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MBO by Peter Drucker


Peter Ferdinand Drucker was an influential writer, management consultant, and self-described “social ecologist. Harvard Business Review honored Drucker in the June 2004 with his seventh McKinsey Award for his article, “What Makes an Effective Executive”, the most awarded to one person.


The Concept of MBO:

Management by objectives was a concept introduced by the doyen of management, Peter Drucker. This concept involves formulation of objectives for the entire organization and which are then broken down into divisional, departmental and finally individual objectives. Objectives are decided on the basis of mutual consultation between managers and employees at the departmental and divisional levels and thus it can be appropriately called an integration of top down and bottom up approaches in management. The specific aim is to make the employees participate in decision making and thus motivate them to perform better.

Management by objectives follows a step-by-step procedure that ensures the feasibility of the action plans decided upon.

  • Realistic and achievable plans are set.
  • Activities to be preformed are identified.
  • Logical relationship between the sequences of activities is laid down.
  • Time frame and cost frame are fixed.
  • Resources to be allocated are decided upon.

Salient features of the process:

  • Self control and Self direction:

The workers exhibit keen self control in that, they self appraise their performance that results in intrinsic motivation. Setting short goals and periodical review to match the current performance with the expected standards greatly boosts the performance of each and every individual and gives him the necessary drive to accomplish the assigned tasks.

  • Periodic progress review:

This helps to correct errors and deviations if any. This review is done by managers of higher levels in a constructive way and adequate counseling and guidance can be given to the subordinates to bridge the shortfall if any, in performance. This is possible only when there exists a mutual understanding between the superior and subordinates to find reasons and solve problems together. Reviews need not necessarily pinpoint errors but also revise future plans and actions. The major emphasis of management by objectives lies in its result oriented approach.

What is the relationship between management by objectives and motivation?

Motivation of an employee can be brought about by financial incentives such as bonus, increments, pay and perks or non-financial incentives such as recognition, appreciation and additional responsibilities. But nothing can equal self-motivation which makes an employee perform with aplomb. As management by objectives is directly linked with goal-setting, performance becomes better and better as the goals are set at a higher level. It involves complete participation from the employees’ end and when specific goals are set by mutual consent of workers and management, the results are magnificent.

Many firms practice management by objectives to promote harmony and sense of belonging in the minds of employees as a result of which there is remarkable improvement in performance and productivity. The focus is on improving the job design and work module to make the jobs more meaningful, interesting and challenging.