Management By Objectives (MBO) definition
Also known as management by results (MBR), management by objectives is a results-driven process that aims to define objectives within an organisation so that behaviours can be aligned with the achievement of these objectives. The theory underlying MBO is that people are more motivated and productive when they clearly understand their roles and responsibilities.
MBO is a collaborative approach as both managers and employees are given objectives through collective discussion, and both have their behaviour and actions judged against the set objectives. Meeting objectives is often incentivised, often through incentive pay or indirect compensation.
Frequently-cited advantages of management by objectives include superior communication due to a common understanding of objectives, improve employee motivation and an increased managerial ability to link employee actions with the overall goals of the organisation.
Criticisms of management by objectives include short-sightedness, where the company's resources are mobilised solely towards achieving goals, to the expense of other needs. Another criticism is that the collaborative approach to target-setting may not always be compatible with the commercial needs of an organisation. MBO also overemphasises results and can stifle leadership, because managers are focused on reaching goals.
The term management by objectives was brought into common parlance by consultant Peter Drucker, in his 1954 book The Practice of Management.