Chapter Setting Organisational

7 Objectives

CHAPTER OUTLINE

7.1 Definition of Objectives

7.2 Nature of Objectives
73 Need and Importance of Objectives
7.4 Seting Objectives
to Setting Objectives
1.5 Management by Objectives: The Modern Approach
7.6 Key Areas for Setting Objectives

7.1 DEFINITION OF OBJECTIVES

aims or puroses that organisations
According to McFarland, "Objectives are the goals,
Objectives are the concrete expressions of
wishto achieve over varying periods of time.
ultimate ends towards which an organisation
They are the
what an organisation wants to achieve. directed
members strive at all times. All activities and resources of an enterprise are
and its
towards the achievement of common objectives.

7.2 NATURE OF OBJECTIVES

features ofobjectives.
The foregoing description reveals the following
plans: Objectives are the basis of all other plans. They provide
1. Objectives are basic operation of anorganisation. Every organisation
justification for the establishment and

1. Dalton E. McFarland: op. cit., p. 45.

7.2 Management: Principles and
exists to accomplish certain objectives. Different organisations havee different
Applicaton
which the structure ofplans can be built. objectives
and they are the foundation upon
no meaning ifit is not related to certain objectives. Planninghs
2. Objectives are multiple: Every organisation has several objectives rather than one
goal. In addition to the organisational objectives, every stake-holder in business has
his own objectives. Abusiness enterprise has to satisfy the goals ofiinvestors, customers,
employees and the state. Objectives are required in every area of business where
survival and success of the business is important. According to Drucker "to managethe a
business is to balance a variety of needs and goals....objectives are needed in
area where performance and results directly and vitally contribute to the survival and
growth of the business. These areas are: market standing, innovation, productivi
physical and financial resources, profitability, management performance and
development, worker performance and attitude, and public responsibility."! Thic
multiplicity of objectives should be properly balanced to avoid clash between differen
objectives.
3. Objectives arranged in a hierarchy: The objectives of an organisation constitute a
chain or network. They differ in the degree of importance, i.e., corporate, departmental,
sectional and individual objectives. Lower level objectives serve as means to the higher
level objectives ofthe organisation. The goals of each sub unit contribute to the goals of
the larger unit of which it is a part. This hierarchy of objectives is shown in fig. 7.l and
it is also called 'Ends-Means Chain'. This chain shows that the scope and significance
of planning gets narrowed at successively lower levels of management.

COMPANY
OBJECTIVES
Profits,social
responsibility,etc.
DIVISIONAL OBJECTIVES
Objectives of an operating
division or subsidiary
DEPARTMENTAL OBJECTIVES
Objectives of production,
sales, finance, etc.
EMPLOYEE OBJECTIVES
Individual objectives of the
people working in the enterprise.

