Preview of “MBO” (1)
Published on: Mar 4, 2016
Transcripts - Preview of “MBO” (1)
MANAGEMENT BY OBJECTIVES
MBO has been successful for over half a century. It saw the ﬁrst stages of its development in the
1950s. The ideas on which it is founded began their development as early as the time of the ﬁrst
businesses that operated in a sophisticated manner.
Its approach of setting goals as part of managing work and bringing alignment to the work of an
organization, personiﬁed by the Hoshin strategic planning/management methodology, will allow a
business to best reach its goals.The amount of redundant and superﬂuous work will be reduced by
using MBO, and a higher impact to an organization and its people by the work done will be seen.
MBO is one of the most proven planning/strategic management methodologies.This is a point about it
that should not to be dismissed. Detractors of the method rationalize it with the label of fad, and
discount the integral nature of MBO to successful businesses, yesterday and today.Their attempts to
downplay the longstanding methodology are somewhat mute however, for not being very germane to
To argue that MBO does not consider nongoal areas, for instance, seems to indicate a lack of
appreciation of what the method is. A key aspect of MBO is creating goals for people throughout an
organization, which have been chosen because they focus on areas that require goals to be set for
them. In this sense, to say that nongoals are not considered represents somewhat of an oxymoron.
Other attempts to slight the method also show the same limited insight, or are inappropriate. The
latter are directed at the complexities encountered when people work together in a business, and
have little to do with a goal-setting process. Whether MBO is used or not these 5 concerns are still
present: risk preferences/aversion, evidence of unethical behaviour, inhibited learning, corrosion of
organizational culture, and reduced intrinsic motivation.After some discussion about these criticisms of
MBO I will look at often seen outcomes of organizations that do not use it.
Risk preference is not a valid criticism of MBO for the fact that objectives are established through
agreement between manager and employee. It is the process of establishing agreement that ensures
risk preference does not have undue affect on the goals set. If the other attempts at criticisms of the
method are similarly considered, it is seen that they also are not very germane to the topic, and are
more to do with the broader topic of managing employees, not managing work, plans, and strategies
through a goal setting process.
Intrinsic motivation. If a person is not in a position that fundamentally allows them to use those skills
which give them a natural sense of satisfaction, any goals set for their work are irrelevant to the
problem.Trying to lay blame on MBO for a problem that is about a person in the wrong position is
aiming criticism at the wrong place.This is the type of thinking that would place someone in customer
service because they are friendly with customers, thinking the person is intrinsically motivated by it.
The reality of the matter however, is that the person understands the importance of managing the
business’ image, and their motivation is truly driven when using skills of analysis, and data mining.
Abraham Maslow’s work which is mentioned later addressed precisely this aspect of work and
Corrosion of organizational culture is heavily inﬂuenced by employee behaviour, and it can easily
overlap with the issue of unethical behaviour. These two areas are offered by some as downfalls of
MBO when they have little to do with the method, and are more about the people hired and
supervision of them. MBO helps reduce unethical behaviour which affects the work through its ability
to bring ethics to it.The setting of goals that are speciﬁc, measurable, aligned, realistic, and time bound
(SMART) serve to deter the presence of unethical behaviour.
What also seems to be missed by detractors of MBO is how goal setting can positively inﬂuence what
are perceived as pitfalls of it.The nature of goals set can address issues like inhibited learning when the
goal itself is to complete a course of study, or learn about an aspect of a business. In the case of
intrinsic motivation problems, goals can be set that help the employee move into a position they are
better suited for.
For people who have the insight of having worked in MBO organizations as well as organizations
without its planning and managing focus, or with a poor application of MBO, they can appreciate how
bad criticisms of the method are formed.To instruct an employee that they will set their own goals,
with no agreement to them sought by another, nor any later checking of accomplishment of them, it is
easy to see how MBO-based thinking can be wrongly blamed for other organizational problems.
The planning aspect of MBO, brought to its highest levels of performance in Hoshin, is looked upon
with doubting eyes by some. The argument offered is that unforeseen changes will affect any plan
developed; however, the skill of foresight in decision making can minimize any potential problems.
Contingencies can be planned for in the event an unexpected change occurs, and goals can be
speciﬁcally set to address, and prepare for, those potential changes.
Detractors who accuse MBO of being an off-the-shelf ready-to-use program to affect motivation
seem to miss the difference between proper and poor uses of it. Motivation is not a primary objective
of MBO. It is, however, designed with a consideration of motivation theories. Using the methodology
to improve motivation is as much to do with the supervision/management of people, job design, and
hiring practices, as it is to do with MBO itself.Warnings of MBO are misdirected. Like most things that
are not done well, if the methodology is not prepared for, implemented, and executed appropriately,
problems will show themselves.
