MBO is an integrated sequential process. It has sequences of activities as a process. This process comprises the following steps:
1. First of all objectives must be set, which the organization has to attain. The top management must be aware of the objectives. These objectives can be set for any period but they should be, as far as, possible, long term objectives.
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2. The organizational objectives are achieved through individuals. Therefore subordinate objectives must be set at the lower levels of management. Each individual must know in advance what he is expected to achieve.
Determination of individual objectives is based on the organization purpose, managerial philosophy, organizational resource and environmental opportunities and constraints. A superior’s responsibility in setting objectives for his subordinates is to state objective in terms that invite confidence and produce a minimum of objection from subordinates.
3. After the objectives have been jointly established by the superior and the subordinate, a plan of action, for achieving the objectives should be developed. Generally, this involves (a) determining the major activities to accomplish the objective (b) establishing sub-activities necessary for the major activities (c) assigning responsibility for each activity, (d) estimating time requirements, and (e) identifying additional resources.
4. Now, individuals are allowed to pursue their objectives essentially in their own manner. People achieve, goals through their own abilities and efforts. MBO produce certain specified results.
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5. Then individuals are periodically evaluated and receive feedback concerning their performance as compared to planned performance (objectives).
Any significant deviation leads to a search for causes responsible for this phenomenon. Identification of causes sets the stage for taking corrective action.