APPLICATION OF MANAGEMENT BY OBJECTIVE (MBO) IN ACHIEVING ORGANIZATIONAL GOALS IN ABUJA

CHAPTER TWO

LITERATURE REVIEW AND THEORETICAL FRAMEWORK

2.1 Conceptual framework

Management by objective is traceable to the period prior to the middle of this century but it was not until 1954 that it was well articulated and publicized by one of the world’s leading management thinkers in the person of Peter Drucker. Management by objective goes beyond setting annual objectives for organizational units to setting performance goals for individual employees (Stoner, 2000: 361). Management by objectives has become a great deal of discussion, evaluation and research and inspired many similar programs.

Management by objectives refers to a formal set of procedures that begins with goal setting and continues through performance review. Managers and those they supervise act together to set common goals. Each person’s major areas of responsibility are clearly defined in terms of measurable expected results or objectives, used by staff members in planning their work, and by both staff members and their managers for monitoring progress. Performance appraisals are conducted jointly on a continuing basis, with provisions for regular periodic reviews. The heart of management by objective is the objectives, which spell out the individual actions needed to fulfill the units functional strategy and annual objectives. 

Management by objectives provides a way to integrate and focus the efforts of all organization members on the goals of higher management and overall organizational strategy.

Another key to management by objective is its insistence on the active involvement of managers and staff members at every organizational level. Drucker (1979) insisted that managers and staff members sets their own objectives or at the very least, be actively involved in the objective setting process. Otherwise people might refuse to co-operate or make only half-hearted efforts to implement someone else’s objectives.

2.2     Theoretical framework

The father of modern corporate management Peter Drucker is often considered to be the world’s most influential corporate guru. His ideas and thoughts revolutionized corporate management in the later half of the 20th century.

Drucker (1979) began by identifying certain inherent structural variable in the work environment that are capable of misdirecting the efforts of management towards the realization of corporate goals.

          The sources of these are mentioned below:

·        Opposing views at various level of management arising from differentials in their scope of jurisdiction and pursues corporate goals.

Participation is an essential component of an effective management by objective programs. Managers and employees should agree on objectives and should meet periodically to review progress toward the objective. The objective set in the process of management by objectives help provide a yardstick for appraisal, compensation and control.

Once the objectives are agreed upon, everyone knows what is expected of him, thereby making appraisal and reward easy and known what is more, it facilitates control of organizational operations as deviations can be easily identified and corrections made.

2.2.1    Application of management by objective

To understand how management by objectives can be applied, it is necessary to look at the parts of the process. Management by objective can be divided in multiple steps in many combinations, but three main one will be discussed: organisation objective setting, manager objective setting and objective review. (Mullins 2005).

Organization Objective Setting: Setting objectives is the most difficult step in management by objective. Objective setting looks beyond day-to-day activities to answer the question “what are we trying to accomplish?” This step requires the top managers of an organisation to review the purpose for which the organisation exists.

In the military, this may require the view of the mission statement and a discussion of its meaning. This is an important requirement, for periodic review re-emphasizes the continuing need for the existence of the organization. With this mission in mind, the commander or supervisor and his staff must then set organizational objectives in areas where the unit will concentrate its efforts during the approaching objective setting period.

Manager Objective Setting: Each individual manager in the organization must now determine the objectives for his business. This procedure takes place in three general steps: identifying key result areas, writing objectives, and negotiating with the boss. First, the manager must identify the key result areas of responsibility that are assigned to this unit.

In other words, just as the commander reviewed the whole organization in order to set organization objective, the manager reviews his part of the organization in order to set his objectives. It is important for the individual business manager to identify the areas of his unit where most of the results are obtained. He will usually find that 20 percent of his area of responsibility will produce 80 percent of his results. It is important that he identify and zero in on these key result areas for management by objective to be effective. After a manager has identified his key areas of responsibility, he is ready to sit down and write his objectives.

The main criteria that he should remember in writing objectives are that they should be specific, measurable, realistic, and result oriented. They should be specific in that there can be no confusion about what is expected. They must be measurable for later accountability. They must be realistic but still challenging.

After the managers objectives have been written, he enters the participative management phase of this technique. The subordinate manager sits down with his boss and they agree on the subordinate’s objective. This requires a realistic commitment on the part of both individuals.

The agreement on the objective signifies the approval of the expected results (output) required of the subordinate. Progress toward these results can now be pursued by the subordinate until the requirement is reached or the goal is changed.

Objective Review   - After the setting of objectives has been agreed upon by the subordinates, manager and his boss, the stage is set for managing by these objectives. This managing process is responsibility of the subordinate manager, and it is interrupted only by mutually arranged, formal review sessions with the commander. In other words, management by objective requires that each individual have the freedom to perform a well-defined task without interference.

2.3. Theoretical bases

There are two major schools of thought on how management by objective should be implemented, although there is an agreement on its usefulness. 

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