MBO is defined as “the establishment of effectiveness areas and effectiveness standards for management position and the periodic conversion of these into measurable time bound objectives, linked vertically and horizontally with future planning.”
John Humble define MBO as “A dynamic system which integrates the company’s need to achieve its goal for profit and growth with manager’s need to contribute and develop himself. It is a demanding and a rewarding style of managing a business.”
It was emerged in the late 1950s; and has been described as a process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individuals major areas of responsibility in terms of the results expected of him, and use these measures as guides for operating the unit and assessing the contribution of each of its member.” This system based on two main principles:-
- Result orienting, and
- Particular view of human behavior.
This system helps in realization of an organization’s goals by its members as if those are their personal goals. The mechanism used to achieve the aims is that goals setting process is made not only an open secret but all the members of the organization are also made to realize the importance of the goals. Any MBO system has four basic components:
- Setting objectives.
- Developing action plans.
- Conducting periodic Reviews, and
- Appraising Annual Performance.
Setting Objectives in MBO is not always easy, and problems occur frequently. Often the largest problem is deciding the specific areas in which to set objectives. In this regard managers follow certain guidelines. After the objectives have been jointly established by the superior, a plan of action for achieving the objectives should be developed. This involves the following:
- Determine the major activities necessary to accomplish the objectives.
- Establishing sub activities necessary for accomplishing the major activities.
- Assign primary responsibility for each activity and sub-activity.
- Estimate time requirements necessary to complete each activity and sub-activity.
- Identify additional resources required for each activity and sub activity.