March 6, 2021

Defining MBOs – Management By Objectives

Ally Technologies, Inc.
executive leaders using MBOs (management by objective) strategy to plan the year

Helping your employees stay motivated and productive is a crucial and often undervalued aspect of management. An engaged workforce can lend your company a competitive advantage, with lowered rates of absenteeism, higher retention, and overall improved performance. Your employees deserve to understand how the work they do contributes to the growth of your  company as a whole, and why they are an important piece of the puzzle. 

The success of an organization hinges on the engagement and performance of its employees, and the goals of your organization must be in alignment with the goals of your employees in order to cultivate a mutually beneficial result. One way you can create this alignment is by utilizing a Management By Objectives strategy to keep your employees focused on the future. 

What are MBOs?

The Management By Objectives (MBO) goal-setting strategy is designed to set expectations for and assess individual employees as well as their contribution to the goals of the greater organization. MBOs are useful as tools for grading employee performance, and can help leadership discover promotable or high-potential employees within the workforce. They can also be used to calculate bonuses. 

When big-picture plans are developed using OKRs or other goal-setting strategies, they need to be broken down into smaller, actionable steps and KPIs which will give everyone on the team a clear idea of how that goal can be reached, and how each employee will function to make it happen. That’s where MBOs come in: they define the work which each sole-contributor needs to put into a project to make it successful. 

MBOs can be created for larger teams, departments, and even a business as a whole. But their most effective application is for sole-contributors, including everyone from junior employees to the Chief Executive Officer. This is because MBOs set expectations and define objectives, but not how those objectives should be completed. 

It is often recommended that MBOs be used in tandem with other goal-defining solutions which illustrate the steps you need to take from the idea stage to completion of your goal. We’ll talk more about that in a later section. 

Pros and cons of MBOs

MBOs can be very useful under certain circumstances, however they are also limited in their applications. Here are a few benefits and drawbacks that are inherent to the MBO method. 

Pros Cons
Using the MBO goal setting strategy provides managers  with the opportunity to clearly define performance expectations to their direct-reports. It is also an opportunity for them to collaborate, and strategize the direct-report’s work responsibilities. MBOs can seem to encourage goal completion “by any means necessary” as they do not strategize how goals are to be reached, only that they need to be completed. 
MBOs are highly individualized and help employees to understand the unique role which they hold within the organization. This helps workers to feel like a critical and indispensable member of the team. MBOs are not a catch-all solution. Used as such, or outside of the context of more comprehensive goal-setting strategies, they can easily prove ineffective. 
The management aspect of MBOs allows managers and supervisors setting goals with their employees to ensure that the goals of their direct-reports align with broader company objectives.  Critics of the MBO method say that the highly individualized nature of MBOs can encourage unfair competition between coworkers and inhibit team collaboration. 


When to Choose MBOs Over OKRs

OKRs (Objectives and Key Results) are goal-setting strategies that not only define objectives, but also the steps an organization, team or individual needs to take in order to get there. 

While MBOs and OKRs have similar functions, OKRs have a broader application and generally provide a clearer picture as to how a goal will be reached. MBOs should not be used to replace an OKR. 

Once you have an overall objective in place, however, you can use MBOs to define the key results of your OKR plan. Especially if the OKR is strategizing an enterprise or department-level goal, MBOs can help define expectations for individual team members who will be contributing to the objective. 

How to Use an MBO Strategy

Here are the steps you can take to effectively employ the MBO method for your team. 

  • Have clear organizational expectations. Understand the greater goals, plans, and ideologies held by your business at large. This will help you to define clear expectations for smaller teams and individual employees.
  • Take a collaborative approach. Effective use of MBOs means working with your direct-reports to set realistic, achievable goals which make effective use of the employee’s skill sets and competencies.
  • Monitor progress. Because MBOs don’t strategize how goals are to be achieved, it’s important to have check-ins at regular intervals which allow you to keep track of employee’s progression towards their goals, and also provide support when needed.
  • Evaluate performance and reward achievement. Rate employee performance using KPIs or other indicators of progress. Acknowledge employee achievement with monetary rewards or other methods of recognition.
  • Provide feedback. Give your direct-reports regular assessment and be prepared to correct or redirect actions taken towards a goal. Provide them with a comprehensive review at the end of the line, whether or not a goal was reached. 

          Examples of MBO Goals

          Here are some examples to give you an idea of what MBO goals look like in practice. 

          Organizational MBOs

          • Decrease turnover in 2021 by 25%
          • Raise CSAT to 85%
          • Increase brand awareness by 30%

          Departmental MBOs

          • Human Resources: Decrease onboarding period to two weeks
          • Marketing: Raise marketing ROI by 10%
          • Finance: Review last year’s operations budget and revise for new fiscal period

          Individual MBOs

          • Complete advanced operations analytics program.
          • Improve personal time management and efficiency by a factor of 1 hour every day. 
          • Give a successful presentation to the entire department. 

          MBOs – Management By Objectives: Final thoughts

          MBOs allow your organization to set audacious goals  and milestones that allow team members to measure their big-picture performance and productivity. And used in tandem with other strategies, MBOs can be a powerful tool in defining expectations and motivating the individual members of your team.

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