Fig. 7.1: Hieracrchy of Objectives

Peter F. Drucker: op. cil., pp. 62-63.
Seong Onanisaltonal Ohjcctives 7.3

Obiectives vary in time span: Objcctives nmay be long ternn or shot term. As acontinuous
cntity. abusiness cnterprise must havc both long range and short range objectives. Short
range objectives normally cover a pcriod uptotwo ycars, while long range objectives
usually extend upto 5ycars or more. Short rangeobjectivcs must be integrated with the
long range bjectives as they are designed to achicve long range objectives. They should
e denved from the long range goals.The approach should be from the distant future to
the present. Objcctives also have apriority i.c.,some objectives arc more important
than others. For instance, survival of theorganisation is essential for the realisation ofall
other goals.
< Objectives may be general or specific: Objectives may be defined in wide or narrow
rerms. For instance, growth is a broad objective while increasing sales by 20 per cent in
the next two years is a narrow objective. Broad objectives can be spelled further into
operational or specific objectives. Objectives may be cither tangible (quantifiable) or
intangble. Organisational objectives are sometimes divided into: (a) main-tenance goals,
and(b)productivity goals. Maintenance goals are designed to ensure the survival of the
organisation whereas productivity goals seek growth.
13 NEED AND IMPORTANCE OF OBJECTIVES
Clearly defined and properly understood objectives provide the foundation for effective
management. They reflect the future state of affairs which an organisation seeks to
achieve. Objectives provide legitimacy to the existence of an organisation and to its
activities. Achievement of objectives is essential for the survival and growth of an
organisation. Efficient management is management by objectives. Without sound
objectives, managements may be difficult, if not impossible. To be specific, objectives
of+er the following Advantages:
1. Sense of mission: Objectives provide direction to the individual efforts and activities of
an organisation. They serve as guidelines to the members of an organisation and eliminate
haphazard action. They are reference points for keeping the efforts of the enterprise on
the right track. Clearcut objectives act as a watch word for managers just as a star
system guides ships during navigation. Objectives indicate the destination of anenterprise.
Without objectives action becomes aimless. Clearcut objectives avoid misdirection of
resources and haphazard efforts. They make human activity purposeful and provide
legitimacy to actívities.
2. Unified planning: Objectives are the key to sound planning. Plans have no meaning
unless they are designed toachieve well-defined objectives. Objectives provide the
basis for determining policies,procedures, strategies, programmes, budgets and other
plans. Clearcut objectives make for consistency in decision making. Various plans
prepared by different people are adjusted to acommon objective. Thus,objectives serve
as a cornmon denominator for consistent and integratcd planning.
3. Individual motivation: As milestones to be crossed, objectives make jobs worthwhile
7.4 Munagemet: Irimiplex and
und meaniugul, Oryyunisutional objovtiveN NCrVe UN (lhe was lor uchieving Applicato
gouls. ln so fur us nindividual avvepts orpanisational goals as being dositable, th
ACcomplihnont becomes a sowoe of sutisliction to hin. By uchievig objectives
individuals at all levels derive uNCUNe of wconplishment. IPersonal goals can
into orgauisational goals by ncans of'common objcetives,
ure l
4. Busis for decentralisatlon: Well-detincd objectivesthe helptul in etleetive
authority. By may
ofDecentralisation providing turgets, they reduce necd for detailed delguiegutdance.ion
lead to disintepration of' the orguuisation unless there is aclea
indication of the contribution to benude by cach unit towards the acconplishuent of
common objectives. Objcvtives provide such indicationind help to fix repnsbility
results.
5. Busis for control: Objectives servo UN the stundards or benehnnarks with e l.
which actual portornance can be evaluuted. Portornunce van continually be iudv:
ternis of how well the orgunisution is oving towards the realisation of obi
Stundards derived tiom objectives ure helplul not only in taking corretive action b
also indeeiding linancialcompensation and prootion. Standards may be yuantitative
qualitative. Standards muy be lixcd for cOst, time, tevenue o prolits.
6. Voluntary coordination: Mulually ngreed objectives enable people to coordinate thei
cflorts voluntarily while working within thcirrespeclive ureas of discretion, When the
significanceof cuch taNk and its relationsbip with other tusks is detlincd in ters of
cleareut objectives, then cvery individual cun it his actions into u coordinuted etlot.
Etectivencss of oganiscdcndeavour depends upon the derev of coordination between
individual cflorts. Mutually supportive gouls facilitate unity ofuction and harnonious
cooperative elforts. They reduce misunderstanding and contlictanong the members of
the orgunisation. iouls are a unilying lore.
Summing up the importunce of objevtives, Drucker observes: "Objectives help to organisx
and explain the whole range of' business phenomenu in a small number of general
stutements; to test these statementsin actual experience; to prediet cmployce bchuviour,
to appraise the soundness of decisions when they are still being made; and to enable
practising business1mcn to analyze their own experienee and, us a result, improve their
performance." Without objectives, an organisation is likea ship which has no rader and
compass. In the absence of wel-delined objcctives, an orpanisation ceases to be a
purposive collective endeavour.
Thus, it is dificult to overstress the notion of the objcetive, purposc, aim or goul s
fundamental to every element in theprocess o> nmanagement.
7.4 SETTING OBJECTIVES
I'very organization must carefully formulate its objectives. The objectives must be set at al
I, Petcr . Druker: op. cit., p.03.
Seting Onyanisational Objectives 7.5

levels(top. middle:and lower level). At the top level, the management must define the mission,
strategies and key result areas. The middle level managers set departmental or divisional
objectives. While the lower levcl management dcals with operational objectives as well as
employee's individual objectives. At any level of management, the objcctives must be clear
and verifiable.

