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1.1 Introduction:
Management by objectives (MBO), also known as management by results (MBR), is a process of
definingobjectives within an organization so that management andemployees agree to the objectives
and understand what they need to do in the organization in order to achieve them. The term
"management by objectives" was first popularized byPeter Drucker in his 1954book The Practice
of Management.
The essence of MBO is participative goal setting, choosing course of actions and decision making. An
important part of the MBO is the measurement and the comparison of the employees actual
performance with the standards set. Ideally, when employees themselves have been involved with the
goal setting and choosing the course of action to be followed by them, they are more likely to fulfill
their responsibilities.
According to George S. Odiorne, the system of management by objectives can be described as a
process whereby the superior and subordinate jointly identify its common goals, define each
individual's major areas 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.
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1.2 History and Evolution:
This is a brief review of the history of the management by objectives approach to managing people
and projects, concluding with recommendations for how best to apply the findings in the 21stcentury.
Specifically that people need just four things to perform well.
Several premises are developed in this workbook, including:
1. Past MBO models have all been eclipsed in history because their assumptions did not take
into effect certain aspects in the workplace reality. The assumptions proved over time to be quite
limiting, forcing the evolvement of management models with a new or improved set of assumption
modifiers.
2. The current model of project management is an evolution of MBO theory, and like previous
MBO derivatives, is also limited by its assumptions, with recommendations for needed change and
expansion to the MBO model in the 21stcentury to get the best out of people, given the increasing
complexity and escalation in rate of change in many sectors.
3. The GAPR2model is presented as incorporating the needed changes to perform well in the
21stcentury. Built upon a technology that enhances the effects of three legsto help get the most out
of each day and the best out of your people:
Using Goals as Defined Outcomes (Userexperience) Working a logical and flexible Action Plan Respond to Results, with both individual adaptation and recognition
The MBOmodel sort of came and then faded, without leaving an obvious visible impression on most.
It seemed to exit from the fore-front of management focus by the downsizing and work group turmoil
and market downturn of the early 90s. Yes, every organization has to set goals, but organizational
effectiveness was going to be accomplished by macro efforts such as down-sizing, not a style of
managing, a way of organizing what topics and agenda to focus upon in a given day.
With the upturn of the market and the start of the Internet gold rush, management by objectives
slipped further into the past. The term management itself seemed to lose a sense of compelling
interest. Riches were made based upon technology, upon acquisitions, upon something new, upon
association with the WEB, not (for heavens sake) management of people and their work
effectiveness.
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In effect MBO theory has undergone a series of evolvements, and is presently embedded in the
structure of project management theory as we know it. Illtake you through a quick look at its various
historical stages of development in this paper; what was driving the evolution process, and the
emerging limitations in each model.
In effect, all of the work models to be discussed emphasize a certain perspective as key to achieving a
goal or objective. Project management integrates certain perspectives pushed to the center of
workplace thinking, and then adds its own emphasis. Each has a weakness in the assumptions that are
included in their emphasis. Letsstart by reviewing some history, albeit in a very cursory manner.
1.3 GOALS:
At its most basic level, MBO sits on top of a long history and extensive research on the value of goals
in shaping human behaviour and increasing performance. Humans seem to need goals to achieve
extraordinary outcomes. The connection between goals and elevated performance has been in the
literature as long as writing has been a part of civilization. In the last 50 years there have been more
than 300 studies completed demonstrating repeated findings, or basic truths if you will, about
humans and goals. Truths incorporated in repeated findings that:
1. People accomplish beyond their historical norm when they use goals.2. People respond positively to stretch goals that they judge to be reasonable or attainable.
3. People stay attached to goals when leaders support a goal process by both modelling the goal
related behaviour and providing feedback relative to goal progress.
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Itsin the Goal
In the 60s, 70s and 80s it seemed like a good thing to manage work efforts by goals or objectives,
hence the term management by objectives. The idea was to improve management and work
productivity in general by being more defined about the intended outcomes. MBO principals
contained many precursors to the basic building blocks used by current project management tenants.
See if you can recognize them as I review some of what the basic MBO principles included:
1. Establish a set of top level strategic goals.2. Create a cascade of organizational goals that are supported by lower level definitive objectives
and action plans.
3. Develop an organizational role and mission statement, as well as specific objectives and actionplans for each member, often in a manner that involved participative decision making.
4. Establish key results and/or performance standards for each objective.5. Periodically measurement/assessment of the status or outcome of the goals.
