When we hear the term MBO, the first question that comes into our mind is, What does MBO stand for? Full form of the MBO is Management By Objectives. MBO is the establishment of a management information system to compare actual performance and achievements to the defined objectives.

MBO basically improves the motivation of an employee by setting a specific goal of their work. It also improves the commitment and allows for better communication between employee and management.

This process also helps the organization members to see their accomplishments as they achieve each objective, which reinforce a positive and work-friendly environment. The process of management by objective focuses more on results rather than the activities involved.

It is also known as Management by Results (MBR). It was popularised by Peter Drucker in his book – ‘The Practice of Management’. The system of MBO  can be described as a process whereby the superior and subordinate jointly identify common goals, define each’s major areas of responsibility in terms of the results expected of him or her and these measures are used as guides for operating the unit and assessing the contribution of each member.

Management by Objective defines roles and responsibilities for the employees and to help them find out their future course of action in the organization.

What you are going to learn?

# Definition of MBO (Management by Objectives)

MBO is defined as a management practise which aims to increase organizational performance by clearly defining the goals and subordinate objectives of the organization that are agreed to both management and employees.

## Need for Management by objective (MBO)

• The management by objective(MBO) helps the personnel to recognize their responsibilities at the administrative centre.
• KRAs is designed for every worker in keeping with their interest, specialization and academic qualification.
• The employees are clean as to what’s predicted out of them.
• MBO technique ends in employee satisfaction. It avoids job mismatch and useless confusions in a while.
• Employees of their personal manner make a contribution to the fulfilment of the goals and targets of the employer. Every worker has his own function at the administrative centre. Each one feels imperative for the organisation and subsequently develops a feeling of loyalty closer to the agency. They tend to stick to the organisation for a longer span of time and contribute successfully. They experience the place of work and do no longer treat work as a burden.
• Management by Objective ensures a powerful communique among the personnel. It leads to an advantageous atmosphere at the place of work.
• Management by objectives leads to nicely defined hierarchies on the place of business. It ensures transparency in any respect levels. A supervisor of any enterprise could in no way at once have interaction with the managing director in case of queries. He might first meet his reporting boss who would then bypass the message to his senior and so on. Each one is apparent about his position inside the enterprise.
• The Mbo procedure results in surprisingly influenced and devoted employees.
• The Mbo process sets a benchmark for every worker. The superiors set targets for every of the group contributors. Every employee is given a listing of particular duties.

## Examples of MBO (Management by Objective)

### MBO examples for Company Performance

• Improve product quality.
• Production increase by 20%.
• achieve a cash flow of $1000,000 per month. • Expand sales by 20%. • Achieve a payback period of 1.5 years for the new product. ### MBO examples for Sales • Achieve a new target of 60 per month. • Hit the win rate of 30%. • Decrease sales cycle to 4 months. • Hit the win rate of 30%. ### MBO examples for Product Management • Successful product launch. • Grow subscriber revenue by 30%. • Maintain Net promoter score of 70. • Maintain 80% CSAT score. • Collaborate on new features with programming and marketing departments. • Maintain production consistency ratio of 99.9%. • Meet with at least 15 high-value clients for product feedback. • Create an annual product plan to integrate the competitor’s main product features. • Identify 5 leading competitors. • A complete survey of at least 300 new customers to gauge new product interest. ### MBO examples for Customer Support • Maintain a CSAT rating of 75%. • Increase customer service call capacity by 50%. • Reduce call abandonment to 5%. • Maintain customer service feedback database. • Reduce manager call Intervention by 20%. • Hire 10 new outsourced workers. • Complete 10 new customer service script sceneries. • Collaborate with the customer support department to provide the best possible service to premium customers. ### MBO examples for Operations • Create an annual operational programme. • Seasonal consumer demand prediction. • Reduce software development cycle by 3 weeks by instituting agile. • Hold bi-weekly meetings to adapt to planning through the software engineering process. • Reduce software testing time to 5 days. • Reduce software failure rate to under 2%. • Reduce sourcing and logistics expanse by 2.5%. • Deliver 90% of products on the exact time. • Fulfil 100% of warranty service. ### MBO examples for Customer Success • Earn$200 in customer success related revenue.
• Increase Customer success related CSAT score to 92%.
• Decrease onboarding tome to 4 days.
• Achieve 30% higher customer satisfaction with onboarding by 50%.
• Increase customer references for qualified leads by 20%.
• Maintain a detailed profile of each special client.
• Increase contribution to special client acquisition by 10%.

