Management by Objectives: An effective approach for business success
Publié le 04 Oct 2023

Management by Objectives: An effective approach for business success

Popularized in the 1950s by Peter Drucker, famous management theorist, Management by Objectives (or MPO) is a managerial style increasingly appreciated by companies. But how does Management by Objectives work? What are the fundamental principles? And what place does it occupy in transition management ?

What is Management by Objectives? Definition

Management by Objectives is an approach to management which aims to organize work by objectives and no longer by tasks. This approach is based on the idea that employees are more motivated and effective when they know what is expected of them and have the opportunity to contribute to achieving the company’s objectives.

It was in the 1950s that Drucker developed this approach as a response to the growing needs of companies to effectively manage their human resources. Since then, MPO has undergone constant evolution to adapt to changes in management, and has become an essential tool for managers, particularly in transition management.

Management by Objectives in 4 steps

The MPO process is a structured methodology that is based on 4 key steps, each having an essential role in the success of this management approach.

1) Planning and goal setting

SMART goal setting | Reactive Executive

This first step begins by defining the overall objectives of the organization and breaking them down into specific objectives for each division, team or employee. These objectives must be SMART, meaning measurable and achievable. Your goal may be, for example, to increase your annual sales by 20%. To make it SMART , this objective must be broken down into monthly, quarterly or half-yearly objectives, depending on the structure of the company.

2) Communication of objectives to the team

Once the goals have been planned and made SMART, they should be clearly communicated to the entire team. Everyone must understand what is expected of them and how their performance will be evaluated. Effective communication of objectives is essential for employee buy-in and engagement.

3) Monitoring and evaluating employee performance

Once goals are set and communicated, managers can regularly monitor teams’ progress and ensure they are on track to achieve their goals. This step involves the choice of KPIs to determine whether the objective has been achieved or not. It also makes it possible to identify strengths or possible obstacles, and provide appropriate feedback.

4) Reward for achievement

Recognizing and rewarding success is an important component of MPO. When employees achieve their goals, rewarding them in some way boosts their motivation and inspires them to work harder throughout the project to achieve the set goals. Rewards can take many forms, such as bonuses or simply reinforcing their sense of belonging, through activities.

5 Advantages of Management by Objectives

5 Advantages of Management by Objectives | Reactive Executive

Management by Objectives has many advantages for both companies and teams:

  • Results-oriented methodology : MPO emphasizes the achievement of concrete results, thus allowing a better focus on the objectives to be achieved.
  • Motivates and strengthens team commitment : by involving employees, MPO strengthens their motivation and commitment to the company.
  • Good clarification of roles and responsibilities : this avoids overlapping tasks and potential conflicts, which contributes to a more effective organizational structure.
  • Empowering teams : MPO offers greater autonomy and encourages collective intelligence by encouraging initiative-taking. This reinforces their sense of responsibility and ownership.
  • Better communication : the objectives being clear and shared, exchanges between team members become more effective and transparent.

The disadvantages of Management by Objectives

Disadvantages of Management by Objectives | Reactive Executive

Although MPO offers many benefits, it is not without limitations. Management by Objectives can lead to:

  • Pressure linked to achieving objectives : the emphasis on achieving objectives can create high pressure on employees. They may feel constantly under pressure to meet sometimes unrealistic targets.
  • Competition between team members : When goals are tied to individual rewards, it can encourage unhealthy competition between team members. Instead of collaborating, they may seek to outdo their colleagues, which can harm team spirit.
  • Neglect of corporate culture : focusing on numbers can lead to forgetting the company’s values ​​and vision.
  • A focus on short-term actions : MPO can also encourage an excessive focus on short-term goals, to the detriment of the company’s long-term goals. This can lead to impulsive decisions that are not beneficial in the long term.
  • Risk avoidance : Employees may be reluctant to take risks because they fear it could compromise their ability to achieve their goals. This can hinder innovation and creativity within the company.

To avoid the pitfalls of MPO, try to maintain a balance between setting specific goals and flexibility. Also keep a close eye on long-term goals while achieving short-term goals. Open communication and regular review of objectives are also key strategies to ensure the success of MPO .

Examples of application of Management by Objectives

Management by Objectives can be successfully applied in various types of businesses. Here are some examples :

  • In a sales business : MPO can be used to set monthly sales goals, the number of new customers to acquire, and customer satisfaction goals. Sales representatives can therefore have clear and measurable objectives to guide their actions.
  • In a production company : MPO can be used to define productivity, quality and safety objectives. Employees can be encouraged to come up with ideas for improvement and work as a team to achieve these goals.
  • In a service business : MPO can be used to define objectives for service quality, customer response time and customer satisfaction. This allows customer service employees to focus on achieving these goals to improve the customer experience.

Management by objectives is an effective tool for transition management . It allows the interim manager to set clear and measurable objectives, align employee objectives with mission objectives, monitor employee performance and help them achieve their goals.

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