14.1 Essentials of Valid Objectives

The following guidelines must be considered while setting objectives:
) Objectives must be clear and specific: Objectives fail to guide and direct efforts if
they are stated in vague and general terms. Therefore, objectives should be spccificd in
clear, written and precise terms so that they are fully understood by the people. The
mission of business should be translated into meaningful objectives.
(i) 0bjectives must be measurable: To serve as standards for control, objectives must be
measurable or verifiable. Translation of major objectives into tangible or visible operating
objectives helps to motivate individuals and performance can be evaluated accurately.
Long range objectives should be broken into short range objectives to make them
meaningful. Precise and measurable goals facilitate development of plans at lower levels
and they make work more meaningful. If theobjectives are not measurable, the efficiency
and effectiveness of the enterprise cannot be evaluated.
(ü) 0bjectives must be result-oriented: Objectives should focus on results rather than on
work. Workor activity is only ameans of achievingthe results. For instance, the objective
of increasing sales by ten percent focuses on results while the goal of opening two more
sales offices focuses on activity. Objectives should be defined in terms of the results to
be achieved.
() Objectives should be balanced: Different objectives should be given right emphasis
and they should maintain a balance in variety of needs and goals. Management must
ensure that every objective gets its due share of activity and resources. Individual
objectives must fit into the mould of overall goals of the organisation. Priorities amongst
the different objectives should be decided keeping in view the environment within which
the business operates. Time limits should be laid down for achieving the objectives.
(v) Objectives must be realistic not idealistic: Objectives should not be set at so high a
level that they discourage the organisation members to make an attempt for their
realisation. But the objectives should be designed to seek improvement of the organisational
performance at all levels. Realistic objectives based on organisational resources and
capabilities provide incentive for high performance. On the other hand, unattainable
objectives create frustration and demoralise the personnel in the organisation. Objectives
should be operational, i.e., capable of being converted into specific targets and
assignments.
(vi) Objectives must be valid: They should be constantly reviewed and revised according
to changing conditions.
 7.6 Management: Principles and
(vi) 0bjectives must be acceptable: The objcctivcs should be compatible with the Applications
goals of the people. Participation ofpeoplein goal-setting also incrcases,the individual
ofobjectives. acceptability
(vi) Objectives should be challenging: Objcctives must be realistic but at the same
they should be challenging. Challenging objcctives provide anmotivation to the tine
and managers. cmployces
(ix) Objectives should be prioritized: There can be multiple objcctives for an
organization. organization
but the objectives must be in linc with the prioritics of the

7.4.2 Factors Influencing the Objectives

factors:
While setting the objectives, the management considers the following
1. Environmental factors: An organization workS in an open system. Thus, its obicctive.
are influenced by the environmental forces. Environment provides opportunities as wl
as constraints. The changes in the business environment may shape the priorities, focus
areas and hence the objectives. Here, stakeholders such as the customers., Supnlicr.
laws etc play avital role in shaping the objectives. For example, the business may Want
to maximize its sales by charging very low prices. But may not be able to do so becalues
low prices may invite competitor law suite for predatory and unfair pricing.
2. Internal resources: Organisations differ in their internal resources. Internal resources
determine the strengths and weaknesses of the organisation. While setting the objectives,
the firm must analyze what resources are at its disposaland accordingly formulate its
objectives.
3. Vision and value system of thetop management: The top management is responsible
for formulating the corporate level objectives. Their vision and values play an important
role in deternining the firm objectives. Values such as risk orientation, innovativeness,
focus on quality, dynamism or passivity affect the objectives.
4. Power play between various groups: The relationships and mutual trust between the
top management, owners or managers also plays a role in determining objectives. Where
there is amutual trust, objective setting is constructive and higher objectives can be set
But inorganization where there is lack of trust between the members of top management,
it may lead to power play between the groups. In such a case goal setting becomes an
exercise in negotiations and bargaining.
5. Past objectives and performance: While setting the objectives, the managers usually
take into consideration, the past objectives and whether those objectives were attained
or not. New objectives are set in the light of past performance.
7.4.3 Approaches to Setting Objectives
There are 2 approaches to setting objectives at various levels in the organization:
Top-down approach: This is the traditional approach to setting objectives. In the top
Srng runisalional Ohjecties 7.7

