MBO and MBE - Study Notes

Lesson summary

Chapter 3 of Unit 1 (Management Process) deals with two management techniques. Management by Objectives (MBO) lets superiors and subordinates set goals together, so that individual goals are harmonised with organisational goals. Management by Exception (MBE) is a control principle under which managers deal only with significant deviations from the norm.

Meaning and definitions of MBO (3.01)

• MBO is a management system in which each member of the organisation effectively participates and involves himself.
• It gives full scope to individual strength and responsibility, creates self-control and motivates the manager into action before somebody tells him to act.
• George Odiorne popularised MBO in the USA: superior and sub-ordinate managers jointly identify common goals, define each individual's major area of responsibility in terms of expected results, and use these measures to run the unit and assess each member's contribution.
• Prof. Reddin: the establishment of effective standards for managerial positions and their periodic conversion into measurable, time-bound objectives linked vertically and horizontally and with future planning.

Objectives of MBO (3.02)

1. To measure and judge performance.
2. To relate individual performance to organisational goals.
3. To clarify the job to be done and the expectations of accomplishment.
4. To foster the competence and growth of subordinates.
5. To enhance communication between superiors and subordinates.
6. To serve as a basis for judgements about salary and promotion.
7. To stimulate subordinates' motivation.
8. To serve as a device for organisational control and integration.

Features of MBO (3.03)

• Integrates the goals of the organisation and individuals.
• Combines long-run goals with short-run goals.
• Relates organisation goals with society goals.
• Emphasises effective performance, not goals alone.
• Constantly refines and modifies goals on the basis of experience.
• Increases organisational capability at all levels.
• Gives employees a high degree of motivation and satisfaction.
• Recognises employee participation in goal setting.
• Replaces the exercise of authority with consultation.
• Encourages a climate of trust, goodwill and a will to perform.

Process of MBO (3.04)

Advantages of MBO (3.05)

• Managers are committed to the objectives they set; they understand their role and value planning.
• Foundation for participative management; departments do not work at cross purposes.
• Systematic evaluation, clear criteria of performance and corrective action.
• Easy delegation of authority; job enrichment; responsibility of each worker is fixed.
• Quick decisions, because each worker knows the purpose and does not oppose them.

Disadvantages of MBO (3.06)

• Fails to explain its philosophy to executives.
• Time consuming, costly and needs heavy paper work.
• Emphasises only short-term objectives.
• The needed status of subordinates in goal setting is not possible.
• Rigid: if objectives are not changed with circumstances, planned results are not obtained.

Management by Exception (3.07 to 3.10)

• A principle of managerial control suggested by classical writers: an attempt to control everything results in controlling nothing.
• Example: 5 defects per 100 units are allowed; foremen handle up to 5, more than 5 is reported to the production manager.
• Causes of general business exceptions: process deviation, infrastructure or connectivity issues, external deviation, poor quality business rules, malformed data.
• Process: set norms, compare actual performance, analyse deviation; no action for insignificant deviation; significant deviation goes to senior managers as an exception and is solved immediately.
• Advantages: saves managers' time; focuses on major problems; eases delegation and increases span of control; separates important from unimportant information; keeps management alert to opportunities and threats; gives better yardsticks for appraisal.
• Disadvantages: only managers decide really important matters, which demotivates lower-level staff; passing issues up takes time; employees with compliance failures are hard to manage.