The assumptive strength behind the MBO model, as commonly practiced, is the notion that if a desired
outcome is defined as a goal and progress is measured towards reaching that goal, then the chances of
reaching that outcome are enhanced. From a simplistic view, if you start out with a goal in mind, you
are more likely to reach it or conversely, If you dont know where you are going, youll probably getthere.
But MBO theory didnt survive as a leading management process in the work arena. Why?
One weakness was its assumption that setting and tracking goals, often broadly or vaguely stated, or
disconnected from day-to-day operations, would lead to performance improvement. Goals were
accurately noted to regularly get stated and stored in a bound annual volume somewhere and only
occasionally used as a measurement or reference device. An effort was made to shore up thisweakness with a focusing upon the goal definition process, which became popularly known as the
acronym SMART. To put it briefly, dont just manage by objectives; manage by smart goals or
smart objectives.
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Where to Use MBO:
The MBO style is appropriate forknowledge-based enterprises when your staff is competent. It is
appropriate in situations where you wish to build employees' management andself leadership skills
and tap theirentrepreneurial creativity,tacit knowledge and initiative.
Management by Objectives (MBO) is also used by chief executives of multinational corporations
(MNCs) for their country managers abroad.
Domains and levels:
Objectives can be set in all domains of activities (production, marketing, services, sales, R&D, human
resources, finance, information systems etc.).
Some objectives are collective, for a whole department or the whole company, others can be
individualized.
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2.1 PERFORMANCE APPRAISAL:
Performance Appraisal is defined as the process of assessing the performance and progress of an
employee or a group of employees on a given job and his / their potential for future development. It
consists of all formal procedures used in working organizations and potential of employees.
According to Flippo, Performance Appraisal is the systematic, periodic and an important rating of
an employees excellence in matters pertaining to his present job and his potential for a better job.
CHARACTERISTICS
1. Performance Appraisal is a process.
2. It is the systematic examination of the strengths and weakness of an employee in terms of his
job.
3. It is scientific and objective study. Formal procedures are used in the study.
4. It is an ongoing and continuous process wherein the evaluations are arranged periodically
according to a definite plan.
5. The main purpose of Performance Appraisal is to secure information necessary for making
objective and correct decision an employee.
PROCESS
The process of performance appraisal:
1. Establishing performance standards
2. Communicating the Standards
3. Measuring Performance
4. Comparing the actual with the standards
5. Discussing the appraisal
1. Taking Corrective Action
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LIMITATIONS:
1. Errors in Rating
2. Lack of reliability
3. Negative approach
4. Multiple objectives
5. Lack of knowledge
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2.2 Appraisal by objectives:
Appraisal by objectives, the application of MBO techniques to performance appraisal, is not a new
concept. This method of personnel evaluation followed closely after Drucker's introduction of MBO.
The definition offered by Theos A. Langlie in the Encyclopedia of Managementshows the similarity
of this approach to the processes previously discussed:
...the preparation by the subordinate appraise of written statements covering his understanding of the
objectives of (a) his superior's job; (b) his own job; (c) the proper criteria of performance from his
viewpoint; (d) the situation, including problems to be overcome; and (e) his plan of action to
accomplish the objectives. This report is discussed with the supervisor for purposes of communication,
analysis, modification or approval, and appraisal.17
The development, application, and results of this technique and MBO are so similar that most articles
on MBO would need only be modified to refer to the individual instead of the task and the discussion
would remain valid. The objectives of the individual are a function of the objectives of the larger unit
of which he is a part; therefore, personal development should be a major part in any MBO program.
But appraisal by objectives can also be applied independent of task-oriented MBO.
Many of the benefits of each technique are the same. Mark Silber and V. Sherman comment on the
integration of organization and employee goals:
Organization lan, the spirit of achievement, is based on the integration of organization and employee
goals--that is, a congruence between the organization's objectives and the individual interests and
talents. Such a congruence engenders a closer identification of the employee with the system. A
climate of achievement is also generated by mutual trust and goal setting between the employee and
his immediate manager.18
The climate of achievement, like organizational morale, is not a factor that is easily measured, but the
resulting productivity and efficiency are readily identified.
As with MBO, a successful program with the communication necessary to achieve desired results
requires commitment and dedication. In order for the manager to communicate his expectations
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effectively, he must invest the time required to learn the perceptions, work values, and objectives of
his employees. Through this knowledge, the manager can achieve desired results in productivity by
achieving what Drucker terms "worker-responsibility." "Indeed, one of the major contributions of
management by objectives is that it enables us to substitute management by self-control for
management bydomination."19
Communication and feedback take many forms in an organization.
