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What is management by objectives (MBO?)


Management by objectives (MBO) is a business management strategy that has been around since the mid 1950s. This strategy focuses on setting objectives at several different levels in the company. For example, there is an overarching objective that is company wide, there are objectives for each department in the company, and there are individual objectives for the key players in each department. For the strategy to work, objectives must be met at the individual level first, then at the department level. Meeting the lower level objectives will necessitate meeting the overarching, or company level objectives.

At each level, there is a process of goal setting, goal monitoring, and goal evaluation (or reevaluation). Individual goals should be set with the department goal in mind. For example, if you are using the MBO strategy to set goals within the marketing department of your company, you might have a department goal to increase name recognition of your product with in the year. With that goal in mind, employees should sit with managers and set individual goals. Perhaps the person in charge of web design will set a goal for increased percentages in number of clicks on the website and the person in charge of promotions will set a goal to have a certain number of coupons redeemed during the year.


Once the goals are set, progress towards the goal should be formally monitored through the year. You might decide to meet with the web designer once a month to discuss the increase in number of hits and the advertiser once a month to discuss the coupons that have been redeemed. If progress towards the goal is unsatisfactory, the goal may need to be modified or the approach to achieving the goal may need to be changed.

One of the important steps in the MBO process is that persons or departments need to be rewarded if they achieve their goals. If you are the owner or CEO of a company, you may be intrinsically motivated to see your company succeed. However, you should understand that while your employees might respond to the pride in a job well done, they will be more motivated by a big fat bonus check.

After the goals have been met and the achievers rewarded, new goals should be established for the next period. This process should become such an integral part of your business that people start to set, monitor, and evaluate goals without much coaching at all.

The same process is used at the department level and at the company level. If the goal of the company is to increase sales by 15% during the upcoming fiscal year, each department in the company should set goals to help achieve that goal. For example, the marketing department might set the aforementioned goal of increased name recognition. As the business owner or CEO, you should evaluate the department goals carefully. Ask if the goal will really help in achieving the overarching goal. Ask how the goal can be monitored. For instance, if your marketing department wants to set a goal of for name recognition, ask for a proposal that details the importance of name recognition oulines the way that the goal will be monitored. Every goal should have a plan that outlines how that objective will be implemented and evaluated.

The evaluation and reevaluation portion of MBO might be the most important aspect. There is a tendency to be so focused on the activities associated with the objective that the objective itself gets lost. Don't forget that you need to monitor the progress on the objective based on the impact that the action is having on the higher-level goals. Because of this, it is important for the departments to work together as a team and to realize the higher-level goals of other departments and the company in general.

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