What Is Management by Objective? - Defining the MBO Process

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  • 0:05 Worker Inclusion
  • 1:02 Defining MBO
  • 2:02 What MBO Delivers
  • 3:01 Lesson Summary
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Lesson Transcript
Instructor: Rob Wengrzyn
Management by objective (MBO) changed the way many companies worked and functioned. With MBO, employees' input was sought out and used to help develop the goals and objectives for the organization.

Worker Inclusion

Let us say that you walk into an office for a meeting and there are other employees in the office, some from your department and some from other departments. The management team then enters the room and tells everyone that they are here to help develop the objectives for the company. They list several areas that they believe the company needs to focus on, as well as ask you for your opinion on these objectives.

As the team works through all of them, they develop a consensus of what objectives the company should have and everyone agrees. They leave the room with an understanding of what the company is doing and why they're doing it. In other words, what the objectives are of the company and why they're beneficial.

Does this sound a little odd? When was the last time your company brought a group of their individual employees into a meeting to discuss objectives? Well, this scenario details management by objective, or what we call MBO. It is a decidedly different way of looking at setting corporate goals and one that truly involves more people in the company.

Defining MBO

The history of MBO dates back to a person by the name of Peter Drucker and his book, The Practice of Management. In that book, Peter developed some groundbreaking concepts, such as MBO. His idea was that if a company banded together to set objectives collectively, then the reward would be much greater than just passing down the objectives from upper management. He believed, and rightly so, that if employees were part of the objective setting process, the benefits would be tremendous and help the company to achieve its goals.

We need to understand that his book was published in 1954. Prior to his book, the managers directed the company, and the employees did what their job said they should do. When MBO came out, the employees now had a voice and input into what the organization was doing. This was an extremely different thought process than what was around at the time. I'm not saying that this book changed the way people managed or set objectives, but it did influence a great many people to look at how they ran their companies and, indeed, changed how companies ran.

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