Informal feedback is just as critical as the formal evaluation process. Kellogg states, "...the single most
important contribution to excellent performance lies in the informal, day-to-day interaction between an
employee and his manager."20
Silber and Sherman support the need for communication as follows:
Both the organization and the individual require vehicles for accurate and relevant performance
feedback. Toward those ends, an organization should devote time and care to monitoring its
performance feedback loops. Otherwise everyone operates in a void-an organizational fog.
21
It would be repetitive to review many of the determinants of success or causes of failure for the
appraisal by objectives technique since they are the same as those discussed during the review of
MBO. Langlie provides an excellent discussion of the chain reaction that can occur when a program of
appraisal by objectives is implemented without adequate preparation.
If the planning is unrealistic, the implementation will be disappointing, and the appraisal may then be
inadequately descriptive of the employee's qualities. Nevertheless, this approach is not only sound forappraisal purposes, it is or should be a standard operating procedure in fulfilling the management
functions of planning, leading, and measuring.22
Does this chain reaction occur in the Air Force community? If so, it is certainly not because of a lack
of knowledge concerning the functions and principles of management.
MBO is not foreign to Air Force managers. From initial professional military education through senior
service schools, the need for clearly defined objectives and adequate communication is repeatedly
emphasized. Lessons learned in the academic environment, however, seem soon forgotten.
The management by objectives appraisal technique is not a panacea for all the problems of the Air
Force performance evaluation system. It is, however, a tool to enhance the manager's effectiveness and
increase objectivity in the evaluation process.
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3.1Features and Advantages:
Unique features and advantages of the MBO process
Behind the principle of Management by Objectives (MBO) is for employees to have a clear
understanding of the roles and responsibilities expected of them. Then they can understand how their
activities relate to the achievement of the organization's goal. Also places importance on fulfilling the
personal goals of each employee.
Some of the important features and advantages of MBO are:
1. Motivation Involving employees in the whole process of goal setting and increasingemployee empowerment. This increases employee job satisfaction and commitment.
2. Better communication and coordinationFrequent reviews and interactions between superiorsand subordinates help to maintain harmonious relationships within the organization and also to
solve many problems.
3. Clarity of goals4. Subordinates tend to have a higher commitment to objectives they set for themselves than
those imposed on them by another person.
Using Management by Objectives with your team offers several benefits.
First, MBO ensures that team members are clear about their work and how it benefits thewhole organization. It's easy to see why this type of managing makes sense: when the
individual parts of an organization work well together, the whole operates smoothly and
efficiently. By focusing on what you're trying to achieve, you can quickly distinguish between
tasks that you must complete, and those that may not be worth your time.
Implemented on a team level, MBO can be seen in many of the key techniques needed foreffective team management, includingteam briefing,goal setting,performance
appraisal,delegation,andfeedback.
On an individual level, we all want to see our work as purposeful and meaningful, and MBOmakes a clear link between individual effort and the organization's mission this is great for
our sense of purpose!
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3.2 Disadvantagesor Limitations:
One disadvantage of MBO is that it can be challenging and lengthy to implement. When applied on an
organizational level, MBO needs the organization's full commitment, and it also needs an underlying
system for tracking goals and performance.
Because you must transmit goals from level to level with agreement, goal transmission can be slow.
This means that full implementation of MBO can be time-consuming, particularly if non-accounting-
based goals are included.
This is perhaps why MBO has evolved into the idea of theBalanced Scorecard:MBO on its own
may too easily slip into being nothing more than a financial management mechanism.
There are several limitations to the assumptive base underlying the impact of managing by objectives,
including:
1. It over-emphasizes the setting of goals over the working of a plan as a driver of outcomes.2. It under-emphasizes the importance of the environment or context in which the goals are set.
That context includes everything from the availability and quality of resources, to relative buy-
in by leadership and stake-holders. As an example of the influence of management buy-in as a
contextual influencer, in a 1991 comprehensive review of thirty years of research on the
impact of Management by Objectives, Robert Rodgers and John Hunter concluded that
companies whose CEOs demonstrated high commitment to MBO showed, on average, a 56%
gain in productivity. Companies with CEOs who showed low commitment only saw a 6% gain
in productivity.
When this approach is not properly set, agreed and managed by organizations, self-centered employees
might be prone to distort results, falsely representing achievement of targets that were set in a short-
term, narrow fashion. In this case, managing by objectives would be counterproductive.
The use of MBO must be carefully aligned with the culture of the organization. While MBO is not as
fashionable as it was before, it still has its place in management today. The key difference is that rather
than 'set' objectives from a cascade process, objectives are discussed and agreed upon. Employees are
often involved in this process, which can be advantageous.
