MBO stands for Management by Objectives. MBO is an approach of management that helps to focus on goals that are achievable and in getting maximum output from the resources that are available. It is an approach that is systematic and highly organized. MBO was first proposed by Peter Drucker. However, Drucker himself cautioned against overemphasis. Management by Objectives would work, he said, only if you knew your objectives. Management by Objectives ensures that all the employees in an organization are aware of the objectives and targets of the organization.

Management by Objectives works by emphasizing alignment of an organization’s goals and the subordinate objectives. The focus in an organization that practices MBO is in the results rather than the activities and processes involved. The management in an MBO practicing organization undertakes “negotiations” with its employees on the targets. They do not, however, give a road map to be followed in implementation. The employees are encouraged to break down these goals or key results into smaller and more specific goals.

MBO is used in companies that are knowledge based and where the management wants to harness the inherent creativity and initiative of the workforce.

Setting objectives is a key component of an MBO. Objectives are laid down for each and every rung in the hierarchical ladder and the management hands out specific targets to achieve.

The SMART criterion is used in MBO to set goals. SMART stands for Specific, Measurable, Achievable, Realistic and Time Specific. These are the general attributes of a goal in MBO.

An effective MBO involves a situation where the individual managers are aware of the goals laid out by the board of directors. The process of goal setting should be transparent and build confidence in all involved. It should be done with the active participation of the middle and junior management. Key to the success of the MBO is an effective review system. The performance of the employees should be measured in a transparent and systematic manner.

The process of implementing an MBO can be broken down into the following steps:- 

1. Setting Objectives: This process is the first and basic of the implementation. This involves setting up of objectives that are realistic and achievable. 

2.  Organizing the Group: This involves forming teams and groups to achieve the specific objectives laid out in the earlier step 

3.  Motivating and communicating: This is a very important part of the process. Not all team members will share the same enthusiasm about the goals. These people should be motivated and convinced about the achievability of these goals. 

4.  Developing people: This step involves training and equipping people so that they have the confidence of achieving the goals and delivering results.