Management by Objectives is most often seen as only a management strategy.  However, it is a popular evaluation strategy too. Management by Objectives, otherwise known as “MBO,” is a management strategy that was popularized by Peter Drucker in the 1950’s. Drucker is known as one of the most influential people in modern corporate management. The theory of MBO evolved from Drucker’s questioning of the classical and human relations schools of management (Communication Theory, n.d.). In both schools of thought, effectiveness was not acknowledged as an important organizational foundation. Instead, it was a natural outcome. Drucker theorized that effectiveness should be the foundation of every company, and not efficiency as theorized by the schools of thought (Communication Theory, n.d.).  He developed MBO whereby executive management discussed organizational goals and set objectives for employees based on those goals to be evaluated upon completed of the goals and objectives.

The theory behind MBO is basic. The theory states that employees who participate and have input into designing their objectives will feel more valued by an organization. In turn, they will be more adept to fulfill the objectives and contribute to the success of the organization. The theory hypothesizes that allowing employees to participate in goal setting enhances participation, commitment, and loyalty among employees (Gordon, 2022). The process of Management by Objectives can be described in five steps.

1. Senior management discusses their business goals for a particular time and then lists several objectives based on their goals.
2. Senior management announces company objectives to their employees. Employees review the company objectives, discuss, and recommend amendments, and determine a plan that will nurture their ability to reach their objectives.
3. Management monitors employee progression toward the agreed upon objectives and assists where needed.
4. When the business cycle is complete, management and employees talk about how well the objectives were met through an evaluation process. During this process, management will compare what the employee completed and compares it to the initial agreement performance agreement.
5. Employees are recognized and rewarded with raises, bonuses, promotions, or new responsibilities based on how they performed.

The focus of this theory is centered around rewards, rather than punishment. Therefore, it requires management to provide unwavering support to their employees (Gordon, 2022). If results are not met after evaluation, managers attempt to take corrective action to motivate employees and modify objectives as needed. For this theory and management style to be successful, objectives need to be specific, measurable, achievable, relevant, and time-bounce, otherwise known as “SMART” (Miller, 2021).

Advantages

Management by Objectives has several advantages. Some of the advantages include an enhanced understanding of tasks and duties by employees, a reduction in ambiguity around task responsibility, increased communication within the organization, increased employee focus, motivation, and job satisfaction, individualized results expectations, and alignment of effort toward company goals.

Disadvantages

However, MBO has been the subject of criticism for a few reasons. Some of the disadvantages of MBO include poor stimulation to innovate, ignorance of the environment and the resources available to complete the goals, polarization between people and departments who are not motivated to assist beyond their own goals, misplaced importance given to goal setting rather than the completion of those goals, the time consuming nature of implementation and maintenance, and the inability to identify and quantify all objectives necessary for organizational success (Communication Theory, n.d.).

Project Management

Despite its criticisms, MBO has been a key foundation to Project Management today and challenges some of the more traditional planning processes (D’Entremont, 2012).  MBO helps Project Managers move away from decisions being made strictly by management. Instead, it promotes including the entire organization in the planning process. Also, MBO helps Project Managers focus on the larger picture, instead of getting lost in the small details. Ultimately, MBO improves organizational communication and allows management and employees to collaborate on obtainable objectives to maximize resources and obtain optimal results (D’Entremont, 2012).

Human Resources

Human Resources could be responsible for establishing the company objectives and strategies through facilitation with management and employees. They would be responsible for conveying the strategy to the organization to ensure a clear understanding and idea of what success is to the organization, and how it will be measured. Human Resources would play a major role in supporting the organization to identify the company culture.

Human Resources may be involved in training management and then the employees in the MBO approach. They would design the forms used to design the goals and the evaluation forms.  Human Resources may assist the management team in setting up the goals with the employees. An important step in MBO is the monitoring and evaluation of the performance and the progress of the employees. Human Resources, along with management, or perhaps independently, may provide the monitoring and evaluation processes.

Human Resources would follow through with the same processes and steps for projects within the organization by training the Project Manager and team in the MBO approach, providing the forms to set up the goals and objectives, assisting with monitoring progress throughout the project, and completing evaluations upon completion of the project.

Class of 2022 Contribution: Stephanie Balch, Hannah Vandenbosch, Mostafa Elkenaby, Karli-ann Steen