down approach, the top levelma:agers determine the objcctives for the subordinates.
Theadvantage of this approach is that the top management has a broad and overall
perpeclive ofthe organizational resources and capabilities so is in abetter position to
detemine the objectives. The middle level managers sct goals for lower levclmanagement
as per the trad1tional approach.
. Bottom-up approach: In the bottom up approach, the subordinates develop their
objectives and prescnt these to the managers. This approach motivates the subordinates.
The subordinates are likely to be more involved in achicvement of goals formulated by
them. Further. the lower level managers may have crucial information like the fecdback
of customers, retailers ctc. which is vital in seting the top level objectives.
While both approaches have their merits,ajudicious combination ofboth the approaches may
lcad to setting better objcctives.
Brainstorming and consultation with subordinates may help to identify the valid objectives. The
management must select its objectives in light of environmental factors, internal resources and
nast objectives. Management's vision and values also determine the objectives. The objectives
may be finalized through the power play and politics between various groups. The objectives
must be prioritized. While setting the objectives, the managers should use the guidelines such
as clarity, mcasurability, result orientation etc. to set realistic, challenging and balanced objectives.
The management must communicate the objectives at all levels. A periodic review of the
results must be done after implementation to evaluate whether the objectives have been
successfully achieved. Based on the review and changes in the environment, the objectives
may be revised from time to time.

1.5 MANAGEMENT BY OBJECTIVES: THE MODERN APPROACH TO

SETTING OBJECTIVES
Drucker introduced the concept of MBO and self - control in his book The Practice of
Management in 1954'. According to Drucker the efforts of allthe members of an organisation
must be directed toward the common goals. Drucker suggested MBO to ensure that the vision
and efforts of all managers are directed toward a common goal.
MBO may be called a philosophy of management. MBO applies to every manager, whatever
his level and function, and to any business enterprise whether large or small. It ensures
performance by converting objective needs into personal goals.
The thrust of MBO is on results (What must be achieved) rather than on work methods (What
IS to be done). MBO is based on the assumption that the conversion of broad organisational
goals into more specific and personalised objectives results in higher commitment and improved
performance and enables managers to exercise self-control.
"ln brief, the system of management by objectives can be described as a process
whereby the superior and subordinate managers of an organisation jointly identify its
common goals, define each individual's major areas of responsibility in terms of results
 Management: Principles and Applicatitgn.
Cxpected of him, and use these measures as guides for operating the unit and
the contribution of cach of its members." assessing
(George S. Odiorne: Management by Ohjectives, pp. 55.54.
Characteristics of MBO
An analysis of the definitiongiven above revcals the following features of MBO:
1. Goal orientation: MBO focusses on the determination of unit and individual goals in
line with the organisational goals. These goals define responsibilitics of different parts of
the organisation and help to integrate the organisation with its parts and with i.
cnvironment. MBO seeks to balance and blend the long term objectives (profit, growh
and surival) of the firm with the personal objectives of key executives. It requires that
allcorporate. departmental and personal goals willbe clearly defined and integrated.
2. Participation: The MBO process is characterised by a high degree of participation of
the concerned people in goal setting and performance appraisal. Such participation provides
the opportunity to influence decisions and clarify job relationships with superiors
subordinates and peers. It also helps to improve the motivation and morale of the people
and results in role clarity. Participative decision-making is a prerequisite of MBO.
3. Key result areas: The emphasis in MBO is on performance improvement in the areas
which are of critical importance to the organisation as awhole. By identification of key
result areas (KRAS). MBO ensures that due attention is given to the priority areas
which have significant impact on performance and growth of the organisation. Goals of
all key personnel are properly harmonised and they are required to make maximum
contribution to the overall objectives.
The role of each departrment towards the Key and sub-Key areas is also specified.
4. Systems approach: MBO is asystems approach of managing an organisation. It attempts
to integrate the individual with the organisation and the organisation with its environment.
It seeks to ensure the accomplishment of both personal and enterprise goals by creating
goal congruence.
5. Optimisation of resources:The ultimate aim of MBO is to secure the optimum utilisation
of physical and human resources of the organisation. MBO sets an evaluative mechanism
through which the contribution of eachindividual can be measured.
6. Simplicity and dynamism: MBO is anon-specialist technique and it can be used by all
ypes of managers. At the same time it is capable of being adopted by both business and
social welfare organisations. MBO applies to every manager, whatever his function and
level, and to any organisation, large or small.
7. Operational: MBO is an operational process which helps to translate concepts into
practice. MBO is made operational through periodic reviews of performancewhich art
future-oriented and which involve self-control.
8. Multiple accountability: Under MBO, accountability for results is not centralised a1
Serting Organisational Objectives 7.9

particular points. Rather every member of the organisation is accountable for

accomplishing the goals set for him. Multiple centres ofaccountability discourage 'buck
passing' and 'credit-grabbing'.
9. Comprehensive: MBO is a 'total approach'. It attaches equal importance to the economic
and human dimensions of an organisation. It combines attention to detailed micro-level,
short range analysis within the firm with emphasis on macro-level, long range integration
with the environment.

