MBO can therefore motivate people “by aligning their objectives with the goals of the organization”. It allows the organization to be working in unison, and by ensuring that people know what their goals are, they could discriminate between useful tasks and tasks that are a waste of time (mindtools). Managers and employees will understand what the specific objectives for their job are and how they fit into the company’s objectives (1000ventures).
For example, the Manager’s Guide at Intel explains the following:
- “Start with a few well-chosen overriding objectives.”
- “Set your subordinates objectives that fit in with your overriding objectives.”
- “Allow your subordinates to set their own key results to enable them to meet their objectives.”
According to Andy Grove, a manger at Intel, MBO provides focus, “"a manager's job should be based on a task to be performed in order to attain the company's objectives... the manager should be directed and controlled by the objectives of performance rather than by his boss." (MBO, 1000ventures).
MBO is done through setting targets that could be made for all “activities (production, services, sales, R&D, human resources, finance and information systems)” (MBO, wikipedia). For this, MBO introduced the SMART criteria for setting targets: objectives must be SMART (specific, measurable, achievable, relevant and time-specific). Specific means that the objective gives a specific action or achievement. Measurable means the progress or acheivement of the objective or the performance could be measured or monitored. Achievable means that the objectives need to be capable of being practically achievable; there should a likelihood of success. Unachievable objectives would demotivate people since they would find that applying effort would be futile. Relevant means that the goal being set with the individuals is relevant to them, they can have impact on or could change the results with their position, and should be relevant to the organisation. Time-specific means that the target should be achieved in a set time or should start at a certain time (SMART, wikipedia).
The main advantages of MBO are that 1. it involves employees in understanding what the business’s goals are and secures their commitment to them, 2. It emphasizes the objectives set by the organization, 2. it increases communication through feedback which is important to any organization, 3. it makes performance measurable and feedback is given, 4. it makes management focus on employees’ results instead of judging them on abilities which they think would bring results, as the elements that make up employee performance are complex, 5. all employees including managers have a clear idea of what should be achieved and the standard required, 6. it allows team empowerment since teams are told what should be done, 7. it makes sure that managers do not fall in the “activity trap” where they would get involved in “ay to ay activities” and forget the main purpose of the work. This is done by participating in the planning process and implement and be part of “performance systems” (MBO performanceappraisal.com, 1000ventures)
As objectives must be quantifiable and monitored, MBO requires a good management information system to set high quality objectives and to monitor results “in an objective way”. Pay rewards are linked to achieving objectives to fulfil the motivation requirement (MBO, wikipedia).
On the other hand, the disadvantages of MBO are that 1. it could make employees focus only on their objectives instead of other important activities of work such as teamwork, 2. it could reduce innovation when people only concentrate on targets, 3. it must be supported by management in order to work, 4. setting targets can lead to unrealistic expectations that might not be attained, 5. it requires self monitoring skills that not all employees might have or more supervision instea, 6. although setting objectives provides clarity, it also imposes rigidity, and flexibility is important for the success of organizations, 7. good workers who are given unattainable goals would be seen as performing badly with rewards only given based on performance towards targets, 8. it might lead to sacrificing everything to achieve goals which leads to poor management, 9. organizations might raise targets and if these are unattainable staff will become frustrated, 10. performance review and training could become mechanical, 11. the development of objectives could be time consuming with less time left to implement them, 12. implementation of strategies might require changing or adjusting them to changing conditions which might be difficult in an MBO system (MBO performanceappraisal.com, 1000ventures).
For example, a spokesman for FaceIntel, a pressure group made up of current and former employees, describes that as Intel continually terminates weak performers, the “good solid workers” are now being given “unattainable goals” and are also being terminated when those are not met. At Sun Microsystems for example, those who are found to be the worst 10% according to a performance system will be given a 90 ay probation period to improve or be fired (Performance Appraisal)
In one case study, one company set two objectives: to deliver a system which it manufactures on time, and to deliver it with the fewest amount of bugs. The test team was successful at finding thousands of bugs, which caused the delivery of the system to be delayed. Some of these many bugs could not be fixed, which were later reported to customer services. When the performance appraisal came, the teams were told that they failed to meet their objectives, as the system was delivered late and customers reported bugs. This caused dispirited employees to resign within months of the incident. Setting objectives using the SMART criteria should have been used in this case to make them more realistic and attainable (Stop the Bad MBOs, Rex Black).
Furthermore, MBO is argued to inhibit cooperation and teawork in the workplace and to encourage unhealthy behavior because employees will only care about achieving their targets. MBO measures employees’ performance against the targets given to them, and they are ranked against their peers using a performance appraisal system, and are “rewarded or sanctioned based on the outcome of this process” (Castellano, 1). A conflict arises between this approach and the fact that organizations try to encourage a climate of teamwork and cooperation.
The authors of the article “How corporate culture impacts unethical distortion of financial numbers” maintain that all systems or processes in an organization are interdependent, and individual processes have an effect on each other and will affect the total system’s output. With its emphasis on individual targets MBO could hinder the teamwork or system view in an organization. To overcome the disadvantages of MBO, management who uses it has to focus on other factors such as teamwork, motivation, and improvement and not only on targets.
In conclusion, MBO has many advantages to allow companies to work efficiently and to allow to create empowered teams. Its disadvantages could be fixed by making sure that the objectives chosen are SMART, that people, their competences and teamwork are not being sacrificied for objectives, and by making sure these objectives could be made flexible to respond to changes.
References:
- Business Strategy, BPP, 2004
- “Management by Objectives”, mindtools.com
- “MBO”, wikipedia
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“How corporate culture impacts unethical distortion of financial numbers”, , ,
- “MBO”, performanceappraisal.com
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“MBO”,
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“Performance Appraisal”,
- “Stop the Bad MBOs”, Rex Black, www.performance-appraisals.org/cgi-bin/links/jump.cgi?ID=10471
