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Meaning and Importance of Management by Objectives
One of the key objectives of any organization is to maximize its revenue and profitability. In order to achieve this objective, it is important for the organization to ensure that its employees are well informed on the overall organizational objectives.
The success of any company depends on customer satisfaction and customer loyalty. Therefore, the primary focus of the company should be to achieve maximum customer satisfaction. While different departments/divisions within the organization may have their own objectives, it is important to synchronize departmental objectives with the overall organizational objectives.
For Instance, it is important to ensure timely payment to vendors (for procurement of raw material) in order to achieve business objective of customer satisfaction through timely delivery of finished goods to customers. Therefore, it is important to align the objective of accounts payables department with the organizational objective of customer satisfaction.
Meaning of Management by Objectives
As the name suggests, Management by objectives (MBO) involves managing the operations of the company in line with the objectives of the company. MBO starts with the formulation of business objectives. Since, it is practically impossible to achieve business objectives without involvement of employees, management of the company should educate employees on the importance of business objectives as well as provide adequate guidance (in the form of policies, procedures, and so on) on how to achieve the objectives.
Importance of Management by Objectives
Performance Management Tool
Management by objectives can be used as an important tool for performance measurement and evaluation. While increase in total revenue may be considered as an important parameter for measuring organizational performance, timely collection of money from customers may be treated as a parameter for measuring the performance of accounts receivables department. Objectives can be used as standards for performance comparison and corrective action (s). Reason (s) for deviation (s) can be identified and appropriate measures can be taken to rectify the issues.
Enhances Coordination and Flow of Information
Since department objectives are linked to the achievement of overall organizational objectives, it is important for different departments/divisions to coordinate their activities and share relevant information. For Instance, it is important for the production department to maintain close communication with the inventory department to ensure timely availability of raw material. Further, it is important for the production department to inform marketing/sales department on the status of various orders.
On the basis of this information, marketing/sales executives can inform customers on the expected delivery dates for their respective orders. This continuous flow of information can help in gaining customer confidence and improving the level of customer service, which will help in establishing a strong market reputation of the company.
Improves Employee Motivation and Contribution
A clear understanding of organizational objectives can help in improving the level of employee motivation. When employees understand the impact of their contribution on the achievement of business objectives, they tend to feel motivated. It is important for the employees to understand that the success of the organization depends on how well they perform their duties and carry out their responsibilities.