Objectives of MBO
Management by Objectives is intended primarily:
1. to measure and judgeperformance;
2 to relate individual performance to organisational goals;
3. toclarify both the job to be done and the expectations of accomplishment;
4. to foster the increasing competence and growth of the subordinates;
5. toenhance communications between superior and subordinates;
6. to serve as a basis for judgments about salary and promotion;
7. to stimulate the subordinates' motivation: and
8. to serve as a device for organisational control and
integration.!

Process of MBO
follows:
The steps usually involved in the MB0 process are as
1. Goal-setting: The MBO process begins with the establishment of objectives. Goal
stages as given below:
setting under MBO is a multistage process. Goals are set in three
long term objectives
(a) Defining overall corporate objectives: First of all general and
objectives are the strategic
are laid down for the organisation as a whole. These objectives
Definition of corporate
goals for the survival and growth of the enterprise.environment of the enterprise and
requires analysis of the internal and external the organisation
identification of key result areas. Questions such as Why doesbusiness? provide
be our
exist'? What business are we in?" and What should
guidelines for corporate objectives. The determination of overall corporate objectives
management. Adetailed assessment
and strategy is the prime responsibility of top this purpose.
of resources, market and business conditions is required for
the framework of general
(b) Formulating departmental or unit objectives: Within short term goals are set up for
and long term corporate objectives, specific and
unit objectives should effectively
every depart1ment or unit of the organisation. These objectives. They should
contribute towards the accornplishment of overallcorporate
Business Review. July-August, 1970, p. 126.
1. Harry Levinson: "Managing by Whose objectives" Harvard
7.10 Manugement: Principles and Applications
be cxpresscd in precise terms in writing and propcrly communicated to the
concerncd. Such goals indicate expected results andddesiredperformance. persons
of diflerent organisational units should be compatible with each othe. .Objectives
(c) Establishing individual targets: The last step in goal-setting is to;fix
performance
targets for each and cvery individual in the organisation. Such targets should L
fixed through afree and frank discussion betwecn the individual and his
superior
so that both of them understand the results expected of the subordinate and
become fully committed to them.As far as possible individual objectives shoula
be expressed in quantitative or verifiable units because they serve as the criteria
for evaluation of performance. The objectives must be checked and validatod
properly. The goals set for as well as the role of every individual must be clans
precise and fully known to him. Ideally, every goal and sub-goal should be Sora
one's clear responsibility.
2. Developing action plans: Setting objectives is not enough and action plans must be
formulated for the achievement of defined objectives. At this stage,details are worked
out for the accomplishment of performance targets. Action planning is required:
(a) to determine the activities required for the achievement ofobjectives;
(b) toidentifyrelationships between various activities for proper coordination;
(c) to prescribe time sequence of each activity along with the dates for its beginning
and completion:
(d) to assign the priority between different tasks;
(e) to define or allocate responsibility for specific results;
(f) to determine the resources required; etc.
3. Implementing plans:The action plans are put into operation so that individuals can
pursue their respectives objectives. Implementation phase of MBO consists of the
following steps:
(a) Diagnosis: It involves analysis of the organisation's planning and control system,
assessment of the style and competence of people, definition of required changes,
etc.