MBO has been successful for over half a century. Arguably it is one of the longest standing
comprehensive business methodologies since businesses have needed the skill of managing. The
history that affected MBO goes back many eras of business. From the ﬁrst movements seen at the
times of the industrial revolutions that brought the resources of people and machinery together in
one place of work, a need to deal with; manage, the complexity of the new workplace showed itself.
MBO’s earliest ideas started to be formed by the Industrial Engineering profession, when American
Fredrick Taylor, in the ﬁrst years of the 1900s, created Scientiﬁc Management. French Henri Fayol then
fathered Operations Management in 1916. After Fayol’s work was Australian Elton Mayo who
conducted the Hawthorn Studies in the 1930s, in the area of behaviour and work.Then later in 1943
Psychologist Abraham Maslow gave us the Hierarchy Of Needs, and Douglas McGregor of MIT
developed Theory X,Y Of Motivation in the 1950s. In1968 Psychologist Fredrick Herzberg introduced
the Motivator-Hygiene Theory, and most recently in the 1950s Austrian Peter Drucker established
Management By Objectives.
There is no question that MBO is founded by ideas and research that go back to the beginning of the
If we stop to consider what has happened to many businesses that have not embraced the idea of
MBO, and the ideas it is formed from, we see similarities in the outcomes. Starting with one idea
which is that people should not be supervised in their work.This is short sighted in its application to
many organizations. While some progressive companies have used this approach, giving much
autonomy to people in their work, these businesses are somewhat unique in the skills and work
required.The same cannot be applied to organizations in general.
The use of teams or work circles or work groups, whatever name might be given to them, will at
some point in the movement of information and resources throughout the business need to report
what has been done. Alternatively, they will need to receive information about what needs to be
done.This approach of eliminating a role tends to ﬂatten out an organization causing it to have fewer
levels in it, but this should not be mistaken with eliminating the action of supervising work. Some
businesses are more complex than others, requiring this action to take place more regularly. Other
businesses that are less complex can have the action done less regularly. However, it should be
understood that the supervising action is always there, howbeit in different forms.
An attempt to eliminate the supervising action from a regular frequency requires careful planning. It is
done but with due consideration and foresight of potential problems, and appropriate steps taken to
prevent them and ensure a smooth transition to the new organizational design. That said, the
discussion begins to sound like the goal setting and strategic planning process of MBO.
Perhaps the advocates of workplaces without supervision are confused about terminology and the
meanings behind actions involved; because, essentially, in order to implement such a change
successfully requires the skills and practices seen in MBO.
The alternative to not using MBO often results in scattered work and workplace problems. A manger
who asks people to offer something of work begins a process of organizational confusion. Overlap of
work and perceived responsibilities will soon follow. This occurs between people, groups, and
departments. With no alignment and path in which goals; work offered in this case, are directed, it is
inevitable that confusion will be created. A manager will then be forced to delegate, albeit casually, a
new and needed responsibility of co-ordinating the work activities, or they may even create a new
formal role for it. However, this somewhat reverse approach; reactive response to problems now
experienced, which is intended to adjust the organization’s design would be avoided had a planned
and goal-oriented approach been used at the start.
The subsequent problems in the workplace culture caused by this approach are not difﬁcult to
anticipate. People are left to ‘work out’ differences among themselves, responsibilities and shared
resources, which can easily lead to conﬂict. People are not working with the security of knowing
where they ﬁt in the organization in this scenario. It is somewhat unrealistic to expect harmony among
people when it is possible a person, group, or even an entire department risks losing its position, and
ultimately its place in the business.The more likely outcome is difﬁcult relationships, low trust, and turf
wars. While some try to rationalize this outcome as a way to identify leaders, or force a situation
where only those needed in the business prevail, it is a lengthy approach with damaging results along
the way. Even those who remain after the organizational dust has settled, so to speak, are the result of
a process that could have just as easily put them out of a job.The commitment, motivation, and loyalty
sought by an organization will not be found for its own manner of managing its people.The business
struggles to the problems of workplace culture and has difﬁculty getting and keeping good people.The
organization is better off to recruit people at the onset who have planning and strategic-thinking skills,
and leadership skills if they are sought.The question now becomes, why would the business not use
MBO for the problems they will suffer otherwise?