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A saying around MBO "What gets measured gets done", Why measure performance? Different
purposes require different measures is perhaps the most famous aphorism of performance
measurement; therefore, to avoid potential problemsSMART and SMARTER objectives need to be
agreed upon in the true sense rather than set.
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4.1 Drucker outlined the six-step process for MBO shown in Figure 1. Each stage has challenges
that you must address for the whole system to work effectively.
Learn how to align people's actions with your organization's goals.
In many organizations, it's hard to remember a time when non-managerial employees were kept in the
dark about strategy.
We're often reminded about the corporate mission statement, we have strategy meetings where the
"big picture" is revealed to us, and we're even invited to participate in some business decisions. We're
also kept aware of how our day-to-day activities contribute to corporate goals.
This type of managing hasn't been around forever. It's an approach called Management by Objectives
(MBO), a system that seeks to align employees' objectives with the organization's goals. In this article,
we'll look at how you can use MBO to motivate and engage your team.
About the Tool
Peter Drucker developed MBO, and published it in his 1954 book, "The Practice of Management." It
received a great deal of attention, and it was widely adopted until the 1990s, when it seemed to fade
into obscurity.
The idea may have become a victim of its own success; it became such an integral part of modern
business practice that it may no longer have seemed worthy of comment. Today, it has evolved into
theBalanced Scorecard, which provides a more sophisticated framework for essentially the same
process.
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Figure 1: The Six-Step MBO Process
To use MBO with your team, follow the steps below.
Step 1: Set or Review Organizational Objectives
MBO starts with clearly defined strategic organizational objectives, expressed in concise, easily-
understoodMission and Vision Statements.
These statements should contain specific goals. Vague goals such as "improving customer
satisfaction" may mean little to team members; and they're also difficult to measure. A better objective
is to "reduce customer complaints by 90 percent." This objective is exciting because it's challenging,
and it's much easier to measure.
Remember, if your organization isn't clear about where it 's going, no one working there will be either.
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Step 2: Cascade Objectives Down to Employees
To support the mission, the organization needs to set clear goals and objectives for every business unit,
department, team, and employee. (These goals are cascaded down from level to level.)
To make MBO goal- and objective-setting more effective, use theSMARTacronym to set attainable,
clear goals. SMART goals are:
Specific. Measurable. Agreed. Realistic. Time related.
(Notice the "A" in SMART stands for "Agreed" in a team context. When used on a personal basis,
"Achievable" is sometimes better, but, with MBO, agreement about goals is fundamentally important.)
It's not enough to set the goals and objectives at the top and hand them down. They must flow down
through various stages of agreement. This is because, in general, the goals that people meet are ones
that they agree upon. (VMOST Analysiscan help you ensure that goals and tasks align with your
organization's vision.)
Establish clear targets andperformance standardsfor each objective, which you can use to monitor
progress throughout the organization. These are also important for communicating results and for
evaluating the suitability of the goals that you've set.
Step 3: Encourage Participation in Goal Setting
Team members need to understand how their personal goals and values fit with the organization's
objectives. This will be most successful when you share and discuss goals and objectives at each level,
so that everyone understands why things are being done.
Start by meeting with your team members one on one. Discuss their personal and career goals, and
help them identify their top fivevalues. Use this discussion to guide them in writing apersonal
mission statementthat concisely defines what they want to accomplish. (If your organization
isrecruiting effectively, then new recruits' values should be closely aligned with those of the
organization.)
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Next, look at your organization's objectives. How do your team members' personal values and career
goals align with the organization's goals?
If this isn't obvious at first, use techniques such asDrill Downor5 Whysto get to the root of their
personal goals. Once you identify what they care about most, explain how employees' personal goalsalign with your organization's objectives.
Where you can, allow team members to set their own goals to help the organization achieve its
objectives. This autonomy will increase ownership and motivation for the objectives.
Rather than blindly following orders, managers, supervisors, and employees in an MBO system know
what they need to do and why they need to do it. By pushing decision making and responsibility down
through the organization, people can solve problems intelligently and independently, and this increases
motivation and effectiveness.
Every person in the organization participates in setting his or her own goals. These contribute to the
overall objectives of the team, which contribute to the objectives of the department, which contribute
to the objectives of the business unit, which contribute to the organization's objectives.
Tip:
Keep in mind that there is a lot more to motivating people than just using MBO. Take ourHow Good
Are Your Motivation Skills?self-test to find out which aspects of team motivation you can improve.
