Management by Objectives (MBO) is a systematic planning of the things that need to be executed and implemented with the most effective action with the aim of achieving the goals of the organization. If the procedures are understood and there is proper implementation with the active leadership of managers, MBO can be effective in any size of organization. It is an effective strategic planning and execution system. It is also a team-oriented and a process-oriented planning system. In MBO, the goals are clearly defined, relatively few and long-term while objectives are numerous and short-term.
Action planning includes deciding who does what, when it is going to be done, and how it will be done with the main purpose of achieving the strategic goals of the organization. The nature and the needs of the organization are the basis of the design and the implementation of the action planning.
To compare and contrast, both MBO and action planning are techniques that are used for the development of programs. They specify the individual responsibilities and the time frame to achieve the objective. However, MBO should be a complete, organization-wide approach to planning and implementation of the programs while action planning can be done at the individual level. MBO consists of a system of hierarchical objectives starting from the top of management going down through the departments, divisions or work units. The superior communicates and negotiates with his/her subordinate regarding his/her objectives with his/her input. Action planning is included in MBO in the communication of the superior and the subordinate. Action planning is done strictly top down with the least input from the subordinate.
How can MBO help improve the implementation of strategy?
In MBO, effective planning depends on the performance of the managers and the subordinates as well. Each person in the organization has a specific contribution that should be clearly defined which improve the performance of the unit or division he/she belongs. If everybody achieves their own objectives, then the overall objectives can also be attained. MBO is not only a planning system, it is also a technique used to require each manager to be involved in the total planning process through participation in the formulation of objectives of his/her own department and for the organization. It improves communication as managers and subordinates have more opportunities to discuss and agree on performance objectives. Once each of them understands their own processes, they develop a better understanding of the broader objectives of the organization. Once this is achieved, the employees develop a sense of personal responsibility which motivates them to support the implementation activities until the organization succeeds.