The idea of motivation has become a bit of a marvel in recent years, it seems. Perhaps this is for the
reason that a sound understanding of it and how it is created has been missing. MBO, by design, serves
to help motivate the people of an organization.
Consider the person in the business without MBO, who may not get recognition for their efforts given
they are subject to a ‘work it out’ process. They may not end up doing the actual task of work for
duplication of it, or they may ﬁnd its impact to the business is marginalized because of the work of
In contrast, the person in the MBO business is given a goal to accomplish. It is agreed to by them self
and their manager and is aligned/planned such that it will not be redundant for the work of others.
Once they accomplish the item of work, they are given recognition for it and know that the process
will reward them for the goals they have satisﬁed.
This example is only a mere look at what motivation involves and what MBO is, however it serves to
make a basic and important point.
Using MBO effectively requires some things from an organization. For instance, a key aspect of it is
knowing the objectives to be set.Without the proper objectives, the business risks not moving in the
right direction. Peter Drucker, known as the modern-day management guru, is known for advocating
that 90% of the time companies do not set the right objectives.The path-goal theory on which MBO
is partly based becomes ineffective in satisfying broad organizational objectives when proper goals are
not established.While the theory has several steps, it is the 2nd that is important to setting objectives.
The 3 steps of goal-setting theory are: remove obstacles so a person can realistically achieve a goal,
clarify the path to the goal so the work done will lead to it, and offer a reward to the person for
accomplishing the objective.
In spite of uninformed slights of MBO it is certainly not over-the-counter, off-the-shelf, or ready-to-
use. The people of an organization need to understand their business and know how to set
objectives.The cascade effect from the strategy developed by the senior team causes objectives to be
set in every part of the business. One accomplished objective serves to satisfy another, and so on,
until, like a design of toppling dominos, every goal has been realized. When this happens the
organization will have accomplished its overall goal and have achieved success.
Cultural differences in using MBO give rise to the concept of power distance and its affect on
manager-employee relationships. Power distance is a dimension of cultural variability which affects
leadership in different cultures. One description of it is the extent to which a society accepts the fact
that power in organizations is distributed unequally. While this dimension exists in any culture the
research behind power distance also explains that all cultures must ﬁnd ways of eliciting responsible
behaviour from their members, and that there are different ways of doing so.
More speciﬁc to the workings of MBO in the context of culture, regardless of the dynamics of the
manager-employee relationship, there are still ways to effectively apply the methodology.The cultural
nuances will be present as much for the employee as for the manager.Whether subordinates see their
managers as well-meaning autocrats in high power-distance countries, or as resourceful democrats in
low-power distance countries, within the same culture MBO will execute accordingly.
The option exists to go beyond manager-employee agreement solely in the establishment of goals, but
to ﬁnd agreement also in how their working relationship will be. Should an employee feel they must
consult their boss on every decision simply because he is the boss, as is seen in high power-distance
cultures, or should they feel to consult their boss only when they think he will have the answer to a
problem, regardless of the culture a manager-employee agreement can be effective.
The manager-employee agreement addresses precisely these types of issues. An employee who can
work with a high degree of autonomy can seek agreement that they meet with their manager less;
and conversely, the employee who wants more regular supervision of their work can seek this in their
agreement.The agreements can also address topics like communication, conduct, information sharing,
and responsibilities of decision making, among others.
When considering MBO in an organizational sense in Hoshin Kanri, the business is helped in 4 ways:
focus on a shared goal, communication of that goal to all leaders, involving all leaders in planning to
achieve the goal, and holding participants accountable for achieving their part of the plan.This assumes
of course that daily controls and performance measures are in place.
Short term activities, daily, monthly, and quarterly, when confronted with business pressures need to
be determined and managed within the strategic plans, not the other way around.
If you or your organization are not yet supporting MBO, it is a matter of accepting that the business
and its people will have unexpected problems.
Organizational Behaviour Course Material, MBA Program, Edinburgh School of Business, Heriot Watt
University, UK, 1995
A.Yoji, ed. Hoshin Kanri, policy deployment for successful TQM. NewYork: Productivity Press (Originally
Japanese Standards Association) (Jap: 1988, Eng: 1991).
L. Ordóñez, M. Schweitzer ,A. Galinsky, M. Bazerman, Goals Gone Wild:The Systematic Side Effects of
Overprescribing Goal Setting, ACAD MANAGE PERSPECT February 1, 2009 vol. 23 no. 1 6-16
Den Hartog, Deanne N. "Power Distance." Encyclopedia of Leadership. Ed. .Thousand Oaks, CA: SAGE,
2004. 1225-30. SAGE