What’s an MBO?

Managing your talent is critical to ensure your team are working towards, and achieving, their objectives. Aligning an employee’s goals, tasks and KPIs to team and organisational goals can lead to the maximum productivity required to drive your business forward.

One way to accomplish this is MBO.

What is MBO?

MBO, or “managed by objectives”, is a goal-oriented management approach where managers align an employee’s objectives and KPIs to the organisational goals and mission. By identifying, setting, recording, then monitoring clear and achievable objectives over time, it helps to improve overall productivity and performance and leads to a more efficient use of resources.

Not only is the approach an effective method for improving performance, it is also a strategic planning and management tool.

What approach does MBO take?

This system takes a practical and measurable approach to appraise staff performance. The goal setting process allows employees to be involved, leading to increased adoption and success rates of the process and allows for ongoing self-monitoring.

It aligns goals and sets a clear direction, eliminating bias and confusion relating to what employee’s performance is ranked on and what results need to be produced. It is extremely results-oriented, with realistic planning and inclusive decision-making being important elements.

What’s does the MBO process look like?

The MBO process is about setting goals, then measuring them. In order to incorporate MBO in your organisation, you can take the below approach:

1. Align organisational goals with an employee’s role

For example, are you looking for increased revenue? An employee may have a goal to increase sales by a certain percentage each quarter. Are you looking for new leads or building a database? Their goal may be linked to number of new contacts an activity receives.

2. Agree upon and set realistic goals and timelines for the employee

The main principle of MBO is clarity and understanding of goals, whilst ensuring they are realistic. S.M.A.R.T. objectives (Specific, Measurable, Assignable, Realistic, Time-Related) could be a useful way to set these goals.

3. Continually monitor performance

The benefit of this approach is that behaviour and performance can be constantly monitored by both employee and management. You can track weekly, monthly, quarterly, or yearly. It doesn’t require formal performance reviews.

4. Provide feedback and evaluate progress

Ongoing feedback and open communication channels are an important part of MBO.

5. Performance appraisals

These are more formal, where you can identify areas for improvement and reward for areas of success and growth.

What are the benefits of an MBO system?

As far as performance management is concerned, an MBO approach offers a number of advantages. It’s a way to identify key goals for employees to work towards whilst allowing for change due to challenges or roadblocks which may lead you to defer from your original plans.

Benefits include:

  • Aligns company goals and objectives with employees and their output.
  • Better management of employees and their activities. MBO sets objectives for employees, and ensures accountability and result-oriented planning and behaviour.
  • Provides clarity of organisational goals to employees. They understand how their roles and responsibilities align with the organisational mission and how they are contributing to it.
  • Encourages employee commitment and teamwork due to greater transparency and understanding on what their goals are helping to achieve.
  • Improves motivation and commitment within the organisation, along with job satisfaction and employee morale.
  • Improves the ability to understand areas for improvement, meaning training can be aligned and more effective, leading to employee development.
  • Developing employees in the way you want them to, and what aligns with future goals and objectives of the team and organisation.
  • It encourages managers to plan more and set realistic and achievable goals.
  • Everyone knows what is expected of them and it can help encourage personal leadership and accountability.
  • End of year performance reviews are useful, but an MBO approach makes other reviews throughout the year and self evaluation easier. It isn’t a “once a year” opportunity; it is ongoing.

Like any system, there are some downfalls, such as lack of understanding of MBO and its philosophy by the managers responsible for incorporating it in their teams. Insufficient time to execute, failure to clearly define and set measurable and realistic goals, oversimplifying goals and not focusing on the methods or means of achieving the desired results, placing too much emphasis on short term objectives, and inflexibility if organisational or team objectives change are other possible challenges. The benefits of this approach outweigh the challenges it raises though.

Implementing MBO In Your Organisation:

Whilst MBO can provide your employees and organisation many benefits, in order to ensure it is successful, we suggest the following:

  • Top management need to support and commit to this approach and employee’s development.
  • Objectives have to be clear, realistic, and achievable.
  • Goals should be continuously reviewed and communication with managers and employees constantly open in order to ensure goals are still relevant.
  • Introducing objectives gradually can allow employees the time to adjust to the approach and ensure they understand what is expected of them.