MBO – Management by objectives (and how to achieve it)

Achieving business success is a goal of all company leaders. Management by objectives (MBO) is a plan that helps businesses improve their performance. It does so by mapping out a guide for both the management team and employees. This guide defines the overall business objectives and shows how these can be achieved.

Understanding the concept of management by objectives is vital for its implementation. We’ll explore the meaning of an MBO, the steps for creating one, and what benefits it offers to a company.

What is Management By Objectives (MBO)?

An MBO can be defined as a master plan for achieving a company’s objectives and defining employee goals. The company’s objectives are directly related to the individual employee’s goals.

Once the business objectives are laid out, employees can better understand their role in the organizational structure and hierarchy, and how they can achieve the mission. In other words, the business’s objectives will be aligned with individual employee goals, making every role instrumental. Additionally, an MBO has metrics in place so management can monitor and assess the effectiveness of employee goal attainment. Since management by objectives is set up to allow the management to see how the employees perform, it also allows them to provide regular feedback and adjust the goals if necessary.

Steps to Achieving an MBO

When preparing an MBO, you can follow these five steps for successful execution.

Create goals for the organization

The first step management needs to take is to create goals for the organization. You may already have some of these goals loosely written. You can extract some ideas from your mission or vision statement if you have one.

If you are starting fresh, you can help shape the company by defining its primary goals. Think about what you want the company to accomplish or what it is best suited to achieve.

Develop employee objectives

Once you develop the company’s main goals, you can begin working on the employees’ objectives. Objectives differ from goals in that they are the actionable steps you take to reach the goals. For example, you may have a goal to sell 35% more product than the previous year. The objectives will outline what each employee needs to do to help reach that goal.

One employee may be tasked with marketing objectives, such as creating a new ad for the product. Another employee may receive a direct sales objective, and so on. This makes the employees’ roles easy to understand and execute.

Assess performance and progress

It’s vital to see how your employees do in achieving their objectives. Regular performance reviews and assessments will ensure that they stay on track and, therefore, the business stays on track. You can do this by looking at the following:

• Make sure they are on track with your business’s timeline

• Compare company goals with employee objectives for alignment

• Check for quality work

• Ensure performance is up to par with business standards

Provide feedback

You can assess employee performance, but without any follow-up, it won’t get you very far. Employees need to know how they are doing each step along the way. Are they making the cut? Have they achieved the expectations you’ve set for them? An MBO offers a review of the metrics with the employees.

Provide your employees with feedback as they complete a phase of the objective or the entire objective. This can give them insight into their value and contributions to the company. Or it may provide them with further information about how to achieve greater success. Either way, it should be a positive experience.

Provide feedback in an ongoing way as they complete or miss an objective. Managers may also want to take time out to ask employees to give them feedback about their management.

Deliver a performance review/evaluation

The final part of an MBO is an overall performance review, which can come at the end of the year or when reaching a goal. This is the time to assess the value and quality of each person’s contribution. An MBO looks at the individual’s progress throughout their work on the project. They can go over how the person managed the objectives, what challenges they faced, and how they excelled.

It’s a good idea to perform the reviews regularly. Once or twice a year would be an appropriate timeframe to do them.

Why an MBO is Beneficial for Businesses

Implementing management by objectives will provide the following benefits for businesses:

Improves employee performance

When employees have a set of objectives in front of them that all lead to specific goals, they tend to be more focused. This improves their performance because they have a set of steps to follow.

Provides a sense of pride in the work

People feel a sense of accomplishment when they achieve their objectives. Employees will also feel a sense of pride because they are directly contributing to meeting the company’s goals.

Boosts employee morale and productivity

Whenever a company has employees who see their accomplishments come to pass, it boosts their confidence. Morale around the office increases too. You can never get too much employee morale around the office to encourage productivity.

Encourages career movement

As employees follow the MBO plan of objectives, management will notice what skills and interests they may have. The employees may find that they have certain strengths too, which can assist in career growth and movement for various employees.

Helps the company achieve goals

Let’s face it. When a company has well-defined goals and a plan to achieve those goals, the chances for success are greater. Companies that let things occur through happenstance won’t get as far as those who use an MBO model to create, track, and assess goals.