Management by objectives (mbo): a strategic approach to performance improvement

Management by objectives (MBO) is a strategic management model that aims to improve the performance of an organization by clearly defining objectives that are agreed upon by both management and employees. This approach encourages participation and commitment among employees, aligns objectives across the organization, and fosters better communication between management and employees.

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Understanding Management by Objectives (MBO)

MBO is also known as management by planning and involves the establishment of a management information system (MIS) to compare actual performance and achievements with defined objectives. The major benefits of MBO include improved employee motivation and commitment, better communication between management and employees, and the ability to align objectives throughout the organization.

However, critics argue that MBO unduly emphasizes goal setting rather than developing a systematic plan to achieve those goals. This can lead to employees focusing solely on meeting the set goals, sometimes at the cost of compromising quality. Despite these criticisms, MBO can be an effective tool when supported by top management, clearly outlined objectives, and trained managers who can implement it.

Management by Objectives (MBO) in 5 Steps

MBO outlines five steps that organizations should follow to implement this management technique:

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  1. Define objectives: Organizations should determine or revise their objectives based on the company's mission and vision.
  2. Share objectives with employees: It is crucial to translate organizational objectives to employees and ensure they understand and accept them.
  3. Encourage employee participation: Employees should be encouraged to participate in setting their own objectives to achieve the larger organizational objectives. This empowers employees and increases their motivation.
  4. Monitor employee progress: Objectives should be measurable, allowing managers to monitor employee progress and provide feedback.
  5. Evaluate and reward employee performance: This step involves evaluating employee performance based on the objectives set and providing rewards for achievements. Honest feedback is essential for both successes and areas for improvement.

MBO is a process that requires careful implementation and management commitment. It is not a cure-all solution but a tool that, when used effectively, can enhance organizational performance.

Advantages and Disadvantages of Management by Objectives (MBO)

Like any management approach, MBO comes with its advantages and disadvantages:


  • Employees feel a sense of pride and importance in their work when assigned goals that match their strengths and skills.
  • Assigning tailored goals increases employee output and loyalty to the company.
  • Improved communication between management and employees.
  • Management can set goals that contribute to the overall success of the company.


  • MBO often focuses solely on goals and targets, neglecting other important aspects such as company culture and work ethos.
  • Increased pressure on employees to meet goals within specified time frames.
  • Employees may be encouraged to achieve targets by any means necessary, potentially compromising the quality of their work.
  • MBO may not be suitable for all management responsibilities, leading to potential issues in areas that do not fit under its framework.

Frequently Asked Questions

What is the goal of management by objectives (MBO)?

MBO uses quantifiable or objective standards to measure company and employee performance. By comparing actual productivity to these standards, managers can identify problem areas and improve efficiency. The goal is to align individual and organizational objectives.

Can you provide an example of MBO?

For example, a call center may set an MBO to increase customer satisfaction by 10% while reducing call times by one minute. Employees are then tasked with finding ways to achieve this goal. Regular progress monitoring, feedback, and rewards are essential to drive performance.

What are some drawbacks of using MBO?

MBO's focus on goals and targets can overlook other important aspects of a company, such as its culture, work ethos, and areas for involvement and contribution. The pressure to meet goals within specified time frames may lead to shortcuts and compromised quality.

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What is the difference between MBO and management by exception (MBE)?

In management by exception (MBE), management only intervenes when objectives or standards are not met. Employees are given autonomy until proficiency is not achieved. MBO, on the other hand, involves collaboration between management and employees in setting goals and monitoring progress.

The Bottom Line

Management by objectives is a philosophy and management technique that aims to enhance organizational effectiveness by involving employees in the goal-setting and control processes. While MBO has its advantages, it also has its drawbacks. Customization, clear objectives, and employee buy-in are crucial for successful implementation. By being aware of its limitations and tailoring its application to fit the organization, MBO can be a valuable tool for improving performance and fostering employee engagement.

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