BBA Practice Management Objective Study Material Notes
Table of Contents
BBA Practice Management Objective Study Material Notes: Guidelines for objective setting Example of good objective setting areas of objective setting Change in objectives translating general objectives onto specific objectives demand change by coalition groups Management by objectives Process of MBO Benefits of MBO Discussion Questions Objectives Questions :
CCC NIELIT Questions Paper Practice Test Paper 2
Management by Objectives
Management by objectives (MBO), or management by results (MBR), has drawn considerable attention of both academicians as well as practitioners because of two reasons. First, it focuses sharply on the objectives or results which a manager is expected to achieve within a specified period. Second, it emphasises participative management, an approach which provides high motivation to individuals in an organisation. The term MBO was coined by Peter Drucker in 1954 when he emphasised the concept of managing by objectives. 16 Since then, many organisations, both business and non-business, have adopted this in some form or the other. Though there are some variations in the practices of MBO and, therefore, its definitional aspects, MBO has defined as follows:
The integration of individual and organisational objectives through MBO has been emphasised by Chakravarty when he has defined MBO as follows:
“MBO is a result-centred, non-specialist, operational managerial process for the effective utilisation of material, physical, and human resources of the organisation by integrating
the individual with the organisation and organisation with the environment.”18 Based on the definition of MBO, its features can be identified as follows:
1 MBO is an approach and philosophy to management and not merely a technique. A management technique can be applied in selected parts of the organisation and will have limited implications for its other parts. For example, various control techniques like standard costing, inventory control, etc. have their implications in their respective fields and they have very remote effect on other elements of the organisational processes like recruitment and selection process, promotion, etc. On the other hand, MBO is likely to affect every management practice in the organisation. MBO employs several techniques but it is not merely the sum-total of all these techniques. It is a particular way of thinking about management.
2. As an approach to management, with objective orientation as its essence, MBO is bound to have some relationship with every management technique. Certain degree of overlapping is there. In fact, often MBO provides the stimulus for the introduction of new techniques of management and enhances the relevance and utility of the existing ones. MBO is the joint application of a number of principles and techniques. It works as an integrating device.
3. The basic emphasis of MBO is on objectives. Whereas the various techniques of management help in measurement of results in resources, MBO is also concerned with determining what these results and resources should be. This is possible because MBO tries to match objectives and resources. Objectives are established for all the levels of the organisation, including the corporate level, all the units or departments, and individual managers. Objectives provide the means for integrating the organisation with its environment, its subsystems and people.
4. The MBO is characterised by the participation of concerned managers in objective setting and performance reviews. Therefore, each manager takes active part in setting objectives for himself and also in evaluating his performance about how he is performing. The total management process revolves around the objectives set jointly by the superior and the subordinate. Therefore, managers have the opportunities for clarifying their job relationships with peers, superiors, and subordinates. This process clarifies the role very sharply in terms of what one is expected to achieve.
5. Periodic review of performance is an important feature of MBO. The performance review is held regularly, normally once a year. It emphasises initiative and active role by the manager who is responsible for achieving objectives. The review is future oriented because it provides basis for planning and corrective actions.
6. Objectives in MBO provide guidelines for appropriate system and procedures.Resource allocation, delegation of authority, etc. are determined on the basis of objectives, Similarly, reward and punishment system is attached with the achievement of the objectives.
Objective Study Material
Process of MBO
MBO is a system for achieving organisational objectives, enhancement of employee commitment and participation. Therefore, its process should facilitate translation of basic concepts into management practice. The MBO process is characterised by the emphasis on the rigorous analysis, the clarity and balance of objectives, and the participation of the managers with accountability for results. The MBO process is not as simple as it appears to be. Managers need training and experience for developing the required skills. The process has many nuances which can be understood from Figure 7.3 and its explanation.
