What is Management by Objectives (MBO) and its Process

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Management by Objectives Definition

The agreed work objectives are implemented by the employee on their own responsibility. This requires a broad delegation of decision-making powers to the employee. It is important in this management technology that the target agreement is reached with mutual consent. The independent work can motivate the employee. However, the work targets must also be achievable, otherwise, the employee will experience an excessive performance pressure.

What is Management by Objectives?



Management by Objectives (MBO, leading through goal agreement) was “invented” by Peter Drucker in 1955 and is one of the transactional management approaches. The aim is to break down the strategy of the company through sub-strategies and tactical targets to the activities of all organizational units at all levels of the company down to individual employees. This is to ensure that all employees work hard to implement the company’s objectives and the strategy defined for them – concentrating the forces on the essentials.

MBO is now widely distributed but rarely develops the desired effect. Because of the approach, in theory, is so obvious, it is so difficult to implement. It only works satisfactorily if it is set up systemically, to say that it is part of a real management system that ensures leadership over the year.

Properly deployed, MBO is, however, a suitable tool for a certain dimension of management: to integrate all employees of the company into the company’s overall company, each year based on the horizon.

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Management by Objective is a result-oriented management method. In doing so, goals are agreed between supervisor and employee. The goals are to be SMART:

  • S – specific = specific
  • M – measurable = measurable (clear specifications)
  • A – achievable = attainable, adequate
  • R – realistic = realistic, feasible
  • T – time related = scheduled (time)


MBO is a management task and thus the task of each individual executive. It is important that goals are in place. The employees thus learn about the goals of the top management, which promotes an understanding of the entire organization. At the same time, the top management of the problems associated with the target achievement for the employees will become aware. The supervisor is obliged to support his employees in the goal fulfillment. He talks with them. Procedure for the target agreement meeting with the employee

Management by Objectives Process / Steps

First step: Developing agreements

Arrange the goals with each employee in four steps.

  1. Make an appointment for the meeting agreement.
  2. The employee and you work independently for the target agreement for the next planning period (usually one year).
  3. In the target agreement discussion, commonalities are identified, deviations are discussed, changes are introduced and the final agreed targets are fixed for both parties by the employee in writing.
  4. In order for the employee to know what support he or she can expect from you, all your contributions for the goal fulfillment are also written down in writing.

Second step: Clarify the prerequisites for the target achievement

Before the agreement can be established in writing, the prerequisites for the target fulfillment have yet to be clarified: Which resources are available.

  1. Guiding instruments (authorizing authority, control instruments)
  2. Employee
  3. Finance
  4. Structures
  5. Technology/systems
  6. material
  7. Information / Communication
  8. Time
  9. Other resources


Third step: To keep the agreed goal in writing

In the second and third step, it is useful for each employee to answer the following seven questions:

  1. What personal goals do I have?
  2. Which of these would I like to achieve in my current activity?
  3. How, I believe, will my goals change with time?
  4. What are the operational objectives?
  5. How are my personal goals influenced by company goals?
  6. How can the company objectives and my personal goals be coordinated?
  7. With whom will I integrate my goals?


The task of leadership is to listen first and to help the employee to express himself. The motto is: “Employees are people, not marionettes.” Frequently, the personal goals of the employee can not be adequately clarified in the first conversation. It takes a time to be clear about personal goals, articulate them.


Through appropriate targets, productivity can be increased and competitiveness can be improved, and employees can improve and progress. The employee is motivated, identified with the goals and his independence and his sense of responsibility are encouraged. The objectives must be continuously reviewed, revised and, if necessary, adapted or amended. How the employee wants to reach the goal is up to him. He is responsible for the agreed targets. He is measured on the target. This is periodically checked and deviations are analyzed. After a period, usually one year, the employees are assessed using a target / actual comparison. In a discussion, supervisors, and employees, How well the performance of the employee was, whether the goals were achieved. If the objectives have not been achieved, the causes must be sought. Frequently, it is not the responsibility of the employee alone to achieve goals. The discussion also discusses strengths and weaknesses as well as possibilities for how the employee can develop further. In the case of performance-related remuneration systems, this discussion can form the basis for variable remuneration. 





Advantages of the Management by Objectives

  • Employees can co-determine and get design freedom
  • Personal wishes and ideas of the employees are taken into account
  • Individual goals are linked to corporate objectives
  • Employees are more tied to the company
  • Carefulness is encouraged
  • Team spirit is encouraged
  • Employees can identify with goals
  • Employee assumes responsibility for goal fulfillment
  • Executives are relieved
  • Higher productivity of the employee
  • Lower fluctuation
  • Employees can work autonomously
  • Dialogue between supervisor and employee is encouraged


Disadvantages of the Management by Objectives

  • Control of the employee
  • Employee pressure is increasing
  • Danger of more quantity than quality
  • Individual targets can obscure the overall view
  • Goals say nothing about performance
  • Difficulty in defining measurable goals
  • External influencing factors can prevent the achievement of the target

Examples of Management By Objective

  • Achieve cash flow of $1500 thousand per month
  • Increase Gross Margin by 20%
  • Achieve payback period of 1 year for new products

MBO Marketing  Examples

  • Agree on the sales qualified lead definition with sales by the end of 2nd Quarter
  • Generate 5000 marketing qualified leads per month
  • Increase conversion rate from paid search to 11%

Human Resources MBO Examples

  • Hire 20 sales representatives
  • Maintain overall employee happiness index over 90%
  • Assure 1-year overall retention rate of 99%

MBO Sales Examples

  • Achieve the new bookings target of 100 per month
  • Achieve average deal size of $200 000
  • Hit the win rate of 18%