(b) Preparation: People must be educated and trained in the philosophy of MBO.A
motivational climate is created to implement action plans. Preparation also involves
determination of the speed, scope and methods of implementation; evolution of
suitable strategies and persuading people to make the desired efforts.
(c) Execution: During this phase, the infrastructure for MBO is built up. Execution
is acrucial step as many failures in MBO are due to faults in execution. It is not
simply a matter of forms and procedures. The spirit of MB0 should be built up in
terms of result orientation, participation and rigorous analysis.
 7.|

Sperior
recomnends
goals and
measunes of
Superiors lay Agreement is Superior and
doam goals in
perfomance for reached on the Sobordinate
Key Rest Areas subordinates job subordinate's jointly
dmeasures of targets keeping in prepare
Performaxe for view the action plans
Subordinate to achieve
the Organisation availability of
indentifies necded resources the targets
asa wbole
goals and
mcasures for
his job

Periodic
Final review
Corrective reviews Implenentation
measures by the of action plans
and appraisal of subordinate of progress
and regular and the
subardinate's
with the help of discussion subordinate's
performance feeback and
and action by between on-going
assistance from
Superior Superior and performance
superior subordinate

Fig. 7.2. The MBO Process

held to discuss the
4. Periodic reviews: Periodic meetings of superior and subordinate are subordinate writes
ptogress made by the subordinate towards goal accomplishment. The
makes comments
his perfornance reports on his ongoing performance and the superior
to the subordinate.
on it. Such periodic reviews ofperformance provide feedback on results to improve the
With the help of superior's suggestions and assistance, he can take steps corrective
performance. The feedback from periodic reviews serves as the basis for
action which may involve mod1fication ofplans or development of newplans to take into
the subordinate
account the changes that have taken place. Such feedback motivatesdirection. Periodic
for better performance and helps to keep the efforts in the right is measured in
Teviews should be personalised on a one-to-one basis. The performance
terms of quantity. quality, time and cost.
final performance is
{. Appraising overall performance: At the end of the year, the
cvaluated against the targets. Such appraisal helps to assess the quality of performance
rewards and penalties.
2nd to estinate the future potential. It also forms the basis for
guidelines for goal
The final review of pcrfortnance is comprehensive and it provides ofMBO.
process
seting in the next period thereby completing the cyclical or circular
 7.12 Muragemn:. Frrnciples
Adantages (Strengths) of IBO This is to brag
tion that aay y e
The main benefits of MB0 are as follows: e
1. Improved planning: MBO involves participative studeats foud ainclediny
if
posS
decision-making which makes objectives explicit and cboncal, inchaing phat
plans more ralistic. It focusses atention on goals in key copving
nig.
PDF.rdng san
dgitiing. ping wet
whatsapp groaps)(incladiz
distributions
result areas. MBO forces managers to think in tems of
results rather than actiities. Precise pertormance
Oon
fom
objectivs and measures indicating goal accomplishment networs or mfoA
storsge ndreTa ys
are laid down. There is atime bound progranume. without the prnot or wria
pernia ofthe pblis
2. Coordination: MBO helps to clarifr the structure and artract FIR, legal
goals of the organisation. Huony of objavisenables cludiag court csesctiea
for c
(
peasation).
individuals at varnious levels, to haveaommon dirction.
Every indiidual knows cleariy his role in the organisaion.
his area ofoperation and the results expected of him. MB0 results in clarificaion p
ganisational roles and strucure. It promotes an integrated new Of management ani
helps interdepartmentalcoorination.
3. Motivation and commitment: Participation of subordinats in goal seting ni
performance reviews tend to improve their commitment topertomance. The Ore
goals are converted into personal goals at all levels to integrate the individual with the
organisation. Timely feedback on performance crelS a feling of accomplishment
Job enrichment and sense of achievement help to improve job satistaction and morale.
Improved communication and sense of involvement proides psychological satistaci
and stimulates them for hard work. Conversionof organistional goals into pesna
goals helps to integratethe individual with the organisation.
4. Accurate appraisals: MBO replaces trait based appraisal bv pertormance hasi
appraisal. Quantitarive targets for every individual enable him to evauate his owZ
performance. Pertformance under MBO is innovative and future oriented. It is positive
more objective and participative. Emphasis is on job requirements rather than on
personality. Control becomes more etfective due to verifiable standards ofpertomane
Subordinates know in advance how they willbe evaluated.
5. Executive development: The MBO strategy is a kind of self-discipline wherehy
shortcomings and development needs are easily identiied. It stresses upon a long tem
perspective and self-development. MBO releases potential by providing opporuniics
for learning, innovation and creativity. It encourages initiative and gowth by strethng
capabilities of executives. MBO makes possible ahigh degree of selfcontrol by indivicu.
managers and increases decentralisation of authority.
6. Organisational change and development: MBO provides a framework for plannt
changes. It enables managers to initiate and manage change. It helps to identN
short-comings in organisational structure and processes. In this wav. MBO improv
Serting Organisational Ohjectives 7.13
the capacity of the organisation to cope with its changing environment. When an
organisation is managed by objectives, it becomes performance-oriented and socially
useful.

