Thursday, January 28, 2010

Management By Objectives: MBO

Motivating people by aligning their objectives with the goals of the organization.

For many people working in modern business environments, it's hard to remember a time when non-managerial employees weren't involved with, and interested in, corporate strategy and goals. We are regularly reminded about the corporate mission statement, we have strategy meetings where the "big picture" is revealed to us, and we are invited to participate in some decisions. And we're aware of how our day-to-day activities contribute to these corporate goals.

This type of managing hasn't been around forever: It's an approach called Management by Objectives; a system that seeks to align employees' goals with the goals of the organization. This ensures that everyone is clear about what they should be doing, and how that is beneficial to the whole organization. It's quite easy to see why this type of managing makes sense - when the parts work in unison the whole works smoothly too. And by focusing on what you're trying to achieve, you can quickly discriminate between tasks that must be completed, and those that are just a waste of valuable time.

Management by Objectives was introduced by Peter Drucker in the 1950s and written about in his 1954 book, The Practice of Management. It gained a great deal of attention and was widely adopted until the 1990s when it seemed to fade into obscurity.

Partly, the idea may have become a victim of its own success: It became so much a part of the way business is conducted that it no longer may have seemed remarkable, or even worthy of comment. And partly it evolved into the idea of the Balanced Scorecard, which provided a more sophisticated framework for doing essentially the same thing.

Peter Drucker used this term in 1954 and applied to planning.
In this approach the Boss and Subordinates function as a team in setting objectives and accomplishing those objectives through cooperation.
It has four steps:

Setting goals: supervisors and subordinates collectively set the goals for the organization.

Developing action plan: Action plans are made for both individual and departments. Who is responsible for what action?

Reviewing progress: Is a periodic review to ensure that action plans are working.

Appraising overall performance: weather goals are achieved or not. If goals are achieved, then giving rewards to employees for their good performance.
Evaluation of the whole process is done at the year end.


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