MBO (Management by Objectives)
MBO stands for Management by Objectives and is a framework designed to manage businesses based on their needs and goals. MBO goals are tailored to meet the needs of today’s fast-growing businesses and fast-paced work environments.
Table of Contents
- What is MBO?
- The pros and cons of MBO.
- MBO best practices.
- Management by Objective examples.
- Company performance MBO examples.
- Marketing MBO examples.
- Human resources MBO examples.
- Software engineering MBO examples.
- Product management MBO examples.
- Customer success MBO examples.
- Customer support MBO examples.
- Finance MBO examples.
- Operations MBO examples.
- Frequently asked questions.
What is MBO?
MBO defines top company goals and uses them to determine employees’ objectives. MBO processes identify an employee’s main objectives, which are later graded with group input.
This helps all company contributors see their accomplishments in connection to the company’s top priorities as they carry out their tasks. It reinforces alignment between activity and outcome, which dramatically increases productivity.
Though MBO aims to help define and manage a set of objectives, the objectives themselves will be a little bit different for every company. It allows companies to express their individuality and top priorities and, most importantly, to execute on them.
The pros and cons of MBO.
The management by objectives technique has several key strengths, including:
- Teamwork – As MBO drives each member of staff towards business-focused objectives, it can lead to improved communication and teamwork.
- Clarity – MBO sets out straightforward business goals and gives each member of staff a clear set of tasks to help meet them.
- Empowerment – Equipped with clear objectives related to the wider business strategy, staff at all levels of the organization feel involved, empowered and indispensable.
- Efficiency – With staff goals geared towards business success, managers know all staff are facing the same direction.
- Customization – Managers tailor each set of objectives to individual staff members — based on their specializations, skills, qualifications and career goals.
However, MBO can present several disadvantages too:
- High-pressure – With a measurable, business-aligned set of goals, staff can feel under pressure.
- Impersonal – Though goals can be tailored to individual staff skills, they might omit personal and career development considerations.
- Lack of context – MBO approaches don’t account for factors like motivation, resources and buy-in. It also doesn’t reflect existing work culture, conditions or ethos.
- Overfocused – Focusing exclusively on business goals can detract from other important elements of your operations.
MBO best practices.
Goals are set for sole contributors, team leaders, department executives, and the CEO. This way everyone has a sense of what they are supposed to be contributing to the team, as well as how it fits into the big picture.
Objectives are essential to ensuring all contributors spend their time at work productively and are working towards a concerted outcome. They also teach those at a company about how much they are truly capable of accomplishing in a set amount of time.
If quarterly goals end up being too easy, they can be adjusted to be more ambitious, or vice versa, during the review process. It is important to set goals that are aspirational, so employees are met with a real challenge.
We recommend from one to three objectives, maximum. This forces employees to discover what their essential priorities should be. As Peter Drucker noted: “Do first things first, and second things not at all.”
Overall, the MBO process consists of five steps:
- Set company objectives
- Cascade objectives to employees
- Evaluate performance
- Reward performance
Want to know more about how to set achievable goals and objectives? Check out our guide to SMART goals.
Another rule is to quantify your objectives to provide a clear idea of success, which will be important later in the review process. Rules like this are helpful guidelines but do not necessarily need to be applied at all times.
Top company goals are sometimes non-quantifiable. Company culture, for instance, is a valuable asset and one that deserves to be a high priority, though difficult to quantify.
If you’re interested in MBOs, you may also be interested in OKRs (objectives and key results). This is a similar objective setting and tracking management process.
The performance review process helps identify mistakes and errors. It also allows for a brainstorming session about what the company might need to change to meet its main objectives in the future.
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Management by Objective examples.
To help you get a handle on what MBOs look like, we’ve provided some MBO examples for different business areas below, as well as some geared towards specific industries. Here, we give you an idea of what the actual MBOs might be for a:
- Team leader
- Sole contributor
Company performance MBO examples.