Limitations (Weaknesses) of MBO

MBO is not free from shortcomings. It requires sound policy formulation, sound organisation
structure and effective control system. Many organisations have failed to derive the expected
benefits from MBO due to one or more of the following problems:
1. Failure to teach the philosophy: The idea of MBO appears to be very simple but it
requires far reaching changes inconventional attitudes and practices. Many managers
have serious doubts about MBO and consider it merely another management gimmick
for controlling the behaviour of subordinates. Therefore, it is necessary to continuously
educate and train managers in the philosophy of MBO so that they can successfully put
it into practice.
2. Problem of participation: MBO requires ahigh degree of participation and collaboration
at all levels of the organisation. In practice, superiors adopt ahalf-hearted approach to
participative goal-setting. Sometimes, participation may lead to face-to-face
confrontations as both the superior and subordinate independently develop aset of goals
prior to meeting. Success in MBO depends largely on effective conduct of goal-setting
sessions by superiors.Authoritarian executives do not welcome participative goal setting
and find it hard to think about results in place of goals.
3. Difficulty in goal setting: It is often difficult to set truly verifiable goals. For example,
quantifiable goals for staff people cannot be set easily. Sometimes, in the desire to
quantify objectives managers may ignore important qualitative goals. Managers may
fail to make constructive use of goals or fail to give proper guidelines to goal setters.
4. Emphasis on short term goals: In most of the organisations, there is a tendency to
stress upon short termgoals at the cost of long range goals.This is because short term
goals make for precision in goal setting and achievement. In some cases, short term
goals may be incompatible with the long term goals of the organisation. For instance,
cost reduction objective may be achieved by cutting down research and development
programmes having no immediate utility.
S. Inflexibility: MBO involves the danger of inflexibility in organisation in achanging
environment. In a dynamic environment, objectives may require frequent revision but
managers may continue to strive for a goal that has become obsolete.
6. Time consuming and expensive: MBO has also been criticised as it is too pressure
oriented and time-consuming. The setting and evolution of goals is done over such a
short period that it may not be able to provide for adequate interaction among people in
the organisation. MBO requires a great deal of rigorous analysis for which senior
executives may not have sufficient time and patience. MBO also creates a good deal of
paper work.
 14 AMunagenent: Principles and
7. Self-deteating: Hay Levinson observes that MBOis sclf-defcating in the Appliation1
hecause it fails to take into account the dcepcr cmotional componcnts of long fun
Likert asserts that sound human rclations and leadership styles arc morc
cffectmotiivveation
MBO in improving productivity and reducing costs. Introduction of MBO) may than
hgh cvpctations in terns of carcer advancerment and corporate growth. If the ar0use
improvementis slow, people may become frustrated or disenchanted with MB0.rate of

Essentials of MBO Programme (low to make MBO Successful)

Despite its lmitations, MBO canimprove managcrial perlormance, cxccutive
developnent
and organisational etlectiveness. Most of the weaknesses of MBO, arise duc to failure of the
Deoplc and are not inherent inthe system itselt. Successtul installation of MBO proorar
possible onlywhen the following requisites are fulfilled:
1. Purpose: The members of the organisation must be clear about the purpose of the
MBOprogramme. MBO can produce the anticipated results only when its purmoei
preciscly de fined and techniques chosen are appropriate to the purpose. The purpose of
MBO programme will vary with the nature and type of the organisation. For instance an
organisation facing stiff competition and declin1ng revenues may install MBO programme
for immediate improvements in productivity and profitability.
2. Top management support: The organisational culture and environment must he
conducive to MBO. Top management must have positive attitude and support to MBO.
In the absence of top management commitment, MBO becomes amere fad or gimmick
3. Training: The people concerned with the instalation and use of MBO programme must
be provided systematic training in the concepts and philosophy of MBO. MBO involves
a lot of interaction between members of the organisation and, therefore, training in the
area of intergroup, intragroup and interpersonal relationships is very essential. Structural
and behavioural changes are required to make MBO successful.
4. Participation: Participative management is the most significant requirement of MBO.
Subordinates must be allowed to play an active and responsible role in both goal setting
and performance appraisal. The scope and form of participation may vary from ont
functional area or organisational level to another. But the active participation in objective
setting and performance review must permeate through the lowest level. Delegation
and decentralisation are required to make MB0 effective. The subordinates must be
given adequate authority to accomplish mutually agreed goals.
3. Fedback:MBO involves agreat deal of self directionand selfcontrol. This is possible
only when individuals are provided regularand prompt feedback on their performance.
Exery vubordinate must know 'where he stands' in comparison with the targets lau
down for him, so that he can make the nccessary adjustments on his own to achieve the
goals. Two way communication system is essential for MBO.
6. Reward system: The compensation system or reward-penalty system ofthe organisation
Setng OnganisationalOhjectives 7.15