## Process of MBO

MBO defines as a comprehensive managerial system that systematically integrates many key scheduled activities and that is consciously directed toward the effective and efficient achievement of organisational and individual objectives.

### There are 6 stages of MBO

1. Define the goals of the organization.
2. Define the objectives of the employees.
3. Continuously monitoring performance and progress.
4. Performance evaluation.
5. Providing feedback.
6. Appraisal of performance.

#### 1. Define the Goals of the Organization

Goals are the most important part of organizational effectiveness and it serves several purposes. Every Organization have several different kinds of goals all of which must be perfectly managed.

Defined organizational goal helps manager and supervisors to guide employee’s effort in a strategically way and they work to achieve it.

#### 2. Define the Objectives of the Employees

After making sure that employees’ managers have informed of patient general objectives, plannings and strategies, the manager can then proceed to work with employees in fixing their objectives.

The manager asks the employees which target they can achieve in the given period of time. Then they will discuss some issues related to their goals and try to solve them.

#### 3. Monitoring Performance and Progress

Management by Objectives or MBO process is not only essential for making line managers in business but also it is equally important for monitoring the performance and progress of the employees.

##### Process of Monitoring
• Find out the ineffective programs by comparing them with pre-established objectives.
• Using of zero-based budgeting.
• Using It for measuring individual and plans.
• Preparing long-range and short-range objectives.
• Designing a sound organizational structure with clear responsibilities and decision making authority.

#### 4. Performance Evaluation

Under the process of MBO, the concerned manager reviews the performance. It is used to measure the amount of value added by an employee in terms of increased business revenue, in comparison to industry standards. It helps employees to have self-awareness about their performance.

Performance evaluation lets an employee understand where does he or she stands as compared to other employees in the organization.

#### 5. Providing Feedback

One of the main parts of the MBO process is taking feedback from valuable clients that allows to monitor and correct or improve actions of the product or organization. It increases the quality of the product or services and helps to know about the market standard.

#### 6. Appraisal of Performance

• A regular review of the performance of the employee within organizations is called performance appraisal. It is the last stage of Management by Objectives. performance appraisal helps the organization to know about an employee’s job performance, their ability for further growth and development.
• By the performance appraisal, a supervisor can review the payment of an employee according to his performance, targets and plan.
• The supervisor can guide the employee for better performance.

1. It forces the manager to simplify the plan and activities for the best results. It allows the manager to think about both product and performance.
2. It enables the manager to concentrate on important and profit influencing tasks instead of tasks which could have little impact on ultimate results.
3. Employees commit themselves to give their best to move its’ achievements.
4. It allows employees to work their own without taking directions and guidance from their superiors.
5. It helps to establish own standards, evaluating performance and taking necessary and immediate action if there are any deviations.
6. It helps the management team to formulate better management training programs based on performance reviews.
7. Management by Objectives helps in more effective planning.
8. Management by Objectives aids in developing effective controls over employees performance and productions.
9. Management by Objectives provides more confidence in the management in managing a task.

1. If the undertaking person or manager don’t have proper knowledge about the philosophy of MBO then the MBO will definitely fail.
2. Goals should be attainable and realistic. If the goals are too hard to complete, it decreases employees’ confidence.
3. Setting up a goal requires a lot of time, patients, study and experience.
4. MBO mainly focuses on the short terms goals and neglected the long term goals. But the success of a company depends on their long term goals and visualizations.

## Related terms

### Management

Management may be defined as the art of work done through people, with the satisfaction of the employer, employees, and the public. To do this, it is necessary to guide, direct, control human effort towards the fulfilment of the goal of the enterprise. Read more >>

### Zero-based Budgeting

Zero -Based Budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period.

Or, ZBB in management accounting involves preparing the budget from the scratch with a zero-base and every function within an organization is analysed for its needs and costs. Read more >>

### Organizational-goals

Organizational goals are strategic goals that a company’s management establishes to outline anticipated results and guide personnel’ efforts.

There are numerous advantages to establishing organizational goals, they guide worker efforts, justify a corporation’s sports and life, define overall performance requirements, offer constraints for pursuing needless goals and function as behavioural incentives. Read more >>

#### Sukanta Maiti

I am a Mechanical Engineer by profession, Blogger, and Youtuber by passion. I have been in the engineering field since 2014. I am passionate about sharing all my knowledge about engineering, management, and economics to my readers.

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