28 Management by Objectives

S. Alamelu Mangai

      INTRODUCTION

Being humans all of us have objectives or goals in every activity of life. Similarly in a food service organization every manager should know the objectives of each and every activity to be performed. He should be in a position to answer the question what is the activity he is going to manage. Thus objectives depict a future state of affairs which the organization strives to achieve and set down guidelines for group activity. Moreover, objectives serve as standards for assessing the success of the organization. Thus, objectives will check the personnel’s of the food service organization from deviating from the route they have set for themselves.

2. LEARNING OBJECTIVES

The learner will be enabled to understand the whole process of management by objectives (MBO). Also the features of MBO with the advantages and limitations in implementation of this tool.

3.  MEANING AND DEFINITION OF MBO

In the current growth and changing scenario of food service industry old techniques of management do not give good results thus necessitating a new thinking in management approach. A number of new techniques of management have been developed in the recent past and Management by Objectives (MBO) is one of them. For a few it as an appraisal tool, others see it as a motivational technique, still others consider it as a control device.

MBO is one of the techniques by which executives can improve organizational performance and effectiveness. The idea of MBO was contributed by Donaldson Brown and Alfred Sloan in 1920s and Edward Hagenin in 1930s. Peter Drucker, known as father of MBO technique, coined this term in 1954. According to George S. Ordiorne, the system of Management by Objectives can be described as a process whereby the superior and subordinate managers of an organisation jointly identify its common goals, define each individual’s major areas of responsibility in terms of results expected of him, and use these measures as guides for operating the unit and assessing the contribution of each of its members.

Management by objectives is also known as management by results and goals setting approach. Dale D. McConkey has preferred the term management by results and defined it as an approach to management planning and evaluation in which specific targets for a year, length of time, are established for each manager, on the basis which each must achieve if the overall objectives of the company in to be realised. At the end of the period, the actual results achievement measured against the original goals, i.e„ against the expected each manager knows he is responsible for achieving.

4.  NEED AND IMPORTANCE OF OBJECTIVES

Objectives are key to effective planning which is an important function of every manager. Clear objectives encourage consistency in managerial planning and decision-making over a period of time and also other managerial activities like organising, directing and controlling. An organisation having well-defined objectives will not give up long-range development programmes and policies for short-term gains. The accomplishment of objectives is necessary’ for the survival of any business enterprise. The management must specify the objectives in all areas on which the survival of the industry depends. Well-defined objectives in-major areas of the service industry will achieve the following benefits:

i) Unity of Planning. All managers at various levels make plans of their own. Planning may lose its consistency unless all plans have the same focus of action.

ii) Means of Decentralisation. Managerial work with appropriate authority and capacity for independent decision is shared by a large number of managers. This may lead to disintegration in place of decentralisation unless there is a common goal. The objectives lead to coordination and remove conflicts or misunderstandings between various individual.

iii) Stimulates Motivation. Objectives fit individual goals into overall organisation goals and make the job meaningful and worthwhile and stimulate human motivation.

iv)Basis of Control. Objectives provide the basis of control by clarifying the contribution of each job as well as each unit.

v)Tool of Co-ordination. As the chances of misunderstanding and conflict between different departments are reduced greater coordination in the organization can be achieved.

Employees of the organization  also have the following benefits:

• Employees in their own way contribute to the achievement of the goals and objectives of the organization. Every employee has his own role at the workplace. Each one feels indispensable for the organization and eventually develops a feeling of loyalty towards the organization and remains highly motivated and committed.
• They tend to stick to the organization for a longer span of time and contribute effectively. They enjoy at the workplace and do not treat work as a burden.
• The Management by Objectives process helps the employees to understand their duties at the workplace and is clear as to what is expected out of them.
• KRAs are designed for each employee as per their interest, specialization and educationalqualification.
• It   satisfies employees and avoids job mismatch and unnecessary confusions later on.
• Management by Objectives ensures effective communication amongst the employees. It leads to a positive ambience at the workplace.
• Management by Objectives leads to well defined hierarchies at the workplace. It ensures transparency at all levels. A supervisor of any organization would never directly interact with the Managing Director in case of queries. He would first meet his reporting boss who would then pass on the message to his senior and so on.