Company performance can encompass factors ranging from recruitment and cashflow to carbon emissions and online presence. A few specific goals your business could use as MBO examples include:
Financial and sales performance.
- Achieve cash flow of $500,000 per month
- Decrease OPEX by 5%
- Expand sales abroad by 10%
- Increase Gross Margin by 10%
- Increase assets to debt ratio by 15%
- Become a member of the Fortune 500
- Raise brand profile by 25%
- Become a market leader
- Increase customer satisfaction (CSAT) by 90%
- Increase customer retention rate to 92.5%
- Achieve payback period of 1.5 year for new products
- Increase win ratio by 10%
- Expand sales abroad by 10%
- Achieve the new bookings target of 50 per month
- Hit the win rate of 20%
- Achieve average deal size of $150 000
- Decrease sales cycle to three months
- Promote or hire one new departmental executive
- Reduce carbon footprint by 5%
Marketing MBO examples.
Marketing is often data-driven and results-focused. Consequently, it lends itself well to MBO goals. MBO examples for the marketing side of a business could be:
Lead generation and ROI.
- Generate 1,000 new Marketing Qualified Leads (MQL) per month
- Earn 40% of overall company revenue from marketing efforts
- Increase annual product subscribers by 35%
- Increase marketing ROI by 7.5%
Web and social performance.
- Triple social media following
- Double newsletter subscriptions
- Double unique web traffic
- Increase regular weekly website visitors by 45%
- Increase landing page conversion rates by 30%
PR and link building.
- Get 10 media placements
- Increase surveyed brand awareness by 25%
- Hire five new account executives
- Implement continuous A/B testing of landing pages
- Collaborate with sales department to devise quality lead definition
Human resources MBO examples.
With a solid set of HR examples, you can closely align your company’s MBOs with your staff. For human resources these could include:
- Ensure an employee satisfaction index of 90%
- Maintain a quarterly staff retention rate of 95%
- Raise employee engagement to 80%
Human resources policy.
- Maintain compensation at 10% above industry average
- Hold two company-wide events
- Implement 1-on-1 automation system in Q2
- Meet with sales department to define sales hiring requirements
- Hold a minimum of three interviews for new hires
- Increase rate of meeting new hire deadline to 80%
- Get 15% of hires from employee references
- Give at least one third of all managerial positions to internal applicants
- Implement a leadership training program
- Hire a training agency for the sales department
- Increase departmental ROI by 5%
Software engineering MBO examples.
Software engineering has its own unique challenges. In this list, you can find MBO examples to fit the sector.
- Complete 350 story points per team
- Complete at least 400 points of review
- Migrate completed story points less than a week after completion
Product testing and launches.
- Launch three new product features
- Develop 20 new front-end software tests
- Launch alpha testing phase
- Increase system architecture speed by 25%
- Maintain system architecture up-time of 99.9%
- Maintain rate of no more than three P-0 and P-1 bugs at once
- Participate in one hackathon
- Prioritize blocker bugs
- Optimize UI for 15% faster onboarding process
- Conduct review of programming team optimization
- Meet with customer service and product departments for development coordination
Product management MBO examples.
When it comes to product management, launches and revenue need to align with planning and client management. Some MBO examples for product management could include:
- Ideate for three new product features
- Have a successful product launch ($500k in quarterly revenue)
- Maintain production consistency ratio of 99.8%
- Meet with programming and marketing departments to collaborate on new features
- Meet with 10 high value clients ($50k+) for product feedback
- Complete a survey of 250+ new customers to gauge new product interest
- Contribute 50k in revenue by collaborating with the software engineering team to complete a product demo
- Create annual product plan to integrate competitors’ strongest product features
- Identify five leading competitors’ product strategies
Customer and client satisfaction.
- Maintain 85% CSAT score
- Maintain Net Promoter Score of 80
- Complete assessment of customer product usage behavior through software monitoring
- Complete market projections of product life cycles
- Grow subscriber revenue by 20%
Customer success MBO examples.
