Back to glossary

What is management by objectives (MBO)?

Table of contents

MBO stands for “management by objectives”. It is a management strategy in which specific goals and objectives are established for individuals and teams within an organization, and progress toward those objectives is regularly reviewed and evaluated. The goal of MBO is to align the goals and objectives of individual employees with those of the organization as a whole, and to improve overall performance and productivity.

What are the five steps in MBO?

  1. Define organization goals: The first step in the MBO process is to establish goals for the organization as a whole. These goals should be aligned with the mission and vision of the organization and should be specific, measurable, achievable, realistic, and time-bound (SMART).
  2. Define employee objectives: set SMART goals for each employee that align with the organization’s overall objectives. The employee should have a clear understanding of what is expected of them and how their performance will be evaluated.
  3. Monitor progress: this step requires regular check-ins from managers to review the progress employees are making toward their goals, discuss any issues that have arisen, and make adjustments when necessary.
  4. Evaluate performance: assess employee performance against the goals set, and provide feedback on their work. Performance should be evaluated using objective measures, such as sales targets, productivity levels, or customer satisfaction rates. Evaluating employee performance helps managers identify areas where employees are excelling, as well as areas where they need improvement.
  5. Reward accomplishments: by consistently recognizing and rewarding good performance, organizations can create a positive work culture where employees are motivated to achieve their goals and strive for excellence.

What are the pros of MBO?

  • Improved performance: by setting specific, measurable goals, employees have a clear understanding of what is expected of them and are more likely to perform well.
  • Increased accountability: MBO creates a sense of accountability for employee performance, as each employee is responsible for achieving their own specific goals.
  • Better communication: the MBO process promotes regular communication and collaboration between managers and employees, which can help improve working relationships.
  • Better use of resources: by setting clear goals and regularly monitoring progress, MBO can help ensure that resources are used efficiently and effectively.
  • Improved motivation: setting challenging but achievable goals and providing recognition and rewards for good performance can help motivate employees to achieve their goals.

What are the cons of MBO?

  • Risk of burnout: the MBO process can put a heavy strain on employees, as they may feel pressure to meet their goals and maintain a high level of performance. This can lead to increased stress and burnout, negatively impacting employee well-being and productivity.
  • Risk of tunnel vision: When employees are focused on achieving specific goals, they may neglect other important aspects of their job or the organization’s overall goals, leading to a “tunnel vision” effect.
  • Unhealthy competition: MBO can create a cutthroat work environment where employees focus more on outperforming their colleagues than on working collaboratively to achieve organizational goals.
Lady in green Lady in green

The power of consolidated global payroll

Free white paper: how enterprises can streamline global payroll at scale

Download Here