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MBO- Management by Objectives | Peter Drucker | Principles of Management - YouTube
Channel: Management Kaksha
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Hello everyone, welcome to management kaksha.
A one stop solution for all your management
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related queries.
In today's video we will be talking about
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a relatively new modern management theory
known as management by objectives or MBO.
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The contents of this video are- Meaning of
MBO, steps in the MBO process, Smart Goal
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setting theory, Difference between MBO and
MBE, advantages of MBO and disadvantages of
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MBO.
Meaning of MBO
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Management by objectives is a strategic management
model that aims to improve the performance
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of an organization by clearly defining objectives
that are agreed to both by the management
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and the employees.
So if you've studied about the scientific
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management theory or even the administrative
management, you will know that the importance
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in these classical approaches is given to
the achievement of objectives which are already
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set by the top management.
But according to MBO which was formulated
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by Peter Drucker, having a say in the goal
setting and action plans encourages participation
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and commitment among the employees as well
as aligning the objectives across the organization.
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Ideally the concept of this theory was that
if the employees themselves are involved in
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the setting of goals and deciding their course
of action they are more likely to fulfill
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their obligations.
Steps in the MBO process.
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So let us try to understand the steps in the
MBO process with the help of an example.
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Imagine we're taking this problem of an IT
organization with more than 500 employees
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and they provide both services and product
to the clients so there's a new organization
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with more than 500 people and they have both
services and products the organization is
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a few years old.
But from past few months the client satisfaction
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is not that great, and even the employee attrition
rate is increasing so now the board gets together
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to find a solution for this problem.
The first step in the MBO process is to define
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the organization goals.
In this step, either the current organization
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goals are defined or they are revised.
The goals and objectives should be derived
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from the firm's mission and vision statement.
So when this IT organization was formed the
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mission and vision of the organization were
already set, but now there is a little problem,
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so the goals and objectives of the organization
have to be revised to achieve the already
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set vision and mission statement.
So if the goal of this IT organization is
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to be the industry leader then the plan should
be laid out to achieve this particular vision.
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Now the organization goals are set the next
step is to translate the organizational objectives
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to the employee objectives.
After the organization's objectives are shared
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with the employees, employees should be encouraged
to help set their own objectives to achieve
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these larger organizational objectives.
First the organization objectives are set,
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then the organization must focus on setting
the employee objectives.
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If the employee objectives are set then the
larger organizational objectives will also
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be achieved and this also gives the employees
greater motivation, since they have greater
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empowerment.
Some of the examples for employee objectives
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can be to deliver excellent targets, to enhance
domain specific knowledge, leadership development,
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skill development, etc.
So all these individual employee objectives
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will in turn help achieve the larger organizational
objectives of the organization which is to
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be the industry leader.
The organizational goals are set and even
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the employee objectives are aligned with the
organizational goals.
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Now the next step is to continue monitoring
performance of the employees.
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Continuous evaluation will help both the organization
and the employees to understand if there are
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any hurdles and work on them.
While doing continuous monitoring and evaluation
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if any setbacks are found the 4th step in
the MBO process is to provide feedback and
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improve the performance.
The performance review is achieved by the
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participation of the managers concerned.
The next step is a performance appraisal.
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The employees are awarded either monetary
or non monetary benefits for the work they've
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done.
The performance appraisal and the performance
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evaluation steps both includes honest feedback
on what was achieved and not achieved for
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each employee.
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Smart goal setting theory is used to translate
the organizational objectives to the employee
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objectives.
Peter Drucker used the acronym SMART to express
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the concept.
The smart goal setting theory is very famous
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and applicable not just in the business environment
but also in everyday life situations.
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We'll be covering this specific topic in detail
in another video.
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So now let me just briefly through the smart
goal setting theory.
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Goals are part of every aspect either it is
a business or in the everyday life.
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Goals provide a sense of direction motivation
and clear focus by setting goals you are providing
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yourself with a target to aim for.
SMART is the acronym that stands for Specific,
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Measurable, Achievable, Realistic and Timely
.
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Therefore a smart goal incorporates all of
these criteria to help focus your efforts
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and increase the chance of achieving your
goal.
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Differences between management by objectives
and management by exception.
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MBO was first proposed by Peter Drucker and
his book of practice of management in 1954.
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It is defined as a management model that attempts
to devise a common objective that is acceptable
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for both the management and the employees
which will improve the overall performance
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of the organization.
Management by exception, is a management style
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which identifies the practical deviations
from this standard or the best practice.
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In MBO, the idea was to have an organizational
objectives aligning with the employee objective.
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In management by exception, the management
is concerned with the issue if there is a
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significant deviation from the actual performance.
So for example management will not take corrective
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action until and unless there is a major deviation
in the organization which is affecting the
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output the differences.
In the employee participation are
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In MBO, employee participation is essential
as a common objective needs to be attained.
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In MBE, employee participation in the planning
process and the decision making process is
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minimal and all of the responsibility is rested
with the senior management only.
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The differences and role ambiguity are
In MBO, there is a clear description of personal
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responsibility of the employees towards the
organizational goals which is communicated
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and understood clearly.
In MBE, there is a lack of clarity and the
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employees perform according to the generic
responsibility without understanding their
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role.
In the overall achievement of the objectives
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the difference is in dependency
In MBO, the dependency on one department or
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group is less as operations are handled with
organizational wide participations.
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In MBE, the dependence on one department especially
of financial analysis or accounts is high
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as their responsible for forecasting ,budgeting
and monitoring further their responsible even
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for the communication of significant deviations.
The differences in efficiency are
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In MBO, as there is an active involvement
of the whole organization in the decision
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making process it leads to delays and complex
procedures and there is reduced efficiency.
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In MBE as only the top management makes the
important decisions and the rest of the work
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is performed by the workers there is better
efficiency.
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Advantages of management by objectives.
Management by objectives helps employees appreciate
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their own job roles and responsibilities.
MBO approach usually results in better teamwork
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and communication, it provides the employees
with a clear understanding of what is expected
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of them.
The supervisor sets goals for every member
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of the team and every employee is provided
with a list of unique tasks that are required
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to be performed by them.
Every employee is assigned a set of unique
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goals hence each employee feels indispensable
to the organization and eventually develops
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a sense of loyalty.
Disadvantages of management by objectives.
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MBO often ignores the organization's existing
or current ethics and working conditions,
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more emphasis is given on goals and targets.
The process of MBO was introduced for employee
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involvement, willingness to contribute and
the growth of the organization but sometimes
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the managers forget the core of MBO and put
constant pressure on the employees just to
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achieve the goals and targets.
Finally there is a tendency for many managers
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to see management by objectives as a total
system that can handle all the management
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issues once installed.
It creates overdependence on MBO system and
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which may create problems which the system
is not ready to tackle.
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