management by objectives (MBO)

Definition

A management system in which the objectives of an organization are agreed upon so that management and employees understand a common way forward.

Management by objectives aims to serve as a basis for (A) greater efficiency through systematic procedures, (B) greater employee motivation and commitment through participation in the planning process, and (C) planning for results instead of planning just for work. In management by objectives practice, specific objectives are determined jointly by managers and their subordinates, progress toward agreed-upon objectives is periodically reviewed, end results are evaluated, and rewards are allocated on the basis of the progress. The objectives must meet five criteria: they must be (1) arranged in order of their importance, (2) expressed quantitatively, wherever possible, (3) realistic, (4) consistent with the organization's policies, and (5) compatible with one another. Suggested by the management guru Peter Drucker (1909-2005) in early 1950s, management by objectives enjoyed huge popularity for some time but soon fell out of favor due to its rigidity and administrative burden. Its emphasis on setting clear goals, however, has been vindicated and remains valid.

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