The MBO Process sets a benchmark for every employee. The superiors set targets for each of the team members. Each employee is given a list of specific tasks.

5. MULTIPLICITY OF OBJECTIVES

It is not correct to presume that there can be only one objective of an organization. Peter Drucker has exposed the fallacy of single objective. Each of today’s lively discussion of MBO is with the search for the one right objective. This search is not only likely to be as unproductive as the quest for the philosopher’s stone; it does harm and misdirects. To manage a food service establishment is to balance a variety of needs and goals. And this requires multiple objectives.

Peter Drucker suggested the following eight key areas in which objectives must be set:

i) Marketing,

ii)Innovation,

iii)Human Organisation,

iv) Financial Resources,

v)Physical Resources,

vi)Productivity,

vii)Social Responsibility, and

viii)Profit Requirements.

According to Drucker, “Objectives are not fate; they are direction. They are not commands; they are commitments. They do not determine the future; they are means to mobilise the resources and energies of the business for making of future.

6. FEATURES OF MANAGING BY OBJECTIVES The broad characteristics of MBO are as follows:

i.Operational Technique. Management by objectives is philosophy of  management ahighly practical technique. The goals have to be set in measurable or quantitative terms. As Drucker puts it, “Objectives must be operational; they must be capable of being converted into specific targets and specific assignments. They must be capable of becoming the basis, as well as the motivation for work and achievement.”

ii.Comprehensive Technique. As a comprehensive tool of management it is an overall management technique concerned with realisation of objectives at each level in the organization and not a piece-meal tool of personnel management for measuring performance.

iii.Participative Management. The goals are determined by managers in consultation with their subordinates and emphasize participative approach to management. MBO is not merely a meeting of minds, but joint authorship of goals and their joint implementation.

iv.Result Oriented. MBO is performance-oriented. That is why, its other name is Management by Results. This approach concentrates on ends rather than means and is diagnostic rather than punitive in character. The performance of person or unit is evaluated according to the results obtained.

v.Systems Approach. MBO attempts to integrate the individual with the organization and the organization with its environment. It seeks to ensure the accomplishment of both personal and organizational goals by creating goal congruence.

vi.Concentration on Key Result Areas. MBO will ensure on performance improvement in the areas that are of critical importance to the organization as a whole. So that due attention is given to the priority areas which are crucial for good performance and growth of the organization.

Thus the MBO is involved in objective setting and performance review in all levels of organization by concerned managers. It helps in providing guidelines for appropriate systems and procedures. And provides feedback on actual performance with that of the planned one. Thus integrates the organization with the environment, its sub- systems and people.

7.  STAGES OR PROCESS IN MANAGING BY OBJECTIVES

The process of managing by objectives is never ending and revolves around the setting up of organizational goals and the goals of various divisions and subdivisions. The continuousnature of the process of MBO ensures sustained concentration of efforts towards organisational objectives, and also helps in modifying objectives to suit the changed situations. The steps in MBO are described  below:

7.1. Setting of Organisational Objectives

The first step is to establish verifiable objectives for the organization as a whole while installing the system of ‘Management by Objectives’. For setting the objectives, organizations has to make a detailed assessment of various researches.

7. 2. Formulation of Departmental Objectives

The major activities of every food service organization are to divide on some basis of departmentation. The top management must determine the objectives of every department and should discuss the objectives with the departmental managers so that a statement of agreed objectives may be evolved. In turn each department sets its long-range and short- range objectives and gets it approved by the top management. This process of setting objectives is repeated at lower levels of management. At each level, objectives are set in verifiable units so that performance of every department and individual may be reviewed after the end of a particular period.

7.3. Establishing Goals or Targets of Subordinates

Each subordinate establish the goals of his job and discusses with his superiors .Agreement over the goal and a target of the subordinate is the crux of MBO. Once this process is complete, each superior and his subordinates will think in same line, as to what is to be accomplished and why is it to be accomplished.

