Management by Objectives (MBO) program begins with the top management providing clear statement of organizational purpose or mission so that individual member can align their goals with critical organizational objectives. This statement can then serve as a guide for developing long range goals and strategic planning. Departmental and individual goals can then be derived from organizational goals.
Organizational Development through MBO approach generally involve the following stages:
- Formulating Long Range Goals: Guided by the organization’s mission statement, senior management defines critical long term objectives and determine how available resources will be used to accomplish these goals. This process then leads to strategic planning activities which describe how the organization will cope with its changing environment.
- Developing Specific Objectives: In this step, broad organizational objectives are translated into specific measurable outcomes with clearly stated time-frames Although organizational objectives may include areas such as profitability, market share, and quality, all objectives must be stated in clear terms.
- Developing Departmental Objectives: Once organizational objectives are clearly specified, each division or department must develop a set of specific goals that will enable the organization to achieve its objectives. Again, these departmental goals must be clearly stated in terms of measurable outcomes.
- Setting Group and Individual Goals: This step is focused on developing and implementing group and individual level goals in a coordinated manner. This process encourages vertical and horizontal communication in the organization since individual’s must clarify their roles and take responsibility for specific results. Individuals goal setting is done in a collaborative manner and will include both, personal and professional development objectives. Research indicates that individual goals produce the most positive results when they are challenging and specific.
- Formulating and Implementing Action Plans: Although clearly stated goals provide a precise description of desired outcome, action plans are needed to provide a way of attaining goals. Action plans systematically identify the methods, activities and resources required to accomplish objectives.
- Reviewing Goal Progress: Finally, mangers must review progress towards achieving the goal by meeting with subordinates in a group or individually. During these meetings, managers and subordinates discuss problems and difficulties involved in completing the goals and evaluated individual performance based on degree to which targeted goals were actually achieved. These meetings may also provide an opportunity to review and modify goals that have become outdated or unobtainable. Once this assessment is complete, the focus shifts from past performance to planning future goals and action plans. Together, mangers and subordinates develop mutually agreed upon goals and formulated a strategy to achieve them.
Although MBO is a widely used approach for enhancing organizational effectiveness, the ways organizations use this intervention vary considerable. Companies such a as IBM and Hewlett-Packard, for example, have made MBO an integral part of their cultures. In general research on the effectiveness of MBO has produced mixed results. To some degree, the success of an MBO intervention depends on the culture of the organization.
In keeping with the principles of OD, implementing an MBO program can be seen as an opportunity for employee development-mangers can assist employees in setting professional work, designing their work and participating in decision making. MBO seems to work better in organizations having a consultative environment.