Management by Objectives (MBO): implementation and usefulness

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7.4 HRM Strategy – Approaches to HRM

1. Hard vs. Soft HRM

Aspect Hard HRM Soft HRM
Orientation Resource‑oriented; employees seen as a cost to be managed. (control, efficiency) People‑oriented; focus on employee commitment and well‑being. (motivation, development)
Key Practices Strict performance targets, quantitative appraisal, limited participation. Participative decision‑making, extensive training, employee involvement programmes.
Typical Tools MBO, KPIs, performance‑related pay, time‑based wage systems. Team‑based appraisal, 360° feedback, employee surveys, empowerment initiatives.
Advantages
  • Clear focus on results and cost control.
  • Easy to measure and link to financial targets.
  • Supports “pay‑for‑performance” systems.
  • Higher employee motivation and lower turnover.
  • Encourages innovation and continuous improvement.
  • Builds a high‑performance culture.
Disadvantages
  • Can create a “transactional” climate – low commitment.
  • Risk of short‑term “goal‑tunnel vision”.
  • May ignore qualitative contributions (teamwork, creativity).
  • Higher administrative cost – training, communication.
  • Performance outcomes can be harder to quantify.
  • Potential for “soft” policies to be under‑utilised if leadership is not supportive.
Exam tip Link hard HRM to “control” and “efficiency”. Link soft HRM to “motivation” and “development”.

2. Flexible and Temporary Contracts (including the Gig Economy)

Contract type Key features Advantages Disadvantages
Zero‑hours contracts No guaranteed hours; work only when needed. Maximum flexibility for employer; reduces labour cost when demand falls. Insecure for employee; low morale; potential legal scrutiny.
Part‑time & flexi‑time Reduced weekly hours or variable start/end times. Attracts work‑life‑balance seekers; can reduce absenteeism. Scheduling complexity; may create skill gaps if coverage is uneven.
Job‑sharing Two (or more) employees share one full‑time role. Retains talent needing reduced hours; promotes diversity and work‑life balance. Requires clear coordination; risk of diluted accountability.
Home‑working / remote contracts Work performed outside the employer’s premises, often with digital tools. Reduces office overhead; expands talent pool geographically. Supervision challenges; risk of employee isolation; cybersecurity concerns.
Gig‑economy / self‑employed platforms Short‑term, task‑based work arranged via digital platforms. Extreme flexibility; very low recruitment cost. Limited legal protection; variable income; quality‑control issues.
Annualised hours Total hours are agreed for the year; work patterns vary seasonally. Matches labour supply to fluctuating demand; can reduce overtime costs. Employees may experience periods of intense work followed by low activity; requires careful roster planning.
Shift work Employees work set blocks (e.g., mornings, evenings, nights) on a rotating or fixed basis. Ensures 24‑hour service; spreads workload evenly across the day. Health & safety concerns (sleep disruption); higher turnover in night shifts.
Compressed working hours Full‑time hours are completed in fewer days (e.g., four 10‑hour days). Longer weekends improve work‑life balance; may increase productivity. Longer daily fatigue; may not suit all job types (e.g., customer‑facing roles).

3. Measuring and Improving Poor Employee Performance

3.1 Performance‑measurement tools (quantitative focus)

  • Key Performance Indicators (KPIs) – numeric targets linked to strategic goals (e.g., sales £ million, units produced).
  • Balanced Scorecard – combines financial, customer, internal‑process and learning metrics; each metric is expressed as a percentage or index.
  • 360° feedback – scored ratings from manager, peers, sub‑ordinates and self; results are aggregated into a numerical overall score.
  • Performance appraisal forms – rating scales (1‑5) for each competency; totals give a performance index.

3.2 Quantitative impact of under‑performance (exam‑relevant figures)

  • Productivity loss: a 10 % drop in output can increase unit cost by up to 15 % (illustrates “cost of poor performance”).
  • Turnover cost: replacing an employee costs ~150 % of their annual salary; high under‑performance raises turnover risk.
  • Revenue gap: missing a sales KPI of £2 m may directly reduce profit by the same amount, assuming a 100 % margin.

3.3 Common causes of under‑performance

  • Lack of clear, SMART objectives.
  • Insufficient training, resources or equipment.
  • Poor motivation or low employee engagement.
  • Personal or health issues.
  • Unrealistic workload or poorly designed job design.

3.4 Remedial strategies (linked to business impact)

  • Coaching / mentoring – one‑to‑one support to close skill gaps; improves productivity by up to 20 % (research‑based).
  • Performance‑Improvement Plan (PIP) – specific actions, timelines and review dates; provides a documented route to meet KPIs.
  • Targeted training & development – short courses or on‑the‑job learning; reduces error rates.
  • Job redesign or redeployment – matches abilities to tasks; can raise employee satisfaction scores.
  • Formal disciplinary action – last resort; must follow company policy and legal requirements.

4. Management by Objectives (MBO)

4.1 Theory and Origin

Peter Drucker introduced Management by Objectives in the 1950s as a systematic method for linking individual performance with organisational strategy. The core premise is that mutually agreed, measurable objectives increase motivation, accountability and alignment.