Step 4: Monitor Progress
To be effective, you must monitor your team members' progress toward achieving goals. The
monitoring system you create needs to be timely, so that you can deal with issues before they threaten
the achievement of important goals. With the cascade effect, no goal is set in isolation; and missing
targets in one area will affect targets everywhere.
On the other hand, it's essential to ensure that poorly-designed goals are not driving perverse behavior.
For instance, a call center goal of finishing all calls within seven minutes might encourage team
members to handle each call briskly, and not spend unnecessary time chatting.
However, it might be that customers' calls become more complex, but call center operators terminate
their calls after 6 minutes 59 seconds to meet their target. Clearly, this will upset customers, who then
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have to call back. In this situation, the monitoring process should pick up the shift in the goal
environment and change the goal.
Set up a specific plan for monitoring goal performance (once a year, combined with a performance
review, is not sufficient!) Plan on meeting once every three months or as often as appropriate todiscuss performance and chart progress. Write aperformance agreementfor your team members,
and make sure that they understand how you will measure their performance.
Keep in mind that MBO is essentially a management process. Don't use it as a substitute for
goodleadership:the two should work together!
Step 5: Evaluate and Reward Performance
MBO is designed to improve performance at all levels of the organization. To ensure that this happens,
you must have a comprehensive evaluation system in place.
Give constructive, thoroughfeedbackto all employees on their goals and on the organization's goals.
Remember the participative principle: when you present organization-wide results, you have another
opportunity to link specific individual and group achievements to corporate performance. Ultimately,
this is what MBO is all about and it explains how, when done right, it can spur organization-wide
performance and productivity. Just make sure that any performance monitoring system accounts for
environmental and market conditions.
Once your team members have met their goals, you canrewardthem in several ways. A simple
"thank you" for a job done well will go a long way, you can highlight their achievements to the group,
and you cancompensate them strategicallyfor the work that they do.
When you reward goal achievers, you send a clear message to everyone that goal attainment is valued
and that the MBO process is not just an exercise, but also an essential aspect of performance appraisal.
Step 6: Repeat the Cycle
Once you have been through the first five steps, the cycle will begin again with another review of your
organization's objectives and goals.
http://www.mindtools.com/pages/article/newTMM_71.htmhttp://www.mindtools.com/pages/article/newTMM_71.htmhttp://www.mindtools.com/pages/article/newTMM_71.htmhttp://www.mindtools.com/pages/main/newMN_LDR.htmhttp://www.mindtools.com/pages/main/newMN_LDR.htmhttp://www.mindtools.com/pages/main/newMN_LDR.htmhttp://www.mindtools.com/pages/article/newTMM_98.htmhttp://www.mindtools.com/pages/article/newTMM_98.htmhttp://www.mindtools.com/pages/article/newTMM_98.htmhttp://www.mindtools.com/pages/article/newTMM_54.htmhttp://www.mindtools.com/pages/article/newTMM_54.htmhttp://www.mindtools.com/pages/article/newTMM_54.htmhttp://www.mindtools.com/pages/article/newTMM_37.htmhttp://www.mindtools.com/pages/article/newTMM_37.htmhttp://www.mindtools.com/pages/article/newTMM_37.htmhttp://www.mindtools.com/pages/article/newTMM_37.htmhttp://www.mindtools.com/pages/article/newTMM_54.htmhttp://www.mindtools.com/pages/article/newTMM_98.htmhttp://www.mindtools.com/pages/main/newMN_LDR.htmhttp://www.mindtools.com/pages/article/newTMM_71.htm8/13/2019 Mbo Bhupen
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4.2 .Steps to make MBO Effective:
1. Support from all: In order that MBO succeeds, it should get support and co-operation from themanagement. MBO must be tailored to the executive's style of managing. No MBO programme can
succeed unless it is fully accepted by the managers. The subordinates should also clearly understand
that MBO is the policy of the Organization and they have to offer cooperation to make it successful.
It should be a programme of all and not a programmed imposed on them.
2. Acceptance of MBO programme by managers:In order to make MBO programme successful, itis fundamentally important that the managers themselves must mentally accept it as a good or
promising programme. Such acceptances will bring about deep involvement of managers. If
manages are forced to accept NIBO programme, their involvement will remain superfluous at every
stage. The employees will be at the receiving-end. They would mostly accept the lines of action
initiated by the managers.
3. Training of managers:Before the introduction of MBO programme, the managers should be givenadequate training in MBO philosophy. They must be in a position to integrate the technique with the
basic philosophy of the company. It is but important to arrange practice sessions where performance
objectives are evaluated and deviations are checked. The managers and subordinates are taught to
set realistic goals, because they are going to be held responsible for the results.
