What Is Management by Objectives?

Management by Objectives (MBO) is a strategic model that aims at improving the performance of an organization by clearly defining goals that are agreed upon by both management as well as employees. According to this theory, allowing employees to have a voice in setting goals and creating action plans will encourage employee engagement and participation, and align objectives throughout the organization.

Management by Objectives (also called management by planning or management by goals) is the creation of a (management information system) that allows the comparison between actual performance and achieved results with the objectives. MBO practitioners claim that MBO improves employee commitment and motivation, and facilitates better communication between managers and employees.

Management by Objectives in 5 Easy Steps

MBO is a management technique that outlines five steps organizations can take to implement it.

  1. Determine or revise the organizational objectives of your entire company. This overview should be derived based on the mission of the company.
  2. Translate organizational objectives to the employees. George T. Doran expressed the idea in 1981 using the acronym SMART.
  3. Encourage employees to set their own goals. Encourage employees to set their own goals after the objectives of the organization are communicated to them from the top down. Employees will be more motivated because they feel empowered.
  4. Monitor employee progress. In step two, it was important that the goals were measurable so that employees and managers could determine whether they had been met.
  5. Evaluation and rewards of employee progress. This step involves honest feedback about what each employee has achieved and what they have not.

The Advantages and Disadvantages Of Management By Objectives (MBO).

MBO has many advantages and disadvantages.


  • Employees are proud of their work, and they receive goals that they know they can reach, based on their skills, strengths, and education.
  • Assigning customized goals increases employee productivity and loyalty.
  • The communication between employees and management is improved.
  • The management can set goals for the company that will lead to its success.


  • MBO focuses on goals and targets and often overlooks other aspects of a business, such as a culture of conduct, healthy work ethics, and opportunities for participation and contribution.
  • Employees are under more pressure to achieve goals within a certain timeframe.
  • The employees are encouraged to achieve targets by any means necessary. This could mean that shortcuts and a compromise in the quality of their work can be made.
  • It can be problematic if management relies solely on MBO to manage all areas of management.