shouldbe linked with the MBO programmc. Moreover, This is to bring to your atten
the commitment and competitiveness generated by MBO tion that any one Including
students if found in posses
should not be allowcd to underminc interdepartmental sion of raphic, electronic or
cooperation and integration of efforts. mechanical, including photo
copylng, PDE, recoding, scan
1 Integration: MBO programme should be completely ning, digitizing, taping, web
integrated with the organisational structure. manpower distributions (Including
inancial constraints and current programmes at all levels whatsapp groups), informa
tion networks, or information
of the organisation. Time element in setting and achieving storage and retrival systems
objectives is another important element. without the prior or written
permission of the publisher will
attract FIR, legal action (in
26 KEY AREAS FOR SETTING OBJECTIVES cuding court case for com
pensation).
Deter Drucker identified 8 key areas for which an organisation
IMust set objectives. These areas are key to the
organisational
Icess in the modern times. These areas are as follows:
() Market standing: Management should set objectives regarding its market share. To
its customers,
achieve a target market share it must have a clear understanding of
market segments, products and services and distribution channels.
successful.
() Innovation: Every organisation must set innovation objectives in order to be
It must be willing to accept the risk associated with innovation.
utilization
(i) Productivity: Management should set productivity targets to ensure efficient
of inputs and resources.
objectives for effective
(i) Physical and financial resources: The organisation must set
mobilisation of physical and financial resources.
and growth. Profits are
(r) Profitability: Every organisation requires profits for its survival satisfying the needs of
Dot only important for shareholders but are also the means of employees,
other stakeholders. For instance, to give fair and attractive remuneration to
objectives
the organisation needs to be profitable. Profits are a means toattain all other
of the organisation. For example, the research and development required for innovation
organisation must
is possible only when the organisation has sufficient surplus. Thus, the
set reasonable profit objectives.
(vi) Managerial performance &development: Agood team of managers is essential for
objectives in area of managerial
organisational success. Thus, the organisation must have
performance and development.
of workers at the
(vii) Horker performance & attitude: In any organisation, performance improves worker
operational level is very important. Positive and favourable attitude
performance. Therefore, this is identified as an area for setting objectives.
systems and as such are
tm) Public responsibility: Organisations are part of the economic
responsible to public at large. Every organisation has a social responsibility towards all
7.l6 Managenent: Principles und
stake holders including the customers and public at large and therefore, should Applicutiony
objectives for public good.

TEST QUESTIONS

1. Objectives are multiple". In the light of this statement discuss the nature and cie
cance of objectives in management.
2. What do you understand by objectives? Explain the nature of objectives.
3. \Why is it important for an organization to have objectives?
4. Whatfactors influence the objectives of a firm?
8. What are the essentials of good objectives? What are the guidelines in formulatine ihe
objectives?
6. How are objectives fomulated? Explain the approaches to setting objectives.
7. Explain the hierarchy of objectives.
8. Without objectives, an organisation is like a ship which has no radar and compass." Do
you agree?
9. Discuss Management By Objectives as an approach to setting objectives.
10. What are the key areas where objectives should be set by a firm?

This is to bring to your attention that any one including students if found in
graphic. electronic or mechanical, including photocopying, PDF, recoding, scanning.possession of
digitizing,
taping. wcb distributions (including whatsapp groups), information networks, or information
storage and retrival systems without the prior or written permission of the publisher will attract
FIR, legal action (including court case for
compensation).