Evolving concepts in MBO


MBO known as management by objectives is a familiar field in the managing field. No one person can be called the originator of an approach that emphasizes objectives. Common sense has told people for many centuries that groups and individuals expect to accomplish some end results. However, certain individuals have long placed emphasis on management by objectives and, by doing so, needed its development as a systematic process.

One of these is Peter F. Drucker. In 1954 he acted as a catalyst by emphasizing that objectives must be set in all areas where performance affects the health of the enterprise. He laid down a philosophy that emphasizes self-control and self-direction. About the same-time, if not earlier, the General Electric Company was using elements of MBO in its reorganization efforts to decentralize managerial decision making. The company implemented this philosophy of appraisal by identifying key result areas and undertaking considerable research on the measurement of performance.

Emphasis on Performance Appraisal

In 1957, in his classic article in the Harvard Business Review Douglas McGregor, a major contributor to the behavioral sciences criticized traditional appraisal programs that focused on personality trait criteria for evaluating subordinates. In the traditional approach, managers are required to pass judgment on the personal worth of subordinates. Consequently, McGregor suggested new approach to appraisal based on Drucker’s concept of management by objectives. Specially, subordinates assume the responsibility of setting short-term objectives for themselves, and then they review those objectives with their superior. Of course, the superior has veto power over those objectives, but in the appropriate environment it will hardly need to be used.

Performance is then evaluated against the present objectives, primarily by subordinates themselves. In this new approach, which encourages self-appraisal and self-development, the emphasis is where it ought to be: on performance rather than on personality. The active involvement of subordinates in the appraisal process leads to commitment and creates an environment for motivation.

Emphasis on Short-Term Objectives and Motivation

Researchers, consultants, and practitioners have long recognized the importance of individual goal setting. Early studies at the University of Maryland found that performance was higher when people had specific objectives than when they were simply asked to do their best. Although goal setting is not the only factor I motivating employees, it is an important one (other factors are incentives, participation, and autonomy). Certainly the importance of goal setting as a motivational technique is not restricted to business but is also useful in public organizations. The general vagueness of objectives in many public organizations is a challenge for managers, but there is evidence that this challenge can be met.

Inclusion of Long-Range Planning in the MBO Process

In MBO programs that emphasize performance appraisal and motivation, the focus tends to be on short-term objectives. This orientation, unfortunately, may result in undesirable managerial behavior. For example, a production manager, in an effort to reduce maintenance costs, may neglect the necessary expenses for keeping the machines in good working order. The breakdown of machinery may not be evident at first, but it can result in costly repairs much later. In an effort to show a good return on investment in a given year, the nurturing of good customer relations may be neglected. Similarly, a manager may not invest in new products that would take several years before contributing to profit. Recognizing these shortcomings, many organizations now include long-range and strategic planning in MBO programs.