MBO is a process in which manager and employee can jointly set objectives for the employee to achieve, where performance can be periodically evaluated and a reward or punishment (no reward) distributed.  There is no standard format for MBO, however this is generally viewed as a three step process.

Step one is where the manager sets the goals with each employee, during this stage the objectives are created and agreed measures are understood.  The targets must be Relevant, Measurable, Attainable and Time Based in order that the results can be tracked.  During the second step, results are evaluated with both the employee and the manager.  The employee also has an opportunity to evaluate their own performance and feedback from the manager and employee is exchanged. The third step is reward based on the performance, this may take the form of a salary bonus, promotion or appropriate reward.  During this stage, of performance review a negative or no reward may also take place if the objectives have not been met.

What are the advantages of MBO?

The advantages of MBO is it can improve employee motivation and commitment to the organisation.  It helps the organisation realise their goals in a measured and time effective manger and it helps to create a positive reinforcement culture.

Further benefits include:

1. Forces the manager to simplify the plan for the best results.
2. Employees commit to give their best to move its achievements
3. Helps management create training programs and identify areas of weakness
4. Helps in more effective planning for the individual, team and organisation.
5. Employees get ongoing feedback at scheduled intervals, which helps them to gage their performance and mitigate change.
6. Provides more confidence in the management when managing a task.

What are the downsides of using MBO? Its impact on employees?

1. The manager and employee need to be aware of the process of MBO
2. Goals need to be attainable and realistic
3. Time and patience is required to set up and identify goals
4. Employees who do not meet their goals are not rewarded and punishment is also distributed if necessary.