Explain the concept and process of MBO. Enumerating its benefits, discuss the factors which play crucial role in the success of the process. Explain with relevant examples from the organization you are working for or familiar with. Briefly describe the organization you are referring to.
An effective planning tool to help the supervisor set objectives is Management by Objectives (MBO). MBO gained recognition in 1954 with the publication of Peter Drucker's book The Practice of Management. MBO is a collaborative process whereby the manager and each subordinate jointly determine objectives for that subordinate. To be successful MBO programs should include commitment and participation in the MBO process at all levels, from top management to the lowest position in the organization.
MBO begins when the supervisor explains the goals for the department in a meeting. The subordinate takes the goals and proposes objectives for his or her particular job. The supervisor meets with the subordinate to approve and, if necessary, modify the individual objectives. Modification of the individual's objectives is accomplished through negotiation since the supervisor has resources to help the subordinate commit to the achievement of the objective. Thus, a set of verifiable objectives for each individual are jointly determined, prioritized, and formalized.
The supervisor and the subordinate meet periodically to review the latter's progress. Communication is the key factor in determining MBO's success or failure. The supervisor gives feedback and may authorize modifications to the objectives or their timetables as circumstances dictate. Finally, the employee's performance is measured against his or her objectives, and he or she is rewarded accordingly.
Hence, some of the key features of MBO are :
Ø Emphasis on results rather than activities
Ø Objectives for specific managerial positions.
Ø Participatory or joint objective setting.
Ø Identification of key result areas.
Ø Establishment of Periodic Review System.
Steps in MBO Process
Explaining goals for departments or groups in joint meetings.
Reviewing results for period & establishing goals for next period. Beginning process again.
Agreeing on objectives for next planning period with each employee individually.
Reviewing subordinate objectives at target dates.
When top management is committed and personally involved in implementing MBO programs, they significantly improve performance. This finding is not surprising when one considers that during the MBO process employees determine what they will accomplish. After all, who knows what a person is capable of doing better than the person does him or herself?
L.K. Global (India) (or LKG), the company with which I have been associated is a multi-product, multinational company operating in 13 countries with its head office in U.K. It has an average annual turnover of £ 400 million. It has two branches in India, one at Software Technology Park, Noida and other at IT Paradise, Bangalore. LKG’s core business has been development and marketing of Software, Software and Networking Solutions.
LKG has started its business in 1981 in U.K. as a software development company only with 25 programmers. But in this short span of time, it has grown and transformed into a multi-business, multinational company by successfully diversifying into, Construction, Finance and Internet Service Provider (ISP) businesses.
One of the failure stories in LKG that follows can not be strictly said to be associated with MBO, but can certainly be said to be originated because of misconception about MBO.
LKG was in its initial years of inception and was in the process of implementing professional management techniques such as MBO. In one of the meetings of the Departmental Executives, the then Managing Director Mr. Jack Bryan briefed about importance, benefits and the process of MBO. Mr. Jack Bryan, an MBA from Manchester, had been taking lot of initiatives to imbibe most of the practical lessons learned during his degree with a motive impart attitudinal professional training and fine tune his executives who were mostly fresh programmers and lacked managerial experience/qualification. In one such briefing, Mr. Bryan had narrated his executives importance, benefits and the process of Decentralization and Delegation.
The incidence is connected with one of the very young executive from India who happened to be the Team Leader of 12 Programmers, all from India. The said executive, Mr. Rane enjoyed good rapport among his team of 12 programmers and also with senior non-Indian executives at LKG headquarters U.K. At that time Mr. Rane did not had any professional management qualification but he had in-depth technical knowledge in electronics and programming. And hence, he was designated as Manager Quality Assurance with all the 12 Indian programmers under his supervision. Obviously, Mr. Rane had been an important part of all the executive level meetings with Mr. Bryan.
Mr. Rane unaware of the technicalities involved and half grasped concept of MBO once attempted to misadventure with the concept by confining the concept within his department and within his team. On one fine weekend he took his team to a holiday resort and assuming the position of Mr. Bryan he introduced his teammates to the concept of MBO, Decentralisation, Delegation, etc. and endorsed his idea to practice it within his team. As the whole team constituted of Indian programmers, he enjoyed a natural support and good rapport with his teammates. Consequently, his idea was overwhelmingly supported and accepted by the team. Very soon the team started meeting frequently inside closed rooms and outside office. Finally, the team came up with its own (department’s) objectives which were in some way contrary to the organisational objectives. For instance, at the organisational level objectives set for each department was to develop target levels of programmes per period of time. However, the Quality Assurance team set its objectives as certain levels of rejection of programmes per time period.
The organisational setup was such that all programmes were to pass through the Quality Assurance Department. The number of rejections kept piling up even with minor and small technical mistakes which QA Department was expected to rectify (earlier the QA Department had been rectifying such mistakes) pass the programmes with earmarked changes.
Since the set objective of the team was not official and was the objective of an offshoot of the organisation which also unfortunately enjoyed the full support from its members, everybody in the team was tight lipped and it never came to the forefront until several meetings were held and a committee was setup to enquire into the reasons. Although, the problem was overcome with intervention of top management and by reshuffling employees from various departments, the problem certainly reminds us about the consequences when a good tool like MBO is misconceived and even a single ingredient like top managements support or segregating any part of the organisation ( no matter how big or small it is) from the organisation or setting objectives in isolation.
At LKG, there have been good experiences with MBO as well. The present success associated with MBO refers to the period when Networking and Networking Solutions business was at boom in UK during 1999-2000. Each day LKG kept receiving lots of offers related to networking solutions from mid-sized organisations, hotels, hostels, etc. Virtually all the departments were working at their full capacity and unlike production or manufacturing organisation it wasn’t possible to increase capacity in a service organisation.
For LKG, lost offer meant lost revenues. Time and man-hours were the main constraints. Competitors were very agile and wee prepared to leave no single opportunity in tapping the possibility of stealing away clients. Servicing a client also meant future flow of income in terms of AMC (Annual Maintenance Contract), monthly fees expectedly for years.
The positive options which LKG had included (i) Subletting or subcontracting (ii) Hiring or recruiting additional programmers.
Right in the spirit of the MBO framework and with his invincible faith in the MBO technique, Mr. Bryan called an emergency meeting of all the managers and employees of the organisation and kept his point and asked for positive ideas and options. The seven hours meeting was very hot and the general consensus was that LKG must trap this opportunity.
Many ideas emerged with one which was nodded with almost everybody’s aspiration was that employees were prepared and capable to take up additional assignments if it benefited the organisation. To induce motivation, Mr. Bryan proposed some very lucrative performance based incentives to this and finally it was decided that LKG should go for the contract with two programmers attached to each client.
Employees worked very hard even after working hours, they were provided with flexi-hours and laptops to work from home. The usual five days week of working arrangement was voluntarily changed to six days a week and Sunday was set for review and feedback and for group meetings to solve each others problems.
The first month saw 14 satisfied customers and many appreciation letters from clients. This was again a moral booster. The efforts continued and LKG could satisfy almost all clients who needed the solution and offered contract to LKG. There have been tremendous team feeling and team efforts through out this contract period and it brought to the forefront the value of a management tool such as MBO.