What is MBO (Management by Objectives)?

Management by Objectives (MBO)’ is a systematic and collaborative approach to management and goal-setting that was first popularized by management theorist Peter Drucker in his 1954 book “The Practice of Management.” The MBO process is designed to improve organisational performance by setting clear, specific, and measurable objectives for individuals, teams, and the organisation as a whole. It emphasises active participation, goal alignment, continuous feedback, and regular performance reviews. Here are the key components and principles of Management by Objectives (MBO):


Goal Setting: The MBO process begins with setting specific, measurable, achievable, relevant, and time-bound (SMART) objectives for each level of the organisation, from top management to individual employees. These objectives should be aligned with the organisation’s overall mission, vision, and strategic goals.

Participation and Collaboration: MBO encourages active participation and collaboration between managers and their subordinates in the goal-setting process. Employees are involved in defining their own objectives, which fosters a sense of ownership and commitment.

Agreement and Commitment: Once objectives are set, there should be mutual agreement and commitment between managers and employees regarding the goals and the resources required to achieve them. This ensures that everyone is on the same page and understands their role in achieving the objectives.

Action Plans: Along with objectives, action plans or strategies are developed to outline the specific steps, tasks, and deadlines required to meet the goals. These plans provide a roadmap for achieving the objectives.

Performance Measurement: MBO emphasizes the importance of measuring progress and performance against established objectives. Key performance indicators (KPIs) and metrics are used to assess whether individuals and teams are making progress toward their goals.

Feedback and Review: Regular feedback and performance reviews are conducted to evaluate progress, identify obstacles, and make necessary adjustments to action plans. This continuous feedback loop allows for course corrections and improvements.

Rewards and Recognition: MBO often links performance to rewards and recognition. When employees achieve their objectives and meet or exceed their targets, they may be rewarded with bonuses, promotions, or other forms of recognition.

Adaptation and Flexibility: MBO recognises that objectives and priorities may need to be adjusted over time to accommodate changes in the external environment or shifts in organisational strategy. Flexibility is essential to ensure that goals remain relevant and achievable.

Communication: Effective communication is vital throughout the MBO process. Managers should maintain open lines of communication with their employees, providing guidance, support, and clarification as needed.

Evaluation and Learning: After the completion of the performance period, a formal evaluation takes place to assess the overall success of the MBO process, identify areas for improvement, and apply lessons learned to future goal-setting cycles.


Management by Objectives is a results-oriented approach that encourages accountability, clarity, and alignment within organisations. By setting clear objectives and involving employees in the goal-setting process, MBO aims to improve organisational performance, employee engagement, and overall effectiveness in achieving strategic objectives.