Management By Objectives - MBO

It’s a lot easier to do our job when we know what we’re supposed to be doing. That's the theory behind MBO, or “management by objectives.” MBO says that, not only should everyone in an organization know what they should be doing (and what the organization itself is trying to do), but they should have official, established goals and targets to help them get there.

One of the best ways to illustrate this idea is with the concept of cascading goals. Let’s say our hat-making company, Oh Chapeau, Inc., sets an organizational goal to increase revenue by 25% within the next two years. Our Operations Manager then creates a goal for her division based on the organizational goal: they’re going to cut operational expenses by 10% within the same time period. She cascades this goal down to her supervisors and asks them each to create a related goal. Her Supplies Manager, Lou, creates a goal to find a cheaper office supply vendor, and his assistant also sets a goal to better monitor office supply usage. All of these goals roll back up into the business’s primary objective: increasing revenue by 25% within the next two years. According to those that know these things, keeping goals aligned makes it a lot more likely that the organization will actually achieve them, which is why MBO can be a really successful management tool.

MBO isn’t just for operational staff, though. Divisions that maybe don’t have much to do directly with revenue—like the recruiting department, for example—can still tie job goals to Oh Chapeau’s financial objective. In this instance, maybe our Talent Acquisition Manager sets a goal to bring in six new supervisors and managers over the next two years that can help the company grow.

The point is this: when we know what’s going on, we can make better decisions and be more productive. That’s good for us, it’s good for our teams, it’s good for our company, and it’s good for our shareholders. Goodie.