What is Management By Objectives ?

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Management by objectives (MBO) is a strategic management model that aims to improve the 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 encourages participation and commitment among employees, as well as aligning objectives across the organization.

Definition

Management by Objectives (MBO) is a strategic management model aimed at improving organizational performance by clearly defining objectives that are agreed upon by both management and employees. This approach emphasizes participation in goal setting and action planning to encourage employee involvement and commitment, aligning goals throughout the organization.

Origin

The concept of Management by Objectives was first introduced by Peter Drucker in 1954, detailed in his book 'The Practice of Management'. Drucker believed that through clear goal setting and employee involvement, organizations could more effectively achieve their strategic objectives.

Categories and Features

MBO typically involves several key steps: setting objectives, developing action plans, monitoring progress, and evaluating performance. Its features include an emphasis on clarity, measurability, and achievability of goals. The advantages of MBO include increased employee engagement and accountability, while its disadvantages may include an overemphasis on short-term goals at the expense of long-term strategy.

Case Studies

A classic example is Hewlett-Packard's adoption of MBO in the 1960s to drive innovation and market expansion. Through clear goal setting and employee involvement, HP successfully maintained a leading position in the competitive tech market. Another example is General Electric under Jack Welch, where MBO led to significant performance improvements, particularly in enhancing productivity and market share.

Common Issues

Investors applying MBO might encounter issues such as unclear goal setting, lack of genuine employee involvement, and an overfocus on short-term objectives. The key to resolving these issues lies in ensuring the clarity and measurability of goals and encouraging active employee participation in the goal-setting process.

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Chi-Square Statistic

A chi-square (χ2) statistic is a test that measures how a model compares to actual observed data. The data used in calculating a chi-square statistic must be random, raw, mutually exclusive, drawn from independent variables, and drawn from a large enough sample. For example, the results of tossing a fair coin meet these criteria.Chi-square tests are often used to test hypotheses. The chi-square statistic compares the size of any discrepancies between the expected results and the actual results, given the size of the sample and the number of variables in the relationship.For these tests, degrees of freedom are used to determine if a certain null hypothesis can be rejected based on the total number of variables and samples within the experiment. As with any statistic, the larger the sample size, the more reliable the results.

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Rival Good

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