4.2 The MBO Cycle – Step‑by‑Step (with brief case example)

  1. Set organisational objectives – Senior management decides, e.g., “Increase national retail sales by 8 % in FY 2025”. (Strategic focus)
  2. Translate to departmental targets – Marketing sets “Grow market‑share among 18‑25‑year‑olds by 3 %”.
  3. Agree individual objectives – A sales assistant negotiates “Sell 150 units of product X each month”.
  4. Develop action plans – Assistant lists weekly demos, upsell training, personal sales log.
  5. Monitor progress – Monthly review meetings compare actual sales vs. the 150‑unit target; corrective actions are agreed.
  6. Evaluate outcomes – At year‑end performance is scored; exceeding the target triggers a bonus.
  7. Provide development feedback – Review highlights need for advanced negotiation training, scheduled for Q2.

4.3 Linking MBO to SMART Objectives

  • Specific – “Sell 150 units of product X”.
  • Measurable – Tracked via sales database (units sold).
  • Achievable – Based on past sales data and market analysis.
  • Relevant – Directly contributes to the departmental market‑share goal.
  • Time‑bound – Monthly target, reviewed each quarter.

4.4 Advantages, Disadvantages and Exam‑Relevant Points

Advantages Disadvantages Exam‑relevant tip
  • Clear, measurable focus on results – aligns with “objective performance appraisal”.
  • Improves communication and alignment between managers and staff – supports “employee participation”.
  • Facilitates linking of performance to pay/reward – ties into “pay‑for‑performance”.
  • Encourages employee commitment when objectives are jointly set.
  • Time‑consuming to set, monitor and review objectives – an “administrative burden”.
  • Risk of short‑term “goal‑tunnel vision” – may neglect non‑measured activities such as teamwork.
  • Success depends on managers’ ability to set realistic, SMART targets – “managerial skill” requirement.
  • Potential conflict if objectives are perceived as unrealistic or unfair.
  • Give at least two points for pros and two for cons – examiners look for balanced critical appraisal.
  • Link each point to a syllabus keyword (e.g., “alignment”, “motivation”, “administrative burden”).
  • Use a real‑world example (retail chain, call centre) to illustrate each advantage/disadvantage.

4.5 Critical Success Factors (CSFs) – Mapped to Syllabus Language

  • Objectives must be SMART – satisfies the syllabus requirement for “clear, measurable targets”.
  • Strong commitment from senior leadership – aligns with “top‑down support” in HRM strategy.
  • Regular, constructive feedback sessions – meets the syllabus point on “continuous performance monitoring”.
  • Transparent linking of performance to rewards – connects MBO to “pay‑for‑performance” systems.
  • Flexibility to adjust objectives when market conditions change – reflects the need for “adaptability”.
  • Effective use of IT systems for tracking objectives – links to the next section on technology.

5. MBO within the Wider HRM Strategy

  • Recruitment – Job descriptions embed the key objectives that new hires are expected to meet.
  • Training & development – Gaps identified during MBO reviews feed directly into learning‑needs analysis.
  • Appraisal & reward – MBO outcomes provide the quantitative basis for annual performance appraisals and bonus calculations.
  • Employee relations – The participative nature of MBO supports a soft‑HRM culture, improving morale and reducing turnover.
  • Workforce planning – Aggregated individual objectives help forecast staffing levels and required skill sets.

6. Role of IT & AI in Modern HRM (and MBO)

  • HR Information Systems (HRIS) – Store objectives, track progress, generate performance dashboards in real time.
  • Performance‑tracking software – Automates data collection (sales figures, call‑handling times) and alerts managers to variances.
  • AI‑driven talent analytics
    • Predicts which employees are likely to meet or exceed objectives.
    • Identifies patterns of under‑performance for early intervention.
  • Potential drawbacks
    • Data‑privacy concerns and employee resistance to “surveillance”.
    • Over‑reliance on algorithms may overlook qualitative factors such as teamwork and creativity.

7. Links to Other A‑Level Topics

  • Leadership styles – MBO works best with participative or transformational leadership; autocratic styles can hinder employee involvement.
  • Organisational structure – Flatter structures speed up objective setting and feedback loops; tall hierarchies may slow the MBO cycle.
  • Stakeholder impact – Successful MBO improves customer satisfaction (external stakeholder) and employee engagement (internal stakeholder).
  • Change management – Introducing MBO often requires cultural change; the ADKAR model (Awareness, Desire, Knowledge, Ability, Reinforcement) is a useful framework.

Suggested Diagram

Figure: The MBO Cycle – strategic objectives → departmental targets → individual SMART objectives → action plans → monitoring & feedback → performance review → reward & development.

Summary

Management by Objectives is a central component of modern HRM strategy. When combined with a soft‑HRM philosophy, flexible contracts, robust performance‑measurement tools, and supportive IT/AI systems, MBO can align individual effort with organisational goals, boost motivation and provide a clear basis for appraisal and reward. However, it demands careful SMART goal‑setting, regular feedback, senior‑leadership commitment and the flexibility to adapt to changing market conditions. Mastery of both the advantages and the limitations of MBO, together with an understanding of how it integrates into the broader HRM framework, is essential for achieving high marks in the Cambridge A‑Level Business examination.

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