4. Organizational commitment: MBO should not be used as a decorative piece. It should be based onactive support, involvement and commitment of managers. MBO presents a challenging task to
managers. They must shift their capabilities from planning for work to planning for accomplishment
of specific goals. Koontz rightly observes, "An effective programme of managing by objective must
be woven into an entire pattern and style of managing. It cannot work as a separate technique
standing alone."
5. Allocation of adequate time and resources:A well-conceived MBO programme requires three tofive years of operation before it provides fruitful results. Managers and subordinates should be so
oriented that they do not look forward to MBO for instant solutions. Proper time and resources
should be allocated and persons are properly trained in the philosophy of MBO.
Provision of uninterrupted information feedback:Superiors and subordinates should have regular
information available to them as to how well subordinate's goal performance is progressing. Over and
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above, regular performance appraisal sessions, counseling and encouragement to subordinates should
be given. Superiors who compliment and encourage subordinates with pay rise and promotions
provide enough motivation for peak performance.
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5.1 Case Study-1
Introduction of management by objectives makes the employees effort concentrate on the objectives
of the company. New motivation mode in Makro, based on MBO, was supported with complex SAP
solutions.
To know companys objectives
After Peter Drucker, who in 1954 created MBO, each employee should work so that the company
could reach its strategic objectives. The method of MBO results in achieving such an effect.
Management by objectives does not let falling into a so called trap of activities that is focusing on
every-day tasks without knowing the goals of our work.
The basic task is to make the employee realize, which are the objectives of the company and what is
the way his or her work can influence their achievement. Management by objectives system is being
transposed onto the motivated remuneration system.
Well tailored, based on the MBO motivation system causes that managers and other employees,
fulfilling the tasks, complete companys priorities.
Versatile motivation tool
One of the main ideas of MBO is common work, led by all the managers striving for setting the list of
goals important for the organization. After Drucker, strategic planning of objectives led by the broadly
defined management and not only by managers of the highest level, positively impacts on task
comprehension and identification with companys objectives.
After individual professional objectives planning, consistent with corporate priorities, the next MBO
phase is to control the process of goals accomplishment. The feeling and awareness of having
achievements, which are measurable and undisputable, dependent not on the opinion of others, but
only on the results of ones own work, is a desirable outcome for employees motivation. The next idea
and result of MBO implementation is return information. Both elements let additionally motivate the
employees.
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The combination of employees motivation system with the level of goals achievement, but also
making the bonuses dependent on the results of the companys overall success, makes employees
identify with the organization.
Transposition of the responsibility for the companys development on the certain employees activities
causes, apart from motivation, realization and materialization of the abstract idea of strategic
development of the organization. The meaning of employees participation in the whole strategy
creating process is also highly important. It results in them understanding the companys requirements
and their own place in the organization. Therefore, MBO is a versatile motivation tool, which trough
the enhancement of human capital efficiency lets increasing the efficiency of the whole organization.
Starting from business
As most of the big changes at the organization, the first step of implementing MBO is a pure business
project. Information technology system is here explicitly a tool supporting the processes, tailored in
the business part. If you make any mistakes in the business phase, the support of even the most
advanced information technology tools will not contribute to a better accomplishment of the strategy.
For a greater success of the MBO project the moment of the objective setting is critical. Goals set for
the employees should be formulated clearly, be able to achieve and measure or define the level of their
accomplishment.
The business side of MBO is tailored upon the employees knowledge about the enterprise, as well as
upon the method of MBO itself. A help of a consulting company with knowledge and previous MBO
experience is highly recommended, not to make any mistakes on this stage. The desired working result
of the group implementing MBO is defining the objectives, which are:
employee-motivating fully understandable and acceptable, not only for the managed, but also for the managing
group
taken by the employees as their own tasks perceived as possible to accomplish, but giving the feeling of task complexity and encouraging
to develop professionally
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The next stage of creating the MBO program is assigning the weight to the objectives, proportion
between the quality and quantity objectives. It has to be decided, which goals personal or company
ones have to be supreme over the others, accordingly to the implemented strategy.
An important element having already certain consequences for the information technology system,
which supports the new processes, is defining employee appraisal frequency, appraisal method, scale
and option of appraisal, and choosing the method of conduct in case of failure to achieve the goals set
before.