Keeping close tabs on your customers is an effective way of measuring success. Management by objectives examples for customer success can include:
Satisfaction and service.
- Achieve 20% higher customer satisfaction with onboarding process
- Increase customer-success-related CSAT score to 90%
- Earn $100k in customer-success-related revenue
- Decrease onboarding time to three days
- Decrease customer service tickets during onboarding by half
- Increase customer references of qualified leads by 20%
Planning and monitoring.
- Maintain detailed profile of each premium client ($25k+)
- Increase contribution to premium client acquisition ($25k+) by 10%
- Monitor premium client ($25k+) software usage behavior to detect challenges
- Decrease customer success related quarterly churn rate by 15%
- Devise annual customer success plan
- Collaborate with sales department to increase upselling by 10%
- Collaborate with sales department to increase cross-selling by 10%
- Collaborate with marketing department to develop new target segment
Customer support MBO examples.
A solid customer support game is all about maintaining customer satisfaction, while reducing queries and response rates. Examples of MBO for customer support may cover:
- Maintain CSAT rating of 85%
- Meet customer-support related SLA agreements
- Decrease average first-response time to less than 10 minutes
- Increase customer service call capacity by 40% (open new call center)
- Decrease tickets per resolution by 20%
- Reduce call abandonment to 3.5%
- Reduce incidence rate by 10%
- Reduce manager call intervention by 15%
- Hire and train eight new outsourced workers
- Maintain customer service feedback database
- Complete five new customer service script scenarios
- Collaborate with product department to help fix product issues
- Collaborate with customer support department to provide excellent service to premium customers ($25k+)
Finance MBO examples.
In the finance sector, you can gear all your staff towards quantifiable financial achievements. Here are a few examples:
- Help raise $1m in new funding through investment preparation
- Increase rate of debt collection by 25%
- Increase financial automation by 5%
- Increase asset to debt ratio by 2.5%
- Help increase quarterly shareholder value by 2.5%
- Develop annual procedures for cash handling and budgeting
- Resolve 50% of outstanding contract conflicts
- Develop annual operating budget
- Maintain regulatory financial compliance
- Conduct patent research, application and resolution
Planning and auditing.
- Complete independent financial audit
- Finish reviewing and approving compensation agreements
- Finish financial planning and revenue projection
- Research and approve the use of some crypto-currencies
Operations MBO examples.
Operations is all about sound planning and processes. Gear your MBO examples towards these with a few ideas:
- Hold bi-weekly meetings to adapt planning throughout software engineering process
- Create annual operational plan
- Reduce software development cycle by two weeks by instituting Agile
Products and performance.
- Reduce software testing time to one week
- Reduce product failure rate to under 2.5% (5/1 ROI)
- Help facilitate the fixing of new P-0 and P-1 bugs within 72 hours
- Contribute to 1.5% quarterly growth in company shares
- Deliver 98.5% of products on time
- Fulfil 98.5% of SLAs
Customer service and logistics.
- Project seasonal consumer demand prediction
- Reduce product sourcing and logistics expenses by 5%
- Reduce logistics shipping travel time & distance by 5% (local sourcing)
- Fulfil 100% of warranty obligations
- Seek one independent operational consulting report
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Frequently asked questions.
What is meant by management by objectives?
Management by objectives (MBO) refers to the process of setting specific objectives for your employees to work towards. This has become a key part of performance management in recent decades.
Supporters of MBO say giving employees clear goals improves motivation. Others suggest it can skew employees’ focus.
Who invented management by objectives?
Author Peter Drucker was the first person to use the term ‘management by objective’. That was way back in 1954 in a book called The Practice of Management.
The technique grew in popularity from the 1960s onwards and entered a golden age in the 1980s and 1990s, making the setting of annual employee objectives the norm.
What is an MBO definition?
MBO is an acronym for Management by Objectives. It can be defined as a management system that measures employees’ performance against a series of set targets or goals to gauge their overall performance in their role.
These objectives are often tied into those set for the overall business or department.