Business e-Coach: Yourself   Your Business    Management    Innovation    Venture Financing    Tech Transfer    Green Productivity

Home    Search this Site    Site Map    Slide Shows    MBS    Case Studies    Model Agreements    Links    Contact us


The Art of Management

Management by Objectives (MBO)

by Vadim Kotelnikov

"MBO is one of the rational school of management's successful products" (The Economist)

The Two Questions You Need to Answer To Get The Whole Process Rolling

  1. Where do I want to go ? (What is the objective?)

  2. How will I pace myself to see if I am getting there? (What are my milestones, or key results?)

Make sure that the answers are precise!

Types of Objectives

(by Peter Drucker)

  • Routine objectives

  • Innovative objectives

  • Improvement objectives

The objectives must be:

  • focused on a result, not an activity

  • consistent

  • specific

  • measurable

  • related to time

  • attainable

The Six MBO Stages

  1. Define corporate objectives at board level

  2. Analyze management tasks and devise formal job specifications, which allocate responsibilities and decisions to individual managers

  3. Set performance standards

  4. Agree and set specific objectives

  5. Align individual targets with corporate objectives

  6. Establish a management information system to monitor achievements against objectives

MBO in Action at Intel: A Manager's Guide

  1. Start with a few well-chosen overriding objectives

  2. Set your subordinates objectives that fit in with your overriding objectives

  3. Allow your subordinates to set their own key results to enable them to meet their objectives

The Eight Key Result Areas Where Managers Must Pursue Clear Objectives

Job Satisfaction Needs of Knowledge Workers

  • Challenge, above all

  • Continuous training

  • To know the organization's mission and to believe in it

  • The need to see results

Personal Empowerment: The Four Powers You Need To Do an Excellent Job

  1. Freedom to challenge everything and anything

  2. Continuous training and development on the job

  3. Knowledge of, and faith in, the organization's mission

  4. The ability to achieve and see results

Managing for Results: The Eight Perceptions

  • Resources and results exist outside, not inside, the business

  • Results come from exploiting opportunities, not solving problems

  • For results, resources must go to opportunities, not to problems

  • "Economic results" do not go to minor players in a given market, but to leaders

  • Leadership, however, is not likely to last

  • What exists is getting old

  • What exists is likely to be misallocated (i.e. the first 10% of effort produces 90% of the results)

  • To achieve economic results, concentrate

Related how-to guides:

Management by Objectives (MBO): Starting with Yourself

Developing Yourself and Others

Measuring Performance: The Executive Diagnostic Toolkit

Managing Change: Continuous Innovation Strategy


What is MBO?

Management by objectives is about setting yourself objectives and then breaking these down into more specific goals or key results.

MBO is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources. The principle behind MBO is to make sure that everybody within the organization has a clear understanding of the aims, or objectives, of that organization, as well as awareness of their own roles and responsibilities in achieving those aims. The complete MBO system is to get managers acting to implement and achieve their plans, which automatically achieve those of the organization.

Setting Objectives

"The one thing an MBO system should provide is focus", says Andy Grove who ardently practiced MBO at Intel. So, have your objectives precise and keep their number small. Most people disobey this rule, try to focus on everything, and end up with no focus at all.

For MBO to be effective, individual managers must understand the specific objectives of their job and how those objectives fit in with the overall company objectives set by the board of directors. "A manager's job should be based on a task to be performed in order to attain the company's objectives... the manager should be directed and controlled by the objectives of performance rather than by his boss."

The managers of the various units or sub-units, or sections of an organization should know not only the objectives of their unit but should also actively participate in setting these objectives and make responsibility for them.

The review mechanism enables leaders to measure the performance of their managers, especially in the key result areas: marketing; innovation; human organization; financial resources; physical resources; productivity; social responsibility; and profit requirements.

However, in recent years opinion has moved away from the idea of placing managers into a formal, rigid system of objectives. Today, when maximum flexibility is essential, achieving the objective rightly is more important.

Achieving the Balance between Management and Employee Empowerment

The balance between management and employee empowerment has to be struck, not by thinkers, but by practicing managers. Turning their aims into successful actions, forces managers to master five basic operations:

These MBO operations are all compatible with empowerment, if you follow the main principle of decentralization: telling people what is to be done, but letting them achieve it their own way. To make the principle work well, people need to be able to develop personally. Further, different people have different hierarchy of needs and, thus, need to be managed differently if they are to perform well and achieve their potential.

Empowerment recognizes "the demise" of the command-and-control system, but remains a term of power and rank. A manager should view members of his or her team much as a conductor regards the players in the orchestra, as individuals whose particular skills contribute to the success of the enterprise. While people are still subordinates, the superior is increasingly dependent on the subordinates for getting results in their area of responsibility, where they have the requisite knowledge. In turn, these subordinates depend on their superior for direction and "above all, to define what the 'score' if for the entire organization, that is, what are standards and values, performance and results."

Managing for Results

The only place where meaningful management results can be won is the outside world. Managing for results is expansion of MBO into the marketplace. It is the theory and practice of how to produce results on the outside, in the market and economy.

To achieve these results, you should develop a solid, sound, customer-focused, and entrepreneurial strategy, aimed at market leadership, based on innovation, and tightly focused on decisive opportunities.

Individual Responsibility

MBO creates a link between top management's strategic thinking and the strategy's implementation lower down. Responsibility for objectives is passed from the organization to its individual members. It is especially important for knowledge-based organizations where all members have to be able to control their own work by feeding back from their results to their objectives.

Management by objectives is achieved through self-control, the tool of effectiveness. Today the worker is a self-manager, whose decisions are of decisive importance for results.

In such an organization, management has to ask each employee three questions:

  1. What should we hold you accountable for?

  2. What information do you need?

  3. What information do you owe the rest of us?


1.    " Management: Tasks, Responsibilities, Practices", by Peter Drucker, 1974

2.    "The Frontiers of Management", by Peter Drucker, 1986

3.    "Managing in Time of Great Change", by Peter Drucker, 1995

4.    "Management Challenges for the 21st Century", by Peter Drucker, 1999

Rambler's Top100