Strategic Management: Formulation and Implementation

Management By Objectives

Formulated in 1954 by Peter Drucker , management by objectives (MBO) is currently used in wide variety of organizations. Although it primary application is in planning, MBO concepts are also useful in control. A management by objective system is much broader than a budgetary control system. Indeed, the budgetary control system is a part of the management by objectives.

Management by objective is a method whereby managers and employees define objectives for every department, project, and person and use them to control subsequent performance. MBO involves four steps: setting objectives, developing action plans, reviewing progress, and appraising overall performance.

Management By Exception

Perhaps the most fundamental of all control techniques is management by exception (MBE), a control principle which suggests that managers should be informed of situation only if control data show a significant deviation from standards.

The use of MBE results in two advantages for organizations:

First, it means a better use of the manager's time. Particularly, use of MBE with computers, helps managers save time by bringing to their attention only those conditions that appear to need managerial action.

Second, MBE encourages workers to exercise judgment when doing their work. As long as they are within the guidelines that have been established, they can continue working as they see fit.

Therefore, management by exception is both a motivational and control techniques.