Management by Objectives

Management by Objectives


Managementby Objectives

Managementby Objectives

Managementby objectives is a set of processes synonymous with management byresults. Peter Drucker developed the processes as priorities forfuture managers. Both the leaders and employees of an organizationagree and work to achieve the objectives. The processes are againsttradition decision making left with the top managers (Kralev, 2011).

Accordingto Kralev (2011), Peter Drucker argued that for future managers to besuccessive, they needed to delegate major functions. The functionsinclude planning, organizing and control. The motive is to engageevery employee in the implementation processes of plans.Consequently, it is imperative to involve them in the creation of thestrategies. Employee involvement improves performance and attitudetowards work. They feel knowledgeable about the organization andtheir future in the business. Consequently, awareness increasesefforts to the achievement of the set goals with management andeliminates the need for micromanagement from the leaders.

Themanagement by objective processes is famous in countries outside theUnited States. In Asia, there is pressure for the application of aperformance-based criterion in determining pay structures.Consequently, employers utilize strategies to achieve variousobjectives. First is attaining the organization`s business strategy.Second is to attain flexible objectives to absorb downturns andminimize labor costs (Thompson, Luthans, &amp Terpening, 1981).Third is to set objectives oriented towards improved performance byincreasing employee productivity. The fourth is to attain flexiblecomponents of remuneration. Fifth is to identify and reward goodperforming employees without increasing labor cost. Finally is toattract and maintain competent staff (Dessler, 2006).

Thereare various schemes for proper implementation of management byobjectives. For example, schemes that distribute financialperformance results to the employees (Wang, 2008). The main aim isto indicate the results of labor. Consequently, employees areremunerated on the financial results to ensure that remunerationdepends on the quality of work as opposed to the quality of the job.Employee-based schemes include individual performance remunerationprograms of sales and commissions. Second, there is profit sharingfor all the employees. Third is a performance measure or an objectivebased remuneration system like productivity. Fourth are the employeeshare ownership schemes providing the right to own a portion of theorganization (Thompson, Luthans, &amp Terpening, 1981).

Despitethe wide usage of management by objectives to determine pay benefitsin Asia, it faces various problems. There is controversy on theability to initiate better performance. First, intrinsic monetaryrewards have a short-term effect. Consequently, organizations faceimplementation difficulties and maintaining the overall managementobjectives (Thompson, Luthans, &amp Terpening, 1981). For example,implementing the monetary benefits should ensure consistency withoverall management objectives like cost reduction. Second,organizations encounter problems mixing various rewards. Monetaryrewards are only effective for reinforcing motivation the company’sneeds to motivate through other ways like redesigning the workprocesses, training, and career development plans (Dessler, 2006).

Inconclusion, despite the wide use of management by objectives todetermine pay structures outside the United States, the practice islosing popularity. The major cause is applicability deficiencies suchas measuring performance and the tendency to conflict with otherorganizational goals. Besides, processes of management by objectivesdo not provide guidelines on the metrics to be used in measuringoutput. Consequently, the implementation of the processes faces greatdisadvantages as opposed to benefits. Other shortcoming includes thetime consuming nature to identify the various approaches favorable tothe firm. In addition, it is always difficult to attain a compromisebetween the employees and the management (Dessler, 2006)..


Dessler,G. (2006). Expanding into China? What foreign employers should knowabout human resource management in China today. SAMAdvanced Management Journal, 71(4),11-26.

Kralev,T. (2011) Management by objectives: Management philosophy forprosperous tourism organizations. UTMSJournal of Economics, 2(1),83–87.

Thompson,R.K., Luthans, F., &amp Terpening, D.W. (1981). The effects of MBOon performance and satisfaction in a public sector organization.Journalof Management,7(1),53–68.

Wang,K. (2008). Changing of Industrial Relations in China: What ishappening after 1978. Employee Relations, 30(2), 190 – 216. DOI: