Also known simply as MBO, management by objectives is a strategy that focuses on setting specific goals and objectives within a company setting. In theory, both the management and the employees of the firm agree to support these objectives, and work together to make sure company goals are achieved. To a degree, this approach allows all parties to be involved in the decision making process, since it requires feedback from everyone who is involved with the business.
There are several benefits to the management by objectives model. One has to do with motivation of employees. Since the employees are actively involved in setting goals, and often in the process of designing processes and procedures that move the company toward those goals, they tend to have a stronger sense of investment in the overall process. This prompts employees to pay closer attention to their productivity, thus improving employee performance at every level. As a result, the company has a much better chance of being successful and achieving its objectives.
Increased communication throughout the organization is also one of the advantages of management by objectives. Both managers and employees interact regularly to ensure the operation of all departments and areas within the company are functioning at peak levels. This open line of interaction helps to minimize the potential for miscommunication, and thus supports the overall production efforts of the business. This clear process of communication also helps to ensure that everyone understands clearly how well the business is working to reach its objectives, and what each party can do to aid in that process.
While there are benefits to the management by objectives approach, there are also a few potential drawbacks. The attention to the creation of the objectives may overshadow the practical aspect of designing policies and procedures that make it possible to attain those goals. At the same time, the strategy can suffer if all parties concerned do not have a clear understanding of which resources can reasonably be brought to bear in the formation of company objectives. Without this grounding in reality, the goals set may be unreachable and lead to a great deal of frustration on the part of employees as well as the management.
There is also the danger of evaluating employee performance based on some ideal model, rather than on the talents and abilities that the employee brings to the effort. In other words, the employee is expected to live up to some example that may or may not be realistic. Unless the process of management by objectives focuses more on what an employee can do today and less on what the employee can possibly become tomorrow, there is likely to be frustration on the part of both employee and manager that increases the chances for failure.