Objective Study Material
1 Setting of Organisational Purpose and Obiectives. The first basic step definition of organisational purpose and objectives. Questions, such as organisation exist?” “what business are we in?” and “what should be our busines guidelines for the statement of purpose. This, in interaction with external la determines the long-range strategic objectives like (0 whether to achieve grown expansion in the same line of business or diversify: ( what should be blending on and manufacturing activities; and (iii) what should be the degree of vertical integral and so on. Usually, the objective setting starts at the top level of the organisation moves downward to the lowest managerial level. This will go in a sequence nike (1) defining the purpose of the organisation: (tt) long-range and strategic objectives: (til) short-term organisational objectives; (iv) divisional/departmental/sectional objectives; and (v) individual manager’s objectives.
1 Key Result Areas. Organisational objectives and planning premises together provide the basis for the identification of key result areas (KRAS). It may be emphasised that KRAs are derived from the expectations of various stakeholders and indicate the priorities for organisational performance. KRAs also indicate the present state of an organisation’s health and the top management perspective for the future. Examples of KRAs applicable to most of the business organisations are (0 profitability, (it) market standing. (it) innovation, (iv) productivity. (U) worker performance, (vi) financial and physical resources, (vil manager performance, and (vii) public responsibility. 19 Even though KRAs are most durable, the list of KRAs gets considerably changed over the period in response to new needs and opportunities. Sometimes, the achievement in a particular KRA also provides the impetus for a new KRA in future.
2. Setting Subordinates’ Objectives. The organisational objectives are achieved through individuals. Therefore, each individual manager must know in advance what he is expected to achieve. Every manager in the managerial hierarchy is both superior and subordinate except the person at the top level and the lowest level. Therefore, there is a series of superior and subordinate relationships. The process of objective setting begins with superior’s proposed recommendations for his subordinate’s objectives. In turn, the subordinate states his own objectives as perceived by him: Thereafter, the final objectives for the subordinate are set by the mutual negotiation between superior and subordinate. In the beginning of MBO process in an organisation, there may be wide gap between the recommended objectives by the superior and subordinate’s stated objectives because the latter may like to put lesser burden on him by setting easily achievable objectives. However, with the experience gained over the period of time, this gap narrows because of narrowing down of perception of superior and subordinate about what can be done at a particular level.
3. Matching Resources with Objectives. When objectives are set carefully, they also indicate the resource requirement. In fact, resource availability becomes an important aspect of objective setting because it is the proper application of resources which ensures objective achievement. Therefore, there should be matching between objectives and resources. By relating these to objectives, a superior manager is better able to see the need and economy of allocating resources. The allocation and movement of resources should be done in consultation with the subordinate manager.
4. Appraisal. Appraisal aspect of MBO tries to measure whether the subordinate is achieving his objective or not. If not, what are the problems and how these problems can be overcome. Appraisal is undertaken as an on-going process with a view to find out deficiency in the working and also to remove it promptly. It is not taken merely to punish the non-performer or to reward the performer. It is taken as a matter of system to ensure that everything is going as planned and the organisation is able to achieve its objectives.
5. Recycling. Though appraisal is the last aspect of MBO process, it is used as an input for recycling objectives and other actions. Objectives are neither set at the top and communicated to the bottom nor are they set at the bottom and go up. Objective setting is a joint process through interaction between superior and subordinate. Therefore, what happens at each level may affect other levels also. The outcome of appraisal at one level is recycled to see if the objectives have been set properly at the level concerned and also at the next higher level. This can be presented in Figure .
Objective Study Material
The three aspects involved in recycling process include setting of objectives at various levels, action planning in the context of those objectives, and performance review. Each of these aspects gives base for others. For example, objectives give basis for action planning which, in turn, gives basis for performance review, and performance review gives basis for objective setting and action planning. This process goes on a continuous basis.