7.4. Establishing Check-Points or Key Result Areas

Periodic meetings between the superior and the subordinate remains a must to review the progress towards the accomplishment of targets of the subordinate. In order to achieve this superior must establish check points or standards of performance for evaluating the progress of the subordinate. The standards should be defined quantitatively as far as possible and the subordinate must understand them fully. This practice should be followed by every superior for each of his subordinates and it should lead to key result area analysis as targets or goals are represented in terms of results. The key result area analysis should be reduced to writing. It should contain the following information:

1. The overall objectives of the job of the subordinate.

2. The key results he must achieve to fulfill his objectives.

3. The long-term and short-term priorities of tasks he must adhere to and should use zero budgeting.

4. The scope and extent of assistance he may expect from his superior and related departmental managers and the assistance he must extend to other departments.

5.  The nature of information and reports he will receive to any out self-evaluation.

6.  The standards by which his performance shall be evaluated.

7.5. Follow-up anti Periodic Review of Progress

The superior must make a periodic review of the progress in achieving the subordinate’s targets by arranging a meeting with the subordinate at regular intervals. The meetings should focus to identify the problems faced by the subordinate and taking appropriate steps to overcome the problems. If necessary the targets may be revised in the light of changes in the environment. A continuous contact between the superior and the subordinates should be ensured so that things do not go out of control.

7.6. Appraisal of Performance and Counselling

Every day the superior carries informal performance appraisal of his subordinate but formal appraisal is necessary for the thorough evaluation of the subordinate’s performance. It is conducted at periodic intervals, usually once or twice a year, under this, achievements are carefully analysed against the background of prevailing circumstances and given objectives. Depending upon the nature of the organization and the job the design and format of the Performance Review Form will be formulated.

The performance of every individual is evaluated in terms of the standards or end-results clearly agreed upon by the superior and the subordinate. Under MBO, the superior does not evaluate the individual concerned, but appraise his performance in terms of the standards set in advance .Moreover, the performance review is aimed to assist the subordinate to improve his performance in the future. The superior will discuss with the subordinate the ways to remove deficiencies in performance and advise him as to how his efficiency’ could be improved.

After the performance appraisal of each individual employee, the performance of each unit, division and the organisation as a whole is judged. Based on this exercise, corporate, departmental and individual goals are redefined and integrated to respond to changes in the environment. The system of MBO is also integrated with the organisation design, processes and practices of the organisation so that it gets institutionalised and becomes a way of managing.

8. EFFECTIVE IMPLEMENTATION OF MBO

Effective implementation of MBO lays on practice in setting objectives with the logic of planning and control. Any food service organization needs to handle it efficiently despite various difficulties and shortcomings in management by objectives. A few points to be considered for effective implementation are as below:

i) Top Management Support. For the technique to be effective, MBO should start from the top of the organisation. The active participation of top management to this programme is essential for its implementation. If the top managers use the objectives as an instrument for managing, this practice will be followed down in the organization.

ii) Education about MBO. MBO is a means rather than an end in itself. The organizational members must be adequately educated about the philosophy and purpose of MBO. The details and emphasis of the MBO system will vary with the purpose for which it is designed. Only when its purpose is precisely defined and appropriate techniques are chosen to the purpose, expected results could be obtained in the organization.

iii) Active Participation in Goal Setting. Effective two way communication is essential in setting of the goals. Participation of the subordinate, face- to-face communication with the superior in discussing the subordinate’s problems and for reviewing his performance will make MBO effective .

iv)Decentralisation of Authority. A greater degree of decentralisation of authority is required for the success of MBO. Adequate authority should be given to the subordinates who have accepted the challenging assignments to accomplish their goals. MBO will not work if the manager is not willing to delegate sufficient authority to the subordinates as the subordinates will not be willing to accept new assignments and may even resist the setting of clearly defined goals.

v)Orientation of Executives. Executives must be adequately oriented and trained about the value of MBO and effective implementation of management by objectives.

vi)Integration of MBO Programme. MBO should not be implemented as an isolated programme, it must be integrated with all the organisation programmes including human resource planning, human resource development, product planning and development, production control, financial planning and so on.

