What Is Management by Objectives (MBO)? - Definition, Advantages & Disadvantages

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  • 0:05 What is Management by…
  • 0:36 Key Concepts
  • 1:40 Advantages
  • 2:21 Disadvantages
  • 3:30 Example
  • 4:33 Lesson Summary
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Lesson Transcript
Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Expert Contributor
Jerry Allison

Jerry holds a Doctor of Business Administration and a Master’s in Mathematics. He has taught business, math, and accounting for over 25 years.

In this lesson, you will learn about Management by Objectives, its definition and some of its advantages and disadvantages. You will also have an opportunity to reinforce your knowledge with a brief quiz after the lesson.


Management by Objectives (MBO) is a personnel management technique where managers and employees work together to set, record and monitor goals for a specific period of time. Organizational goals and planning flow top-down through the organization and are translated into personal goals for organizational members. The technique was first championed by management expert Peter Drucker and became commonly used in the 1960s.

Key Concepts

The core concept of MBO is planning, which means that an organization and its members are not merely reacting to events and problems but are instead being proactive. MBO requires that employees set measurable personal goals based upon the organizational goals. For example, a goal for a civil engineer may be to complete the infrastructure of a housing division within the next twelve months. The personal goal aligns with the organizational goal of completing the subdivision.

MBO is a supervised and managed activity so that all of the individual goals can be coordinated to work towards the overall organizational goal. You can think of an individual personal goal as one piece of a puzzle that must fit together with all of the other pieces to form the complete puzzle: the organizational goal. Goals are set down in writing annually and are continually monitored by managers to check progress. Rewards are based upon goal achievement.


MBO has some distinct advantages. It provides a means to identify and plan for the achievement of goals. If you don't know what your goals are, you will not be able to achieve them. Planning permits proactive behavior and a disciplined approach to goal achievement. It also allows you to prepare for contingencies and roadblocks that may hinder the plan. Goals are measurable so that they can be assessed and adjusted easily. Organizations can also gain more efficiency, save resources, and increase organizational morale if goals are properly set, managed, and achieved.


However, MBO is not without disadvantages. Application of MBO takes concerted effort. You cannot rely upon a thoughtless, mechanical approach, and you should note that some tasks are so simple that setting goals makes little sense and becomes more of a silly, annual ritual. For example, if your job is snapping two pieces of a product together on an assembly line, setting individual goals for your work isn't really necessary.

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Additional Activities

What is Management by Objectives

Discussion Question

Sam's Surgical Equipment is going through a goal-setting process. The management of the company has determined it wants the company to grow its client base by 20% over the next year. What does this mean for the sales department of the company? What do the salespeople need to do and what type of goals should be set for them? What does this mean for the manufacturing department? What should they need to do and what goals should be set for them? Your answer should reflect ideas on how the sales department, the manufacturing department, and the individual salespeople need to change their current practices to be able to have 20% more customers (implying the number of products the company sells will grow by at least 20%).

Survey Project

Make a list of ten people who have jobs and who you know well. Ask them the following questions:

1. Think of a situation where your boss (or management above) has told you of an organizational goal. Did that person explain what it would mean to you?

2. Did anyone explain to you how your job would change as a result of the goal? If so, what was the change involved?

3. Did anyone explain to you if you would need additional training in order to help accomplish the goal?

4. Did anyone explain to you the risks and the benefits of achieving the goal?

Write down the responses to these questions. The most important information may come from the additional talking the person does beyond answering the questions. Note any similarities in the answers and comments. Write a report on your findings.

Research Project

Use the Internet to research Management by Objectives by reading several writings on the subject. Why was this theory heavily adopted by companies many years ago? Why is this theory not as popular today? You should be able to find at least three reasons for each of these questions. Based on your readings, do you think MBO is still a good management style to adopt? Stating at least three reasons, please explain why? What three things could be done to improve MBO? Write a report on your findings.

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