Objective Study Material
Benefits of MBO
The experience of many organisations suggests that when used as an approach to management, MBO has a wide range of benefits. For example, Beck and Hilimar have given as much as thirty-five reasons why MBO is a better and effective concept for managing an organisation.20 This is possible because MBO can be applied in several aspects of organisational activities like performance appraisal, organisational development, long-range planning, integration of individual and organisational objectives and so on. Therefore, the benefits of MBO can be seen in the following terms:
1 Better Managing. MBO helps in better managing the organisational resources and tivities. Resources and activities are put in such a way that they result in better There are live basic assumptions about what improves performance. These erity of objectives, (tt) role clarity. (ii) periodic feedback of performance. on by managers in the management process, and (v) realisation that there is (iv) participation by managers in the management improvement of performance in every situation. Taking these assumptions, always scope for improvement of performance i MBO tries to improve performance in five ways:
2. Clarity in Organisational Action. MBO tends to provide the key result areas (KRAS) where organisational efforts are needed. Since organisational objectives are defined very clearly, they help in relating the organisation with its environment. A key factor in objective setting is the external environment in which the organisation operates. Therefore, any change in environmental factors is taken care of at the level of objective setting itself. Thus, it provides basis for long-range planning in the organisation. The organisation can look forward to what it intends to do in future, in short run as well as in the long run. Besides the external factors, internal factors can also be taken suitably, while formulating plans as all internal factors are made explicit in terms of what the organisation can do, where it lacks, and how this gap can be overcome. All these factors lead to define the organisation properly in the environmental context as well as in the context of its various competitors.
3. Personnel Satisfaction. MBO provides greatest opportunity for personnel satisfaction. This is possible because of two closely related phenomena: participation in objective setting and rational performance appraisal. When the individuals are involved in objective setting. they derive satisfaction because of the feeling that they are important to the organisation. They enjoy considerable authority which is a source of inspiration for better performance. Besides these, they are very sure that their performance will be measured in terms of their actual performance and will not be afffected by managerial prejudices, blases, and other personal factors. When performance appraisal is based on some specified criteria with commensurate rewards leaving least scope of personal factors, there is no unnecessary politiking of activities. In fact, in many organisations, people do not perform to the level of their potential because of absence of these positive factors and often there is high rate of managerial turnover.
4. Basis for Organisational Change. MBO stimulates organisational change and provides a framework and guidelines for planned change, enabling the top management to initiate, plan, direct, and control the direction and speed of change. In any organisation, change is required because of change in external factors or in internal factors or changes taking place in both the factors simultaneously. Therefore, to cope up with the change, the organisation has to change itself appropriately. However, this change is not automatic but requires efforts on the part of the managers, particularly at the top level. A very difficult problem comes in the way of organisational change because people resist it. If MBO is applied, the change process becomes easier because there is lesser amount of resistance to change as people become more innovative and dynamic and changes can be incorporated very easily as compared to rigid system of objective setting and performance evaluation by the superior alone.
Objective Study Material
Problems and Limitations of MBO
MBO is not without its problems and weaknesses. MBO is. generally, taken as panacea for all problems or magic wand which can deliver everything. On the contrary, many organisations have been overwhelmed by the problems of MBO and have failed to derive the expected results. Some of the problems are inherent in MBO system itself while others emerge because of wrong implementation. Each organisation is likely to encounter specific problems in MBO practice but some of the common problems are given here:
1 Time and Cost. MBO is not as simple as it looks to be. It is a process which requires large amount of the most scarce in the organisation-time of the senior managers. This is particularly so at the initial stages, when MBO is seen as something over and above the normal work. Sometimes, managers get frustrated and feel overburdened. Further, MBO generates paper work because large number of forms are to be designed and put into practice. Therefore, there is a problem of communication overload. However, such problems are transitory and emerge only at the initial stages. Once MBO becomes a part of the organisational life, these problems disappear.
2. Failure to Teach MBO Philosophy. MBO is a philosophy of managing an organisation in a new way. However, managers fail to understand and appreciate this new approach. They have a number of doubts about MBO like what purpose is served by MBO, how the performance is to be appraised, and how organisation will benefit. MBO demands rigorous analysis as an integral element of the management process but the organisation may not he used to rigour. Frequently both the base data and the expertise for analysis are not available. If corrective action is not taken early, the objectives become imprecise, control information may not be available, and one would not know if something was achieved. This is done on a systematic basis and managers seldom appreciate this. They take MBO as control. Moreover, their old way of thinking puts difficulty in introducing! MBO because they may not appreciate the full view of MBO.
