Management by Objectives (MBO)

Management by Objectives (MBO) is a method designed to coordinate and motivate all staff in an organization by dividing the organization’s overall aim into specific targets for each division, department, manager and employee.

This system sets and communicates objectives to all levels of an organization, and to all employees who work within it.

An example of how any company can incorporate the principles of Management by Objectives (MBO) can be the hierarchy of business objectives. Let’s see how it is done by dividing the corporate aim into objectives at every lower level of the business organization.

EXAMPLE 1: Managing by objective to maximize shareholder value.

Let’s say that the business aim of your company is to maximize value for your shareholders. In order to do so, your corporate objective says to increase profit by 20% per year. Then, in order to increase profit by 20% per year for the whole company, each region where your company operates will have divisional objective of increasing sales revenue by 15% and decreasing fixed costs by 5%. In order to increase sales revenue by 15% and decrease fixed costs by 5%, each department in the company will have its own departmental objectives:

– Marketing Department: Increase sales of most popular products by 20% and decrease spending on promotion by 5%.