Management By Objectives (MBO) PDF

MG4031 Wk.05 Lec.02 Management by Objectives (MBO) (Urwick Orr and partners): An approach to setting objectives and ensuring their achievement, often used in conjunction with the planning process above. It proposes that each employee be free to set goals within the framework provided by the manager...

MG4031 Wk.05 Lec.02 Management by Objectives (MBO) (Urwick Orr and partners): An approach to setting objectives and ensuring their achievement, often used in conjunction with the planning process above. It proposes that each employee be free to set goals within the framework provided by the manager. It involves the following steps: 1. Performance standards are set for employees by management 2. The employee proposes their own goals depending on how they feel they can reach or exceed standards. 3. Goals are quantified and given a timeframe and then agreed upon by both employee and manager. 4. There are performance reviews at agreed intervals where feedback is given. The manager’s role here should be to help the employees achieve the goals. An MBO programme needs complete support throughout the organisation and continuous monitoring to be successful. It requires a competent manager. Advantages of MBO Disadvantages of MBO → The employee has a clearer → Employees may feel they’re being understanding of the goals they are coerced expected to achieve → The focus on objectives can lead the → Planning improves as business to strive towards communication and commitment contradicting goals improves → There may be a focus on easily → Control is easier as standards are measurable objectives, which aren’t set always the best → Motivation improves as employees → Agreement may cause inflexibility if feel they have input in decision the environment changes, it is making difficult to abandon a goal → Employee appraisal is simplified → Resentment and lack of commitment can occur when goals are being imposed rather than negotiated The Planning Process: There are 6 steps in the planning process: 1. Define Corporate Objectives: There are generally two types of objectives a business can set, profit maximisers and profit satisficing (seeks sufficient profit to allow it to fulfil other aims). Objectives can be geared towards increasing shareholder return (shareholder theory), or towards those who have a stake in the organisation (stakeholder theory). 2. Conduct an External and Internal Analysis: SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis. 1. The current strategies are identified and it is determined if they are working in moving the organisation in the right direction. 2. The key changes in the external environment are noted by a PEST analysis (see week 4 lecture 2). 3. A resource profile of the organisation should be taken to identify its key capabilities and limitations. This can be done by considering resources under these categories: a. Human: The structure and quality of the workforce b. Financial: The financial structure and borrowing capacity of an organisation as well as its balance sheets, ratio analyses, cash flow forecasts and working capital. c. Organisational: Considering the strengths and weaknesses of each department d. Technological: Whether the organisation is a leader/follower in technology The main aim of this step is to see where the organisation can gain a competitive advantage. 3. Revise Objectives: To put the findings of the SWOT analysis to good use to gain a competitive advantage, the objectives of a business often have to be changed to suit. 4. Develop Strategic Plans: Organisations typically categorise strategies on two levels, corporate and business. Corporate are related to the conduct of the business across several industries while business strategies relate to the conduct of the business in a particular industry sector. 5. Develop Tactical Plans: These should be relatively flexible in case of contingencies. 6.Implement Operational Plans: This means providing the necessary resources, motivating staff and holding regular meetings to review how targets are/aren’t being met. These meetings also provide the basis for feedback on how effective the planning process has been. Business Level Planning Structures: There are a number of business level strategies available to Strategic Business Units (SBUs): Miles and Snow Topology: Identifies 4 categories of business-level strategies that companies use. Prospector: Explores new market opportunities, embraces change and rewards risk taking. Typically involved in high-growth, innovative industries. Defender: Protects existing operations and is less aggressive/entrepreneurial. They maintain growth levels and keep customers well served. Analyser: Retains current market and customers and a has a moderate degree of change and innovation. It is a combination of the above. Organisations choose this when they don’t want to miss out on opportunities. Reactor: Responds to changes introduced by competitors. There is no clear approach, often failing to notice changes in the business environment until it is too late. Porter’s Generic Strategies: Organisations can follow one of three generic strategies: Differentiation: Organisations try to make their products/services unique and distinctive by enhancing quality, adding value. E.g. M&S. Cost Leadership: Organisations offer the lowest cost product/service by reducing costs. E.g. Ryanair. Focus: The organisation focuses on a specific regional market, product line or customer group. This strategy can also have elements of the above. Corporate Level Planning Structures: At this level, the key issue is the nature and degree of diversification: the number of different business activities conducted by an organisation and the extent to which they are related. Related Diversification: Organisations produce a variety of products/services similar to each other in some way. Those pursuing related diversification normally compete in the same market and have the same distributors, technology, brand name and reputation. E.g. Coca-Cola. It distributes risk more evenly It provides a platform for developing alternative but related business ventures  It provides economies of scale and reduces costs It can facilitate the development of synergies Unrelated Diversification: Organisations produce diverse products across many markets, often having no logical connection. E.g. Virgin Group. It's hard to manage and control There is a lack of synergy There is little investment in R+D The Boston Consulting Group (BCG) Matrix for managing diversification strategies: A framework for making conclusions about the performance of key businesses run by the diversified organisation. The BCG considers rate of growth within the market and the market share held by the organisation. It concludes that rapidly growing sectors where the organisation already possesses a strong market share perform best. Stars are those who have the largest share of a rapidly growing market. Cash cows are those with a large market share not likely to increase in the near future. Question marks are those who have a small share of a growing market. The outlook is often unpredictable. Dogs are sectors where the business has a small share of a low-growth market. They are advised to sell. While this matrix is widely used, its analysis is limited to two criteria. References: Notes based on MG4031 Lecture Slides and Modern Management: Theory and Practice for Students in Ireland (5th Ed.) - Tiernan S. and Morley, M.J. Chapter 4. Image 1: professionalacademy.com