1. Goal Orientation:
MBO focuses on the determination of unit and individual goals in line with the organizational goals. These goals define responsibilities of different parts of the organisation and help to integrate the organisation with its parts and with its environment.
MBO seeks to balance and blend the long term objectives (profit, growth and survival of the firm with the personal objectives of key executives. It requires that all corporate, departmental and personal goals will be clearly defined and integrated.
The MBO process is characterized by a high degree of participation of the concerned people in goal setting and performance appraisal. Such participation provides the opportunity to influence decisions and clarify job relationships with superiors, subordinates and peers.
It also helps to improve the motivation and morale of the people and results in role clarity. Participative decision-making is a prerequisite of MBO. MBO requires all key personnel to contribute maximum to the overall objectives.
3. Key Result Areas:
The emphasis in MBO is on performance improvement in the areas which are of critical importance to the organisation as a whole. By identification of key result areas (KRAs), MBO ensures that due attention is given to the priority areas which have significant impact on performance and growth of the organisation.
Goals of all key personnel are properly harmonized and they are required to make maximum contribution to the overall objectives. Key and sub Key areas are identified for each function as shown in the following example:
Finance (Key Area)
(a) Cash flow
(b) Dividend Policy
(c) Debt-equity Ratio
(d) Sources of Funds
The role of each department towards the Key and sub-Key areas 15 also specified.
4. Systems Approach:
MBO is a systems approach of managing an organisation. It attempts to integrate the individual with the organisation and the organisation with its environment. It seeks to ensure the accomplishment of both personal and enterprise goals by creating goal congruence.
5. Optimization of Resources:
The ultimate aim of MBO is to secure the optimum utilization of physical and human resources of the organisation. MBO sets an evaluative mechanism through which the contribution of each individual can be measured.
6. Simplicity and Dynamism:
MBO is a non-specialist technique and it can be used by all types of managers. At the same time it is capable of being adopted by both business and social welfare organizations. MBO applies to every manager, whatever his function and level, and to any organisation, large or small.
MBO is an operational process which helps to translate concepts into practice. MBO is made operational through periodic reviews of performance which are future-oriented and which involve self-control.
8. Multiple Accountability:
Under MBO, accountability for results is not centralized at particular points. Rather every member of the organisation is accountable for accomplishing the goals set for him.
Multiple centers of accountability discourage ‘buck-passing’ and ‘credit-grabbing’. MBO establishes a system of decentralized planning with centralized control.
MBO is a ‘total approach’. It attaches equal importance to the economic and human dimensions of an organisation. It combines attention to detailed micro-level, short range analysis within the firm with emphasis on macro-level, long range integration with the environment.