MBO or management by objectives was a term coined in 1954 by Peter Drucker, who is widely regarded as the father of modern management. It is defined as managers setting “specific measurable goals with each employee and then periodically discuss the latter’s progress toward these goals.”
It is not uncommon for managers who do not have a formal understanding of how to monitor, control, and evaluate an employee’s performance to struggle to systematically access individuals. Therefore, the MBO program is designed to alleviate the frustrations of both parties as they strive to improve performance. Although an informal approach may yield some improvement, the best results, according to Dressler in the text Human Resource Management, are obtained from a “comprehensive and formal organizationwide goal-setting and appraisal program consisting of six steps.”
Step 1: Set the organization’s goals. An example being, a computer company seeking to branch out its product line to include the design, manufacturing, and sale of mobile smartphones during the next year. Based on this overarching goal, specific company goals must be set, such as the formation of a new mobile division within the next three quarters and hiring of a 1,000 new personnel to staff the division. Step 2: Set departmental goals. After being presented with the company goals, the department heads work with upper management to set departmental goals such as the transfer of 10% of the staff from computer software to the new division. Step 3: Discuss departmental goals. The leaders present the department goals throughout the ranks and work with individuals to establish their own initial goals. Step 4: Define expected results. An example on the current theme being, those selected to relocate to the new division must complete 100 hours of training within the next three months. Step 5: Performance reviews. At the end of said period, the individuals enrolled in the training program may be tested in order to determine their readiness to carryout their newly assigned duties. Step 6: Provide feedback. Employees are evaluated and receive feedback indicating whether or not their performance is sufficient to warrant their transfer and be assigned new tasks within the mobile division.