3. Problems in Objective Setting. MBO requires red. However, setting such objectives is difficult at least in some performance can be measured. However, setting such objectives is de are more in the form of statement rather than in quantitative form areas. Objectives are more in the form of statement rather of quantified and can be broken in terms of time period but course, some objectives can be quantified and can be broken in ter others lack this characteristic for further course of action. on
4. Emphasis on Short-term Objectives. Sometimes, in order to be more precise, there is a to emphasise short-term objectives usually for a year on even less. NO QUE may help in performance appraisal but there is always a danger in emphasising snor objectives at the cost of long-term objectives. Sometimes, an organisation’s short term and long-term objectives may be incompatible because of certain specific problems.
5. Intexibility. MBO represents the danger of inflexibility in the organisation, particularly when the objectives need to be changed. In a dynamic environment, a particular ODJECU may not be valid for ever. In the context of revised objectives, changed premises, or modified policies, it is useless to follow the old obiectives. However, many managers often hesitate to change objectives during a period of time. Thus, inflexibility created by applying MBO may cause harm than what it may contribute.
6. Frustration. Sometimes, MBO creates frustration among managers. This frustration may be because of two reasons: First, as experience shows, many organisations could not implement MBO properly, resulting in utter chaos. In this case, the organisation is not able even to work with its old system. Second, introduction of MBO tends to arouse high expectation for rapid change, particularly among the young and junior managers. They begin to see the vision of a new world for their organisation in terms of growth, profitabilty, and for themselves in terms of career advancement. If the rate of change is slower than expected due to any reason, managers begin to feel frustration and even disenchantment with MBO.
In spite of these obstacles and problems in MBO, it continues to be a way of managing the organisation. In fact many of the problems and weaknesses of MBO can be overcome by implementing it properly
Objective Study Material
Prerequisites for Installing MBO Programme
MBO is a philosophy, rather than mere a technique. As such, its installation requires a basic change in the organisational culture and environment. Many of the organisations could not use MBO successfully because of the lack of appreciation of this fact. Many of the organisations are designed so as to undermine the MBO philosophy. This is because they could not create the proper environment required for the adoption of MBO. Stated below are some of the prerequisites and problems contained therein for installing the MBO programme:
1 Purpose of MBO. MBO is a means rather than an end. It has to achieve certain things in the organisation; it has to solve some problems. Thus, the organisation shlould be very clear about the purpose for which it is being implemented. As already discussed. Howell has suggested a three-stage evaluation of MBO: management appraisal and development, improvement of the productivity and profitability, and long-range planning. Thus, an organisation facing serious competition, both in its product and factor markets and in the grip of secular decline, will tend to use MBO primarily for immediate improvements in productivity and profitability. On the other hand, an economically affluent organisation might contemplate using MBO to change its management style so that it conforms to a more advanced and germane model of man-in-the-organisation. In both these cases, the details and emphases of the system will vary. Thus, if the purspose of MBO is not precisely defined and particular techniques in MBO suitable to the purpose are not emphasised, there is every possibility that MBO does not produce the results as anticipated.
Objective Study Material
2. Top Management Support. The presence or absence of top management support is a critical factor in determining the degree to which an MBO programme will be successful Many studies on MBO suggest that out of the several factors determining the success or failure of MBO, no single factor had greater correlation than the subordinate’s perception of superior’s attitude toward MBO.21 Thus, subordinates who can see their superiors as having a positive approach towards MBO are themselves likely to show a positive attitude. MBO is a way of managing on a day-to-day basis rather than an exercise of writing objectives once a year. The manager has a responsibility of (0 personally discussing with each subordinate the objectives that were set: (1) evaluating progress made in achieving these objectives; and (iii) assisting and supporting the subordinate by removing obstacles that hinder his work accomplishment. Mere verbal or printed commitment is not enough. Vigorous involvement among the top management is essential and this must be seen and perceived as such throughout the organisation. In short, MBO programme is not an end in itself, rather a means to an end. Management support for using objectives to plan and to control, working on a continuous basis, increases the probability of success of a programme.
