The Benefits of Management by Objective (MBO)

Management by Objective (MBO) has been around for a long time. MBO consultants abound and numerous methodologies have been developed and refined over the years to help organizations reap the benefits of Management by Objective.

What exactly is MBO that sets it apart from other workforce management philosophies, such as Management by Walking Around or Management by Exception? Don’t all managers have goals or “objectives” that they and their employees must meet?

While it’s safe to assume that all managers set goals for their teams and themselves, those objectives may not be entirely in sync with overall company goals. Managers and employees often work in departmental silos, focused on a narrow set of goals instead of working across departments toward common goals.

One of the main benefits of Management by Objective is its top-down approach. Company goals are set by top management and made transparent. Everyone knows the overall objective(s) of the company and every employee has a say in determining the best way to get there.

Each employee has a clearly defined role to play and measurable objectives to achieve. Controls, checks and balances are built into the MBO process via frequent reporting and regular evaluation of performance metrics.

Sounds great, right? The truth is, MBO in theory was always more idyllic than MBO in reality. There are upsides and downsides to MBO. For the most part, if you can avoid the common MBO pitfalls, you will reap the significant benefits of Management by Objective.

The Benefits of Management by Objective Are Worth the Effort

MBO strategies are not easy to implement. MBO affects every function in the company and takes time to implement. Typically, the organization will need a cadre of professional MBO consultants to help them establish MBO strategy, set goals at all levels, define roles, coordinate processes, and determine how “goals achieved” will be rewarded.

Some of the main benefits include:

1. Improved Communication between management and employees. MBO requires continuous two-way communication to monitor progress toward objectives. This provides numerous opportunities to clarify any ambiguities regarding individual roles and expectations and to adjust objectives if needed. Communication is key to running any successful business, and MBO establishes processes to ensure it is happening.
2. Better Performance results from the main focus of MBO – setting measurable objectives and clear processes to achieve them. The two-way communication (noted above) puts managers and employees on the same page when planning operational processes and individual objectives. Every employee understands how their work contributes to the business and the goals they must meet to assure their own success and the company’s success.
3. Efficient Utilization of Human Resources is important to every organization. With MBO, employees and managers collaborate on assigning roles and setting goals. As a result, both sides ensure that individual talents are appropriate to the task at hand and the measurable objectives are highly achievable. Thoughtful matching of talents to tasks fosters success and utilizes human resources to maximum effect.
4. More Involvement; More Commitment: MBO requires every member of the organization to be involved in planning and achieving company goals. Everyone is in the loop, which improves morale and commitment to the organization’s objectives.
5. More Efficient Organizational Structure: MBO effectively rebuilds the organizational structure so that everyone is pulling together toward clear and common goals rather than pushing in different directions.
6. More Objective Performance Evaluation is the result of MBO’s emphasis on goals that can be quantified and measured, and do not rely on a superior’s subjective judgement. Measurable objectives are perceived as a fair and equitable assessment of individual performance management.

MBO Pitfalls to Avoid

To realize the compelling benefits of Management by Objective, you need to be aware of the pitfalls along the way, and avoid them:

1. Top management is not convinced: While it is true that MBO will result in an improved and more efficient organizational structure, that happy ending cannot be achieved without complete management buy-in and support. It is not enough to implement MBO in only one division, or to fail to allot sufficient budget and time to effect the transformation and see that it works.
2. You are working for MBO instead of MBO working for you: Implementing a MBO strategy is a costly and time-consuming undertaking. There are the up-front costs in terms of meetings to set measurable goals, establish processes that support the goals, define roles, and determine the reporting that is required to track and evaluate. The ongoing costs are seen in the reams of “paperwork” that MBO generates and the many meetings needed to keep everyone in the loop and to regularly evaluate performance. Often, managers feel like they spend more time “working for the MBO process” than they spend working on their actual goals.
3. Objectives may be difficult to quantify: The highly valued “objective performance evaluation” can only be achieved if goals are measurable. For example, Average Handle Time (AHT) for a call centre agent is a clear metric measured in cold, hard minutes. On the other hand, the ability of the agent to exhibit “empathy” during a call is harder to measure. It’s a subjective assessment. Each of these contributes to good service. If only measurable productivity is evaluated and rewarded, important contributions such as creativity, commitment, or cooperation may be neglected.
4. Employees resist the change: MBO is promoted as a better and more effective way to motivate and reward performance. Bonuses and other compensation are often dependent on achieving the objective. For salespeople on commission, this is not unusual. The commission is awarded only when the sale is closed, regardless of how much effort was expended in the process. Other roles in the organization are not accustomed to having their compensation tied to performance. Depending on how MBO is implemented, MBO could meet with stiff resistance from employees.
5. Short-term emphasis: MBO’s focus on quantitative goals may limit the company’s willingness or ability to set long-term goals. Performance evaluations are frequent and concentrate on short-term objectives – 3 to 6 months max. Employees work toward the immediate goals and do not consider long-term effects. When you consider the structural change many organizations must make to adopt MBO, is seems counter-intuitive hinder long-term planning as a result.

Reaping the Benefits of Management by Objective

To make sure you realize the benefits of Management by Objective, it is critical to steer clear of the pitfalls. I suggest the following short list for successful MBO implementation:

• Secure top management buy-in and support – including budget
• Commit your entire organization to MBO to instil performance orientation throughout.
• Set clear objectives that are realistic and achievable
• Be transparent and train everyone toward MBO
• Be flexible. Business reality can change quickly. MBO processes must allow for goal adjustment.