The result of such work will be inter alia some projects of forms dealing with introducing and
browsing through the employee appraisals, from the lowers to higher levels in organizational
hierarchy. Further consequences for the information technology system carries a fact, that the level of
objectives accomplishment should be compatible with employees remuneration
Objectives and guidelines
Goals set for MBO project are related with human capital management strategy in Makro:
to motivate employees to concentrate on the fulfillment of business results of the market to distinct employees involved the most and achieving the best results in objectives fulfillment
in the group
to come into a dialog with employees on financial and operation objectives level to increase business awareness and give incentive for employees initiative
The method of MBO concerned employees motivation to a greater involvement in their
responsibilities, underlining:
rewarding for the results each employee works on his/her bonus personally, co-creating theabsolute companys outcome with his/her work
informing employeeseasy access for the employees to feedback about their work appraisal Increase of the bonus related with increase of responsibilities on certain position the higher
the level of the position, the higher part of the bonus in the whole salary.
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Case Study-2
In the mid-1980s Xerox Corporation was faced with a problemits performance appraisal system was
not working. Rather than motivating the employees, its system was leaving them discouraged and
disgruntled. Xerox recognized this problem and developed a new system to eliminate it.
Old Performance Appraisal System
The original system used by Xerox encompassed seven main principles:
1. The appraisal occurred once a year.2. It required employees to document their accomplishments.3. The manager would assess these accomplishments in writing and assign numerical ratings.4. The appraisal included a summary written appraisal and a rating from 1 (unsatisfactory) to 5
(exceptional).
5. The ratings were on a forced distribution, controlled at the 3 level or below.6. Merit increases were tied to the summary rating level.7. Merit increase information and performance appraisals occurred in one session.
This system resulted in inequitable ratings and was cited by employees as a major source of
dissatisfaction. In fact, in 1983, the Reprographic Business Group (RBG), Xeroxs main copier
division, reported that 95 percent of its employees received either a 3 or 4 on their appraisal. Merit
rises for people in these two groups only varied by 1 to 2 percent. Essentially, across-the-board raises
were being given to all employees, regardless of performance.
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New Performance Appraisal System
Rather than attempting to fix the old appraisal system, Xerox formed a task force to create a new
system from scratch. The task force itself was made up of senior human resources executives;
however, members of the task force also consulted with councils of employees and a council of middle
managers.Together they created a new system, which differed from the old one in many key respects:
1. The absence of a numerical rating system.2. The presence of a half-year feedback session.3. The provision for development planning.4. Prohibition in the appraisal guidelines of the use of subjective assessments of performance.
The new system has three stages, as opposed to the one-step process of the old system. These stages
are spread out over the course of the year. The first stage occurs at the beginning of the year when the
manager meets with each employee. Together, they work out a written agreement on the employees
goals, objectives, plans, and tasks for the year. Standards of satisfactory performance are explicitly
spelled out in measurable, attainable, and specific terms.
The second stage is a mid-year, mandatory feedback and discussion session between the manager and
the employee. Progress toward objectives and performance strengths and weaknesses are discussed, as
well as possible means for improving performance in the latter half of the year. Both the manager and
the employee sign an objectives sheet indicating that the meeting took place.
The third stage in the appraisal process is the formal performance review, which takes place at years
end. Both the manager and the employee prepare a written document, stating how well the employee
met the preset performance targets. They then meet and discuss the performance of the employee,
resolving any discrepancies between the perceptions of the manager and the employee. This meeting
emphasizes feedback and improvement. Efforts are made to stress the positive aspects of the
employees performance as well as the negative. This stage also includes a developmental planning
session in which training, education, or development experiences that can help the employee are
discussed. The merit increase discussion takes place in a separate meeting from the performance
appraisal, usually a month or two later. The discussion usually centers on the specific reasons for the
merit raise amount, such as performance, relationship with peers, and position in salary range. This
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allows the employee to better see the reasons behind the salary increase amount, as opposed to the
summary rank, which tells the employee very little.
A follow-up survey was conducted the year after the implementation of the new appraisal system.
Results were as follows:
81 percent better understood work group objectives 84 percent considered the new appraisal fair 72 percent said they understood how their merit raise was determined 70 percent met their personal and work objectives 77 percent considered the system a step in the right direction
In conclusion, it can be clearly seen that the new system is a vast improvement over the previous one.
Despite the fact that some of the philosophies, such as the use of self-appraisals, run counter to
conventional management practices, the results speak for themselves.
Management by Objectives ( MBO)
1. One method that attempts to overcome some of the limitations of result appraisal isManagement of Objectives. MBO is a philosophy of management first proposed by Peter
Drucker in 1954 that employees establish objectives through consultation with their superiors
and then uses these objectives as a basis for evaluation. MBO is a system involving a cycle that
begins with setting the organizations common goals and objectives and ultimately returns to
that step. The system acts as a goal setting process whereby objectives are established for the
organization, departments and individual managers and employees.
