What is Management by Objectives (MBO)?
Management by Objectives (MBO) is a management philosophy and a systematic approach to management that emphasizes the setting of specific, measurable, achievable, relevant, and time-bound (SMART) objectives.
This approach was popularized by management theorist Peter Drucker in his 1954 book “The Practice of Management.” MBO is designed to improve organizational performance by aligning individual and team goals with the overall objectives of the organization.
MBO involves a collaborative process where managers and employees work together to set objectives. Objectives are set at various levels of the organization. Top-level objectives are broken down into departmental or team objectives, and individual objectives are derived from team goals.
This hierarchical structure ensures that individual goals are aligned with the broader organizational objectives, fostering a sense of purpose and direction throughout the organization.
The process of setting objectives may reveal skill gaps or training needs. MBO can be used as a tool for identifying areas where employees may require additional training or development. MBO also supports career planning by linking individual goals to career development. Employees can see how their current objectives contribute to their long-term professional growth within the organization.
What Is Management by Exception (MBE)?
Management by Exception (MBE) is a management approach that focuses on intervening only when there are deviations or exceptions in performance. The idea is to allow routine operations to proceed smoothly without constant managerial oversight, with managers stepping in only when the actual results deviate from the planned or expected outcomes. This approach enables managers to concentrate their efforts on addressing critical issues and strategic decision-making.
In MBE, managers establish predetermined standards or thresholds for performance indicators. These standards serve as benchmarks for what is considered acceptable or within normal parameters. Also managers define criteria that trigger their involvement.
MBE involves different levels of management dealing with exceptions at various levels of the organizational hierarchy. Lower-level managers may handle routine deviations, while higher-level managers address more significant issues. If a deviation exceeds the authority or capability of a lower-level manager, the issue is escalated to higher management levels for resolution.
By directing attention to exceptions, managers can use their time and resources more efficiently, addressing only those areas where their intervention is most needed.
MBE often utilizes automated systems and technology to monitor performance indicators. These systems can generate alerts when exceptions occur. Also, advanced data analytics may be employed to analyze patterns and trends.
Management by Objectives vs Management by Exception
| Feature | Management by Objectives (MBO) | Management by Exception (MBE) |
|---|---|---|
| Focus | Goal-oriented, emphasis on achieving objectives | Attention to significant deviations from the norm |
| Initiation | Goals are set collaboratively between superiors and subordinates | Attention is drawn when performance deviates from set standards |
| Decision Making | Decisions are made based on progress toward objectives | Managers intervene only when there are significant deviations or exceptions |
| Flexibility | Allows flexibility in goal setting and achievement strategies | More rigid, as it focuses on predetermined standards and thresholds |
| Monitoring | Continuous monitoring and assessment of progress towards goals | Monitoring occurs only when there are significant deviations or exceptions |
| Feedback | Regular feedback and communication between superiors and subordinates | Feedback is triggered by exceptions and is more sporadic |
| Autonomy | Encourages employee autonomy and involvement in goal setting | Managers retain control over routine operations, intervening only when necessary |
| Performance Standards | Focus on achieving predefined performance standards and objectives | Managers set standards and only intervene when actual performance deviates significantly |
| Proactivity vs Reactivity | Proactive approach, focusing on achieving goals before issues arise | Reactive approach, addressing issues as they arise or when exceptions occur |
| Applicability | Suitable for dynamic and collaborative work environments | More suitable for routine and stable work environments |