Management by Objectives (MBO)

How flawed is Management by Objectives? Or is it really flawed?

A lot of people feel, and sometimes actually voice, that Peter Drucker’s “Management by Objectives” is deeply flawed. For those who don’t know, Management by Objectives is ‘ the process of agreed upon objectives within an organization so that management and employees agree to the objectives and understand what they are in the organization.’


MBO is measured by the SMART criteria:


Management by Objectives is a systems approach for aligning project goals with organizational goals, project goals with the goals of other subunits of the organization, and project goals with individual goals.

This could single handedly be a Program Manager or Functional Manager’s best tool…or is it? A Program Manager could make use of this while allocating projects to his portfolio. Functional, Line and Human Resources Managers could effectively use it to define set goals and objectives for their staff.

A lot of companies have [effectively] tried the SMART goals in employee evaluations and appraisals. But there are proponents of the theory that the SMART criteria are defective.

Some of the best known disadvantages of MBO I have collected on the Web can be summarized as:


1. It may lead to sub-optimization: People or departments are not stimulated to look beyond their own objectives and help each other.
2. Innovation is not stimulated.
3. The time and paperwork involved is burdensome.
4. Potential misuse by superiors who simply assign (rather than negotiate) objectives.
5. Subordinates may try to negotiate easy goals.
6. You have to watch out for unrealistic (too high) expectations about what can be reasonably accomplished.
7. It is inflexible and rigid.
8. It over-emphasizes the setting of goals over the working of a plan as a driver of outcomes.
9. It underemphasizes the importance of the environment or context in which the goals are set.
10. Companies evaluated their employees by comparing them with the “ideal” employee. Trait appraisal only looks at what employees should be, not at what they should do.
11. It did not address the importance of successfully responding to obstacles and constraints as essential to reaching a goal. The model didn’t adequately cope with the obstacles of:
(a) Defects in resources, planning and methodology,
(b) The increasing burden of managing the information organization challenge,
(c) The impact of a rapidly changing environment, which could alter the landscape enough to make yesterday’s goals and action plans irrelevant to the present.

William Edwards Deming, in his Common Cause Variation demonstration, proved that MBO was deeply flawed. Dr. Deming also mentioned numerous cases of employees meeting their managers’ objectives by violating policy, regulations and resorting to ethical violations.

In the age of 360 degree feedback and overall evaluation, is it really useful to use the SMART goals? How flawed can it really be? How can we fix this? Is there a better way out?