Management by Objectives

To provide a framework within which to evaluate subordinates’ behavior and, in particular, to allow managers to monitor progress toward achieving goals, many organizations implement some version of management by objectives. Management by objectives is a system of evaluating subordinates for their ability to achieve specific organizational goals or performance standards and to meet operating budgets. Most organizations make some use of management by objectives because it is pointless to establish goals and then fail to evaluate whether or not they are being achieved. Management by objectives involves three specific steps:

  1. Specific goals and objectives are established at each level of the organization. Management by objectives starts when top managers establish overall organizational objectives, such as specific financial performance targets. Then objective-setting cascades down throughout the organization as managers at the divisional and functional levels set their objectives to achieve corporate objectives. Finally, first-level managers and workers jointly set objectives that will contribute to achieving functional goals.
  2. Managers and their subordinates together determine the subordinates’ goals. An important characteristic of management by objectives is its participatory nature. Managers at every level sit down with the subordinate managers who report directly to them and together they determine appropriate and feasible goals for the subordinate, and bargain over the budget that the subordinate will need so as to achieve these goals. The participation of subordinates in the objective-setting process is a way of strengthening their commitment to achieving their goals and meeting their budgets. Another reason why it is so important for subordinates (both individuals and teams) to participate in goal setting is so they can tell managers what they think they can realistically achieve.
  3. Managers and their subordinates periodically review the subordinates’ progress toward meeting goals. Once specific objectives have been agreed upon for managers at each level, managers are accountable for meeting those objectives. Periodically, they sit down with their subordinates to evaluate their progress. Normally, salary raises and promotions are linked to the goal-setting process, and managers who achieve their goals receive greater rewards than those who fall short.

In the companies that have decentralized responsibility for the production of goods and services to teams, particularly cross-functional teams, management by objectives works somewhat differently. Managers ask each team to develop a set of goals and performance targets that the team hopes to achieve—goals that are consistent with organizational objectives. Managers then negotiate with each team to establish its final goals and the budget the team will need to achieve them. The reward system is linked to team performance, not to the performance of any one team member.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit, Line of Sight

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