3. Training for MBO. Another critical factor in implementing MBO is the existence of some type of training programme for people who will be operating under it. Systematic training is required in the organisation for disseminating the concepts and philosophy underlying MBO. The training should start with the concepts, philosophy, and need for MBO. If people in the organisation are not clear about the reasons for which MBO is being undertaken, they will fear and may show their resistance because people tend to show fear to what they do not understand. This fear can lead to suspicion and mistrust which, in turn, undermines people’s enthusiasm which is very important during the initial stages of MBO. One consultant on MBO has remarked that the importance of orientation and training should not be overlooked. I think it is important when you move into a programme like this; if you are starting from scratch, people must understand why and how you are developing the programme. Sometimes, there is a certain amount of fear when a programme of this kind is involved.
Objective Study Material
Another type of training, a major one in MBO programme, should be in the area of intragroup, intergroup, and interpersonal relationships because MBO entails a lot of such elements. Educational components of OD (Organisation Development) are quite useful for MBO. Beck and Hilimar suggest that “conditions for human effectiveness are jointly determined by interpersonal competence, achievement and self-actualisation, meaningful goals, and helpful systems. And efforts in these four directions, starting with interpersonal competence, can be organised simultaneously with and independently of formal goal setting in the organisation context. Those managerial skills and organisational processes which lead to such results constitute the OD efforts. The capabilities so generated are the very ones which successful MBO needs.”23 Thus, training sequence may be structural changebehavioural change. An alternative sequence may be structural change-behavioural changeattitude change. MBO is an effective method for bringing about organisational changes in its structural aspects. Such changes may cause behavioural changes because of the new configuration of authority-responsibility relationship. The basis for super-subordination Interaction in an MBO system may require that both superior and subordinate chans their behaviour to adjust themselves in the new role requirements.
4. Participation. Success with MBO requires a commitment on the part of each individual involved in this type of system. Their commitment in turn is a function of their identication with and participation in the system. The subordinate should not perceive that MBO IS another technique being used by his superior to control his performance. Such undesirable perception may be avoided by encouraging the subordinate to play an active role in the preliminary phases leading to the actual writing of the objectives. Subordinate’s role should include (1) the identification of important areas of accountability of his job: (w the determination of mutually agreeable performance measures; and (iii) the identification of his present performance level. However, the areas and scope for participation may vary in their relative emphasis according to the functional areas or hierarchial level to which an individual belongs. There cannot be a standard set of participation and each organisation may make its own diagnosis about the extent and type of participation it desires under given conditions. In this context, Newport observes, “A change to participative management involves the establishment of a situation in which people are active rather than passive, responsible rather than irresponsible, and basically more independent than dependent. Yet our heritage is one for the most part of a belief in the necessity for highly structured organisational arrangements. To change such management ideologies adopted from generation to generation is a time-consuming process.”24
In evaluating whether participation will work or not, following questions should be asked:
(1) Has the type of participation required been carefully thought out?
(1) Does higher management really mean to share certain managerial prerogatives that supposedly go with their rank?
(it) is participation perceived as a trap by subordinates?
(iv) Have subordinates the right skills and knowledge in order to shed their defences, and participate meaningfully?
5. Feedback for Self-direction and Self-control. One of the strong points in MBO is that in this system, a person can direct and control his own performance. For such a purpose, the person, who has performance objectives and knows how well he is achieving them, should know where he stands’ and ‘where he is going so that he can make necessary adjustments to achieve the desired results on his own. As such, feedback is necessary. Feedback is an essential ingredient in sustained learning and improvement in situations. By feedback, here, is not meant merely the regular supply of control information to each manager. The interpersonal aspect of feedback is equally important. Feedback under MBO should take two forms. First, the individual should get periodic reports on where he stands on an overall performance basis. This is required specially when the subordinate requires help from the superior. Second, feedback is necessary in the form of periodic counselling! and appraisal interview. The superior helps to evaluate progress, to identify problems, and to offer planning suggestions.
