What is Management by Objectives? Process, Benefits


Goals and objectives play a significant role both for the company and its employees. It helps them to keep on track and evaluate their performance over time. Today, we’ll discuss what is management by objectives; detailed explanation, various steps involved in the process, its benefits, and limitations.

What is Management by Objectives?

MBO (management by objectives) is a management model that clearly describes/defines objectives mutually agreed on by the employees and management in order to improve the performance of the company. The model encourages commitment and participation among employees and aligns the company’s objectives while action planning and goal setting.

Critics say that the MBO model creates the mind of the employee to achieve their goals and target by any means necessary. Usually, their actions for achieving targets impact/cost the company.


MBO also goes by the name of management by planning. It’s the process of developing MIS (management information system) to define objectives by contrasting achievements and actual performance of the employees.

Many experts and professionals say that the MBO model amplifies the commitment and motivation level of employees. It further helps them to have better communication between employees and management.

One of the major weaknesses of the MBO model is that it puts over-emphasis on goal setting and achieving them, rather than developing a systematic plan to work on it. W. Edwards Deming argued that when a company sets objectives for employees like production or marketing targets, then it compels them to reach their goals by any means necessary. Often, they take shortcuts and easy ways out to achieve their targets temporarily, which costs the company in terms of poor quality and bad reputation in the long term.

Peter Drucker was the founder of the MBO model and the term, and he mentioned many principles. Like goals and objectives should achievable and challenging, and employees should be on the same page while developing them. The company should offer them feedback regularly, and its focus should be on rewards and encouragement rather than criticizing. Most importantly, the emphasis should be on personal development and growth, rather than failing to meet goals.

  • The important thing to mention here is that MBO is not a curing tool to fix a company’s problems, and it only provides them with a process. Many experts and professionals say that the MBO model requires commitment from the top management to succeed. They should clarify their goals and objectives, and offer training and development to the managers to implement the changes.

Process of Management by Objectives 

Some of the main steps involved in the process of management by objectives are as follows;

Company’s Goals

Goal setting does not only play a significant role in the success and growth of the company, but it also offers a lot of advantages to the company. When it comes to setting objectives, should various types of managers from different departments.

Whatever goals and objectives managers set, they should be provisional, interim, or temporary. It’s relevant to the interpretation or evaluation of the company, and what it plans to achieve during a certain time period.

Employees’ Goals

After that, the managers and supervisors would clarify the strategies, plans, and objectives to the employees what they should follow. They would work with workers to achieve their personal goals. However, the employees would have a face-to-face discussion with the managers; let them about their game plan towards achieving them, and what resources they need it. They would share their thoughts in terms of the feasibility of goals to the department or company.

Monitoring Progress

The MBO model is necessary for making the managers effective and efficient. It’s also equally significant to monitor the performance and growth of every employee within the company.

Evaluating Performance

The framework of MBO requires that you can achieve the performance review when the concerned managers would participate.


The most important element in the MBO model is to offer constructive feedback to the employees with good intentions. It serves as a very good communication tool to address the main issues, and it allows employees to track their result performance and take corrective actions. To complement the regular feedback, they should integrate it with the performance evaluation meeting. It’s the place where management and employees would discuss their objectives; it results in more positive feedback.

Performance Appraisal

It’s a form of a performance review which the management offers to the employees of their progress in the MBO model companies.

Benefits of Management by Objectives 

Some of the main benefits of MBO are as follows;

  • It guides managers to develop such employees’ goals that are relevant to the company’s objectives.
  • The goals of every employee are unique and different. It’s to make them feel that they’re an essential element of the organization, and they would develop loyalty.
  • It offers a clear understanding of what the company expects from them. The manager/supervisor develops unique goals and relevant tasks for every employee of the team
  • Better communication and teamwork happen because of the MBO Model
  • Planned KRAs (key result areas) are unique to every employee depending on their specialization, educational qualification, or interests.
  • MBO assists employees to appreciate their roles and responsibilities relevant to the job

Limitations of Management by Objectives 

Some of the main limitations of MBO are as follows;

  • The emphasis of MBO is not precisely on goal setting. Its context ranges from efficiency and availability of resources to stakeholders and buy-in from the leadership.
  • There’s a limit to the manager’s capabilities to see the MBO model as a complete system that could solve all the company’s solutions after being installed. The over-reliance on the MBO model creates problems that the system isn’t capable to handle. It would result in the form of frustration
  • Sometimes, managers put extra focus on goal setting and achieving targets, rather than focusing on dealing with operational issues that are a key element of success
  • When you put extra focus on goals and targets, then managers would pressurize their employees towards achieving their goals. They forget the real usage of MBO which is the growth of management and contribution
  • Often, it avoids the working conditions and prevailing circumstances

Conclusion: What is Management by Objectives? Process, Benefits

After an in-depth study of what is management by objectives; its various steps in the process, benefits, and limitations; we’ve realized that MBO could play a significant role in the company. if you’re planning to implement the model in your organization, then keep in mind its limitation, and apply it rightly.

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