2. A significant feature of the cycle is the establishment of specific goals by the employee, butthose goals are based on a broad statement of employee responsibilities prepared by the
supervisor. Employee-established goals are discussed with the supervisor and jointly reviewed
and modified until both parties satisfied with them.
3. The goal statements are accompanied by a detailed account at the actions of the employeeproposes to take in order to reach the goals. During periodic reviews, as objective data are
made available, the progress that the employee is making towards the goals is then assessed.
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4. Goals may be changed at this time as new or additional data are received. At the conclusion ofthe period of the time, the employee makes a self-appraisal of what she/he has accomplished,
substantiating the self-appraisal with factual data wherever possible.
5. The interview is an examination of the employees self- appraisal by the supervisor and theemployee together.
6. The final step is reviewing the connection between individual and organizational performance.
7. To ensure success, MBO programs should be viewed as part of a total system for managing,not merely an addition to the managers job. Managers must be willing to empower employees
to accomplish their objectives on their own, giving them discretion over the methods they use.
Essay Method
In the Essay method, the appraiser requires to compose a statement that best describes the
Employeebeing appraised. The appraiser is usually instructed to describe the employees
Strengths and weaknesses and to make recommendations for his/her development. The Essay
Method provides an excellent opportunity to point out the unique characteristics of the
employee being appraised. This aspect of the method is heightened when a supervisor is
Instructed to describe specific points about the employeespromo ability, special talents,
Skills, strengths, and weaknesses.
The major limitation of the essay method is that composing an essay that attempts to cover all
of employees essential characteristics is a very time-consuming task. Plus, the quality of the
Performance appraisal maybe influenced by the supervisors writing skills and composition
Style. Example, good writers may simply be able to produce more-favorable appraisals. It
Tends to be subjective and may not focus on relevant aspects of job performance.
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5.2. Conclusion:
Management by objectives today is not just a philosophy of management. Rather, it has evolved and
developed as a system of managing that integrates a group of processes such as planning,
implementation, performance measurement and feedback, strategic planning, change management, and
so forth. To be sure, it will keep changing, growing, and developing.
Management by objectives is derived by objectives that derive from strategic planning. A sound
process of objective formulation works out well-communicated hierarchy of objectives, participatively
determined, people-motivated, and SMART objectives. A successful implementation of management
of objectives depends on lots of variables. Team work and proper use of reports and procedures are
examined as a reminder. Attaining objectives is a progress of improvement. An effective performance
appraisal system is based on verifiable measures, stresses results and self-control, and provides
continuous and immediate feedback.
By examining the philosophy and practice of management by objectives and reviewing recent research
on its model, the reader can clarify the status of the system of management by objectives within an
organization and further fit it into production.
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5.3 Bibliography:
http://www.1000ventures.com/business_guide/mgmt_mbo_main.html http://www.performance-appraisal.com/results.htm http://www.managers-net.com/managementbyobjectives.html http://managementhelp.org/organizationalperformance/managementbyobjectives.htm Peter Drucker book The Practice of Management(1954). http://www.performancesolutionstech.com/FromMBOtoPM.pdf.2004. Drucker, Peter F. The Practice of Management. Reissue Edition. Collins, 26 May 1993. Weihrich, Heinz. "A New Approach to MBO."Management World. January 2003.
http://www.1000ventures.com/business_guide/mgmt_mbo_main.htmlhttp://www.1000ventures.com/business_guide/mgmt_mbo_main.htmlhttp://www.performance-appraisal.com/results.htmhttp://www.performance-appraisal.com/results.htmhttp://www.managers-net.com/managementbyobjectives.htmlhttp://www.managers-net.com/managementbyobjectives.htmlhttp://managementhelp.org/organizationalperformance/managementbyobjectives.htmhttp://managementhelp.org/organizationalperformance/managementbyobjectives.htmhttp://en.wikipedia.org/wiki/Peter_Druckerhttp://www.performancesolutionstech.com/FromMBOtoPM.pdfhttp://www.performancesolutionstech.com/FromMBOtoPM.pdfhttp://www.performancesolutionstech.com/FromMBOtoPM.pdfhttp://en.wikipedia.org/wiki/Peter_Druckerhttp://managementhelp.org/organizationalperformance/managementbyobjectives.htmhttp://www.managers-net.com/managementbyobjectives.htmlhttp://www.performance-appraisal.com/results.htmhttp://www.1000ventures.com/business_guide/mgmt_mbo_main.html8/13/2019 Mbo Bhupen
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Thank You