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CH 14] Business 101 14-11

duties, which should lead to greater productivity. Management, therefore, should
create a work environment that will result in high employee morale.
Management by Objectives – Future Planning
A widely used management technique aimed at improving the overall motivation management by
and performance of workers is management by objectives (MBO). MBO is designed objectives (MBO)
to improve employees' motivation by having them participate in setting their own Program designed to
improve employee
goals, letting them know in advance how they will be evaluated, and basing their motivation through
performance appraisals upon periodic analyses of their progress toward agreed-upon participation in goal setting
goals. and by informing them in
The MBO approach was proposed and popularized by management writer and advance of the factors used
in performance evaluations.
consultant Peter Drucker, who described it this way:
The objectives of the district manager's job should be clearly defined by the
contribution he and his district sales force have to make to the sales department, the
objectives of the project engineer's job by the contribution he, his engineers and
draftsmen make to the engineering department.... This requires each manager to
develop and set the objectives of his unit himself.
Higher management must, of course, reserve the power to approve or disapprove
his objectives. But their development is part of a manager's responsibility; indeed, it is
his first responsibility. 14

An estimated 200 of the 500 largest industrial firms in the United States are
currently using some form of MBO. It is used in all endeavors of business and is
cyclical in its use. A manager comes into a work area and will enforce this concept on
his subordinates, they leave and the next manager does not continue with it because his
management style is different.
Steps in an MBO Program
Figure 14.3 illustrates the following five-step sequence used by most MBO
programs:

1. Each subordinate discusses the job description with the manager.
2. Short-term performance goals are established.
3. The subordinate meets regularly with the manager to discuss progress toward
the goals.
4. Intermediate checkpoints are established to measure progress toward the goals.
5. At the end of a defined period, both the manager and subordinate evaluate the
results of the subordinate's efforts.

Management by objectives involves mutual goal setting by manager and
subordinate. Both must reach an understanding about the subordinate's major area of
responsibility and the acceptable level of performance. These understandings form the
basis of the subordinate's goals for the next planning period (usually in about six
months).
Goals should be in numerical terms whenever possible—for example, reducing
production losses by 12 percent or increasing product sales by 15 percent. Once these
goals are established and agreed upon, the subordinate is responsible for achieving
them.
Meanwhile, the subordinate may check often with the manager. At the end of the
period, a formal progress review is conducted. Both the subordinate and the manager
discuss performance and determine whether the goals were achieved. Goals not met
are analyzed, and corrective measures may be devised for improving future
performance. New goals are then established for the next period.

Benefits of an MBO Program
The chief purpose of management by objectives is to improve employee'
motivation through his participation in setting his own goals. Workers thus know both
the job to be done and precisely how they will be evaluated.
An MBO program should improve morale by improving communication between

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