Management By Objectives - MBO

AAA

DEFINITION of 'Management By Objectives - MBO'

A management model that aims to improve performance of an organization by clearly defining objectives that are agreed to by both management and employees. According to the theory, having a say in goal setting and action plans should ensure better participation and commitment among employees, as well as alignment of objectives across the organization. The term was first outlined by management guru Peter Drucker in 1954 in his book "The Practice of Management."

INVESTOPEDIA EXPLAINS 'Management By Objectives - MBO'

A key tenet of management by objectives is the establishment of a management information system to measure actual performance and achievements against the defined objectives. The major benefits of MBO are that it improves employee motivation and commitment, and ensures better communication between management and employees. However, an oft-cited weakness is that MBO unduly emphasizes the setting of goals to attain objectives, rather than working on a systematic plan to do so.

RELATED TERMS
  1. Labor Productivity

    A measurement of economic growth of a country. Labor productivity ...
  2. Upper Management

    Individuals and teams that are responsible for making the primary ...
  3. Leadership Grid

    A model of behavioral leadership developed in the 1950s by Robert ...
  4. One-Third Rule

    A rule of thumb that estimates the change in labor productivity ...
  5. Productivity And Costs

    An economic data set that measures future inflationary trends ...
  6. Unit Cost

    The cost incurred by a company to produce, store and sell one ...
RELATED FAQS
  1. What is the history of the sustainable growth rate?

    The sustainable growth rate (SGR) can refer to different things. The two most common references are to the Medicare SGR or ... Read Full Answer >>
  2. How do modern companies assess business risk?

    Before a business can assess or mitigate business risk, it must first identify probable or likely risks to its bottom line. ... Read Full Answer >>
  3. Why has emphasis on corporate governance grown in the 21st century?

    Corporate governance refers to operational practices, management protocols, and other governing rules or principles by which ... Read Full Answer >>
  4. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>
  5. Why should investors research the C-suite executives of a company?

    C-suite executives are essential for creating and enacting overall firm strategy and are therefore an important aspect of ... Read Full Answer >>
  6. What is the difference between a direct and an indirect distribution channel?

    A direct distribution channel is organized and managed by the firm itself. An indirect distribution channel relies on intermediaries ... Read Full Answer >>
Related Articles
  1. Investing Basics

    If Kennedy, Eisenhower, Alexander the Great Et Al Were Leaders in Finance

    Would Eisenhower, Roosevelt and Kissinger have made good corporate executives? What about Alexander the Great?
  2. Entrepreneurship

    Crisis Management Strategies For Business Owners

    When a PR problem arises, your company will be judged on how you handle it. Are you ready?
  3. Professionals

    Management Strategies From A Top CEO

    Find out what this winning manager did to grow one of the biggest companies in the world.
  4. Entrepreneurship

    4 Steps To Creating A Stellar Business Plan

    If you're going into business, you must have a plan. Find out how to put this important document together.
  5. Investing Basics

    Understanding Related-Party Transactions

    In business, a related-party transaction refers to a transaction where parties on both sides have a common interest or relationship.
  6. Economics

    Understanding Organizational Behavior

    Organizational behavior is the study of how humans interact in group environments.
  7. Investing Basics

    Explaining Tender Offers

    A tender offer is a broad public offer made by a person or company to purchase all or a portion of the shares of a publicly traded company.
  8. Economics

    Understanding Implicit Costs

    An implicit cost is any cost associated with not taking a certain action.
  9. Economics

    What are Deliverables?

    Deliverables is a project management term describing an object or function that must be provided or completed by a certain due date.
  10. Economics

    What Does Capital Intensive Mean?

    Capital intensive refers to a business or industry that requires a substantial amount of money or financial resources to engage in its specific business.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!