9. ADVANTAGES OF MBO

Management by objectives is being increasingly recognised not merely as a philosophy of management but also as a system which aims at synchronising the objectives of the individuals with the objectives of the organization. If applied consciously and systematically, it leads to the following results:

i) MBO leads to unity of planning as the plans made at various levels of the organization have the same focus of action.

ii)Objectives serve as a device for organizational control by clarifying the contribution of each unit as well as each job.

iii) MBO fits individual goals into overall organizational goals and makes the job meaningful and worthwhile. This stimulates human motivation in the organization.

iv) Managing by objectives leads to higher productivity because management concentrates on the important tasks rather than wasting energies on unimportant matters.

v) Objectives facilitate coordination of efforts and resources of the organization by providing unity of direction. Objectives force managers to think in terms of results.

vi) Objectives lead to improved communication and organisation structure which help in locating problem areas.

vii) Managing by objectives is an important means of decentralisation of authority. Objectives darify organisation roles and structure which are indispensable for decentralising authority.

viii) MBO provides a realistic means of analysing training needs and opportunities for growth on the basis of measurement of performance against accepted standards.

ix) There is a greater sense of identification by the managers with the objectives of the enterprise wherein control.’ are reckoned as tools of ‘self-control’ rather than devices to be used against them.

10.  LIMITATIONS OF MBO

The following are the difficulties or limitations of MBO:

1.Difficulty in Setting Quantitative – It is difficult to judge the performance of individuals where the objectives cannot be set in quantitative term and it becomes impossible to implement MBO effectively.

2.Emphasis on Short-term Goals- Because performance of the subordinates is to be reviewed after every six months or one year, they tend to concentrate only on their immediate objectives without caring for the long term go objectives.

3.Resistance to Change – In practice, often both the executives and the operative workers resist for changing from traditional practices even though MBO appears to be simple.

4.Lack of Training- Generally supervisors lack training and knowledge in implementing the programme. No consideration is given to any outside factors over which the subordinate has no control or influence. In such situations, there can be no two-way communication because of the outer-imposed objectives. This may destroymorale, initiative and good results.

5.Lack of Follow-up – Lack of follow-up by the superior at appropriate time is another hurdle in the successful implementation of MBO. The subordinate may be prepared to tell the superiors exactly what has been accomplished and how but if he delays the meeting, the subordinates also will take the MBO programme casually.

6.Rigidity – As the goals are set after every six month or one year, the superior may not like to modify them in between because of fear of resistance from the subordinate .There may arise a need to revise the goals at lower levels to achieve the long-range objectives and the manager must handle such a situation properly.

7.Limited Application- Management by objectives is not appropriate for all levels and for everyone. It is suitable only where both managers and subordinates feel comfortable with it and are willing to participate in it. The heavy demands made by it make MBO useful largely to managerial and professional employees.

8.Costly Process- MBO is costly and time consuming. The setting and valuation of objectives is done over a short period and may not provide time for adequate interaction among all superiors and subordinates in the organization. And needs a great deal of analysis for which senior executives do not have sufficient time and patience.

11.  SUMMARY

The learner should understand the difference between Management by exception from Management by Objectives (MBO). Management by exception is a principle or technique of managerial control whereas MBO is a philosophy of decentralisation and participative management as subordinates can set goals by themselves. Their performances are evaluated against the goals and are advised by the superior for corrections if any. But under management by exception, only significant deviations from the standards are reported to the higher levelmanagement. This conserves time and energy of top executives. Hence all the type of food service establishments should practices this tool in order to expand.

REFERENCES

1. Dr.T.N.Chhabra, Principles & Practice of Management , Published by Dhanpat Rai & Co.(P)Ltd,Reprint 2006,ISBN: 81-7700-032-2, p 201- 211
2. R D Agarwal , Organisation and management , Published by Tata McGraw-Hill Publishing company limited, ISBN 0-07-451506-3, P-65 – 70