Management by objectives – what is it?

Management by objectives is a transformational approach to running an organisation, involving every employee in the goal creation process, resulting in increased motivation and productivity.

This methodology not only sets the path to company achievement, but also enables employees to grow by actively participating in shaping the future of the company.

From this article you will learn:

• What is management by objectives?
• What are the characteristics of objectives in the management by objectives system?
• How to implement management by objectives?
• What are the limitations of management by objectives?
• What can be gained from management by objectives?

Management by objectives – definition

Management by objectives (can be abbreviated as ZpC, although it is more commonly encountered as MBO – an acronym for management by objectives) is a style of organisational management in which objectives are set in a participative manner by management and employees to define courses of action and measures of success. It assumes that setting clear, measurable and realistic objectives can help teams focus on organisational priorities, drive innovation and increase productivity.

Management by objectives is a method of organisational management where specific and understandable objectives are set jointly by employees and management, integrating individual goals with those of the organisation.

Definition of management by objectives

The history of management by objectives began in the 1950s and its development is often attributed to Peter Drucker, who formulated the concept in his 1954 book The Practice of Management. Drucker argued that effective management required the organisation’s objectives to be clearly defined and then communicated and understood at all levels of the hierarchy.

Management by Objectives (MBO) developed in the 1960s and 1970s, when many multinational corporations began to implement these principles to increase productivity and employee engagement. One of the key elements of MBO was to regularly review performance and compare it with predetermined goals, motivating employees to self-improve and initiate change.

In subsequent years, with the introduction of more complex organisational structures and the faster pace of business change, MBO has begun to integrate new technologies and strategies such as performance management systems and flexible planning processes. This does not change the fact that it is a process that helps organisations to define and communicate business objectives, as well as monitor progress towards them.

Characteristics of objectives in a management by objectives system

In an MBO system, objectives play a central role in guiding activities, assessing progress and shaping the organisational culture in a company. To set them, the SMART method is most often used, which means that objectives should:

• be clearly defined and easy to understand in order to avoid ambiguity or misunderstanding, and clearly state the expected results and be specific guidelines for action;
• have specific indicators to assess progress and ultimate achievement, allowing both staff and management to monitor performance;
• be ambitious but realistic, as unrealistic goals may demotivate employees and, too easy goals may not stimulate sufficient effort and innovation;
• be in line with the organisation’s mission, values and strategic priorities and contribute to the overall development of the company and be meaningful to the teams and units responsible for their implementation;
• have a clearly defined completion date, as setting timeframes helps teams organise their priorities, manage their time and resources, and motivate them to act and complete their tasks within the agreed deadline.

Alongside this, both strategic and operational objectives should be adjusted as new challenges or information arises. In management by objectives, it is also important that they are set in collaboration with those who will implement them. This increases customer engagement, ownership and responsibility.

Implementing management by objectives

To successfully implement management by objectives in an organisation, first and foremost – mission, vision and values of the company and its strategic objectives must be understood and clearly defined – this is the basis for all other objectives. Key to this is the involvement of top management. The chosen directions should then be communicated to all employees – the success of the organisation depends on everyone’s understanding, acceptance and commitment, and every employee should feel that their voice counts and that the goals directly affect their work and development.

Management by objectives is a system that can be adapted to the specifics of any organisation. It often combines different methods, but by far the most important step is goal setting – this requires close cooperation between management and employees, and ensures that they are realistic. Joint goal-setting also fosters commitment and a sense of shared responsibility.

Another aspect is to regularly check progress against the targets set – this helps to identify areas for improvement and adjust the strategy if the situation warrants. For this, it is worth using specialised project management software and selecting a few key KPIs. Progress should not only be checked on an ongoing basis – regular summaries of the results achieved are equally important, as they allow plans to be made for the future.

When opting for management by objectives, it is important to remember that employees need skills and knowledge to perform their tasks effectively. It is therefore worth investing in training programmes, mentoring and coaching. Communication within the organisation is equally important – regular dialogue between all levels of the business hierarchy ensures that objectives are understood, problems are solved quickly and teams are motivated and committed to work. It is also worth remembering that management by objectives is not static; it is a flexible methodology that requires regular review and modification according to changing circumstances.

Limitations of management by objectives

Management by objectives is a widely used management technique, but like any method, it has its limitations and challenges:

• It can lead to a situation where undue emphasis is placed on measurable but limited indicators. Sometimes aspects of work, such as creativity or innovation, are difficult to measure but are crucial to the success of a company.
• If managers and employees focus mainly on short-term goals, they may neglect long-term strategies.
• Setting goals that employees find too ambitious or unattainable can lead to frustration and demotivation. It is also worth remembering that if employees are not involved in the goal-setting process, they may not feel responsible for achieving them.
• In some cases, employees may try to manipulate the results or use unethical means to achieve them, especially if the results are dependent on, for example, bonuses or promotions.
• The process of setting, monitoring and reviewing targets requires significant resources and time, as well as tools that can be costly to the organisation.
• MBO can sometimes lead to unhealthy competition between employees or departments, which can cause conflict within the team and damage the company culture.

Benefits of management by objectives

Management by objectives has been one of the most important strategies in many organisations for decades. One of the most visible positives of this methodology is the improvement in productivity and efficiency. Employees with clearly defined objectives can more easily understand what is expected of them and focus their efforts on specific tasks, thus increasing their productivity. It also fosters greater commitment – participation in the goal-setting process gives a sense of ownership of the results and increases motivation to achieve them. It can also lead to greater job satisfaction and loyalty to the employer.

Management by objectives also promotes communication within the organisation. Clearly communicated goals ensure that everyone in the team understands which way the company is heading. This prevents conflicts due to misunderstandings or lack of information and promotes a culture of openness and cooperation. The strategy also makes it easier to assess performance – because the objectives are measurable, management can more easily track the progress and achievements of individual employees. It is also worth noting that MBO supports employees’ personal and professional development. Achieving goals often requires training and development, which helps employees acquire new skills and develop existing ones, which can have a positive impact on their careers.