managers should be given adequate training in management by objectives philosophy and procedures before installing the system. For this purpose, adequate time and resources are required and therefore be arranged.

* Necessary mechanism for making management by objectives programme a success should devised and for this purpose the administrators of management by objectives programme must be endowed with sufficient authority to punish and reward at their own levels.

* Feedback should be made effective the more specific timely the feedback the more positive the effect.

* Employee Participation should be made real and committed by properly motivating them.

* Management by Objectives must be carried all the way down to the first line or supervisory level.

* It should be seen that conflicting objectives are not set at any level and important non-quantifiable objectives are not brushed aside.

* During the course of implementation of management by objectives the required redistribution of powers and status should be seriously considered so as to avoid all kinds of unnecessary infighting and negative conflicts.

Most of the limitations or weaknesses of management by objectives are not of formidable (uncontrollable) nature. Some minor adjustments in attitudes, initiative and determination on the part of the managers may overcome all the difficulties and pitfalls, which come in the way of management by objectives programme. It appears from the widespread discussions and adoption of management of objectives concept in private and public enterprises that it has come to stay in the field of management.

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