Management by Objectives (MBO) is a strategic performance management process that involves an ongoing collaboration between managers and their team members, during which specific measurable objectives are established and agreed upon. This process enables companies to align the goals of the organization with individual and/or team performance. Through MBO, employers use a comprehensive approach when setting goals and objectives — which governs both the organization and its employees.

The MBO process is composed of five specific steps.

First, companies must define measurable objectives for both individuals and the organization. This step requires the employer to carefully review the specific needs and goals at both the organizational and employee levels. These objectives must be realistic, measurable and verifiable.

Next, employers must share objectives with all employees. Employees need to have a clear understanding of their goals and the means to achieve them. They must have a full understanding of how their individual objectives relate to the goals of the organization as whole.

The third step involves empowering staff to take an active role in developing strategies to meet the previously established goals. MBO highlights the importance of employee participation and is designed to create an atmosphere of mutual trust and respect, where employees understand their roles and the impact of their performance on the organization.

The fourth step is monitoring progress. It is the responsibility of the employer to keep employees informed of their progress and help refine the goals as needed. The employer must also be prepared to provide resources to help employees fulfill their objectives.

And finally, MBO requires evaluation and reward of performance. This step provides employers with the opportunity to recognize achievements and motivate future success. Rewards may range from verbal praise to more tangible rewards such as bonuses or promotions.

MBO has earned its share of criticism as well. Some argue that this process places too great of a focus on short-term results and can create an atmosphere of false achievement — where employees strive to meet the assigned objectives, rather than those that are more important for the company’s growth. Additionally, because MBO promotes mutual goal setting, employers can miss out on the fresh perspectives that their employees have.

Despite its critics, MBO remains a popular and effective performance management tool, and when implemented correctly, can result in greater organizational effectiveness, improved employee engagement and a more results-oriented corporate culture. Companies must carefully consider the steps of MBO when setting goals, monitoring progress and evaluating performance, but when used in the right context, MBO can help an organization meet its objectives and become a more successful enterprise.