Business owners commonly set goals to motivate employees and help their companies grow. However, the philosophy known as management by objectives, or MBO, sets goals throughout the company – at all levels – rather than just laying out a few-big picture goals like increasing sales by a certain amount. The MBO process can be effective, but it can also turn into an administrative hassle because it requires consistent monitoring and updating.
The MBO process focuses on getting employees at all levels involved with setting goals for the company. One benefit is that it gives a measure of goal-setting power to the employees whose job it will be to actually achieve those goals, rather than reserving that power solely for executives and upper-level managers far removed from the production line or the sales floor. The MBO planning process can motivate employees throughout the company to achieve goals because they all want to see their portions of the plan succeed.
The MBO method requires companies to consistently monitor their progress toward objectives and revise processes and projects that aren't supporting those objectives. Consistent revision and refocusing may help keep a company on track for achieving goals. However, there's a potential for conflict over determining when and whether something "isn't working." So many people are invested in the process that there may be pressure to abandon projects prematurely. And there may be fierce resistance from the people assigned to those projects.
Constantly updating management plans can leave a company without clear goals or direction. One criticism of the MBO process is that it can lead companies to tamper with their plans anytime they don't appear to be achieving their most immediate objectives. Businesses could spend so much time rearranging goals that they don't accomplish anything in the end. Some businesses have opted for the less specific objectives outlined in traditional company mission statements that don't require numerous revisions and are less of an administrative burden.
Despite the advantages of MBO, even pioneers and advocates of management by objectives have cautioned that it's a process that must be entered carefully. Influential management consultant Peter Drucker has been widely credited with developing the idea for MBO. As early as 1945, he noted that managers often become so involved in daily activities that they forget to relate those activities to achieving company objectives.
However, "The Economist" says Drucker eventually downplayed MBO as a method for handling management inefficiencies. He didn't disavow the method; rather, he said that without clear organizational goals going into the process, the effectiveness of MBO would be sharply limited.