Objective Study Material
6. Other Factors. Besides the above major considerations, there are several other factors at iniluence the success of MBO. To the extent those responsible for implementation are aware of the various problems, they can make provisions in advance to overcome these. These are as follows: (0) Implementing MBO at Lower Levels. If the full benefits of MBO are to be realised, it must. be carried all the way down to the first line of the organisation. There is a tendency for active participation in objective setting itself and for periodic feedback and review to dirninish. the further down the managment ladder the programme gets. If such a tendency prevails, to that extent, MBO will be ineffective.
(10 MBO and Salary Decision. One of the most elusive aspects of MBO is to tie the organisation’s compensation system with the MBO programme. Though this problem does not arise at the initial level, later on, this becomes a crucial issue. This is because rewards and penalties are among the accepted ways of exercising organisational authority over its members. There are various problems in the organisational remuneration with MBO. First, there is the problem in equating the degree of difficulty to the achievement of various objectives in various functional areas. Second, if the monetary difference between the superior and the average performer is not perceived being significant, the superior performer will lose enthusiasm to continue his outstanding performance. At the same time, minimum increases for average performers can also be discouraging. They may be doing their best work, and getting only a minimum increase may be perceived as punishment. However, such an opportunity may not exist in the organisation. Third, some argue that to link MBO with reward-penalty system would amount to bringing in the piece-rate system from the shopfloor to the manager’s office. Thus, linking MBO with reward and penalty is really a difficult problem. One way to overcome this problem is that reward and penalties may be thought of in qualitative terms also, instead of the usual monetary alternatives. (iii) Conflicting Objectives. One of the outcome of MBO programme is that, to a degree, it builds a competitive climate. This is because MBO generates commitments. But it is often found in practice that over-commitment leads to competitive rivalry with respect to claims on the scarce resources of the organisation. This may be dangerous if it exceeds the limits. The accomplishment of result in organisations largely requires interdepartmental cooperation and integration of efforts. The persons responsible for introducing MBO must be certain that competing objectives are not set. Some educational effort is needed to enable managers to adopt an overall approach to performance reviews at regular intervals if the human dynamics reveal sub-optimal behaviour.
Objective Study Material
MBO IN INDIAN ORGANISANTIONS
India there is very limited experience of MBO. In fact, very few organisations have applied en and very few of them have shared their experience with others. MBO came to India Through the multinational companies operating in India. At the initial stage, overseas offices of multinationals provided expertise to the Indian associate companies. It was in 1969 that MBO made a system that MBO made a systematic entry through a management institution: Administrative Staff College of India, Hyderabad Staff College of India, Hyderabad, organised top management seminar on many organisations participated. Many of them appreciated the MBO in which heads of many organizations management and applied it in their organisations. Exhibit 7.4 role of MBO as a system of management and applied it in the presents the practice of MBO in Glaxo India Limited.
Objective Study Material
Case: Kavery Limited
Kavery Limited publishes fortnightly magazine titled Kavery. The magazine is published in four regional languages. The company has its own printing press with M.S. Subramaniam as press manager. He is responsible for the overall working of the press. The press runs on two-shift basis for six days per week and performs all activities related to magazine printing. that is, starting from typesetting stage to binding stage. For making magazine successful, its timely publication is one of the crucial factors. The press manager has a total employee strength of nearly 300 with six persons at the senior management level who work in the day shift and 25 supervisors and 120 operators for each shift. Each supervisor has 4 to 10 operators directly reporting to him. The number of operators reporting directly to a supervisor varies according to nature of work involved in different sections.
One day, the press manager attended a seminar on management by objectives organised by the local management association and addressed by a consultant on management by objectives. He was highly inspired by the theme of management by objectives and intended to install this system in the press. He was very much sure that he would make performance evaluation of the employees easier and improve their productivity.
Subramaniam worked several days on what the output objective of the press would be. After finishing this work, he called a meeting of his senior staff. He gave a written statement containing the objectives of each functional area of the press to senior staff members and requested each member to review the objectives, ask questions for clarification, and then prepare specific operational plans and quotas for his respective departments, supervisors, and operators.
Objective Study Material
QUESTIONS
1 Is this a workable MBO system? Explain your stand.
2. Had you been the press manager, would you have proceeded to install MBO differently? Why?
3. As the press manager, how will you proceed to define press’s objectives?
