Management by Objectives (MBO) versus Traditional Appraisals: What’s best for your business?

Effective employee performance evaluation is absolutely vital for any organisation striving for success. After all, without them, how are you supposed to track progress? However, nowadays there is much debate over the latest intriguing method: Management by Objectives or MBOs. This article will discuss how it fares versus the more traditional performance appraisal, and aims to shed light on how each approach can contribute to achieving organisational goals and improving overall employee performance.

What is Management by Objectives (MBO)?

Management by Objectives is a performance management approach or strategic management model that emphasises setting Specific, Measurable, Achievable, Relevant and Time-bound (SMART) objectives for employees. The process typically involves the following steps:

1. Goal Setting: The first step in the MBO process is when employees and managers collaborate to establish clear, concrete and individualised performance goals that align with the organisation’s objectives. This stage can include a wide variety of targets to aim for, however they should always be derived from the company’s mission, vision and values.
2. Monitoring Progress: The next step involves regular check-ins to assess progress towards these objectives. Managers and employees work together to identify any obstacles or areas that may require adjustments. Through continual monitoring, tweaks and minor alterations can be made that makes the end goal more easily attainable.
3. Feedback and Coaching: Continuous feedback and coaching are integral to MBOs, enabling employees to make real-time improvements and managers to provide support as needed. This helps to build trust and improve communication between the two parties.
4. Evaluation and Reward: Once the objectives have been completed, a thorough evaluation of the entire process should then follow, as well as suitable rewards based upon what was achieved (and what wasn’t). This is an important step to ensure that employees feel appreciated and motivated to continue setting and achieving goals.

By emphasising the importance of goal setting, tracking progress, providing feedback, and offering rewards, MBO can be a powerful tool for business. In addition, by outlining specific objectives that are tangible and measurable, organisations have greater visibility into their progress towards these strategic goals. This ensures that everyone is focused on what matters most and able to deliver results in a timelier manner.

What are the benefits of Management by Objectives (MBO)? 

Enhanced Alignment with Organisational Goals

An MBO fosters a strong alignment between individual employee goals and organisational objectives. This ensures that employees’ efforts are directed towards achieving the company’s strategic vision; in short, it creates a harmony between company and individual.

Increased Accountability

Employees are held accountable for their own performance since they actively participate in goal setting. This accountability can drive improved performance and motivation. Consider it a ‘yes, we can do this together’ rather than ‘I must/I should’.

Regular Feedback and Development

The ongoing feedback and coaching inherent in MBO allow for skill development and course correction, leading to continuous improvement. Employees are also more aware of how they’re contributing to the company’s success.

Improved Communication

MBO encourages better communication between managers and employees by providing a platform for discussion and collaboration. This can help strengthen relationships, leading to increased team morale and loyalty.

Flexibility and Adaptability

MBOs are adaptable to changing circumstances and priorities, making them suitable for dynamic and evolving work environments. The goals can be easily realigned as needed, ensuring that the organisation is always focused on the most important objectives.

In short, MBOs can be a great method for businesses of all sizes by providing a clear framework for setting and achieving goals which is also adaptable to change. It encourages collaboration, improves accountability, and helps align employee efforts with corporate objectives. Additionally, it can lead to improved efficiency and productivity, allowing organisations to stay competitive in today’s ever-changing business landscape.

What is a Traditional Performance Appraisal?

Traditional performance appraisal systems involve periodic (usually annual) evaluations of an employee’s performance against predefined criteria and standards. The aim of these appraisals is to assess an employee’s individual progress and achievements over the course of a year, helping employers to identify areas for improvement and understand potential rewards.

Performance appraisals typically include one-on-one conversations between managers and employees to review job performance as well as feedback from colleagues, customers, or suppliers. Based on these assessments, managers can develop strategies to improve performance and set objectives for the upcoming year.

Employers often use ratings systems as part of their traditional performance appraisal process. These rating systems help quantify performance assessments by assigning numerical or letter grades to certain criteria such as knowledge, skills, attitude, attendance, etc. Ratings are then used to calculate an overall score which is used to determine promotions, raises, bonuses and other forms of rewards.

This process usually follows the following steps:

1. Goal Setting: Goals are set at the beginning of the performance period, often by the employer or manager.
2. Performance Documentation: Throughout the performance period, managers document instances of an employee’s performance, both positive and negative.
3. Annual Review: At the end of the period, a formal performance review is conducted, and feedback is provided to the employee.

Traditional performance appraisals still fulfil a wide number of criteria when it comes to appraisals, and more often than not, it’s what most businesses still tend to use. Next, let’s take a look at their advantages.

What are the benefits of a Traditional Performance Appraisal?

Unparalleled Consistency

Traditional appraisals are a structured and consistent way to evaluate employees across the business, ensuring fairness. Since they are less tailored to the individual and more standardised, they also present an opportunity to assess a single employee in light of others who perform the same task far more consistently.

Exact Documentation

They provide a comprehensive record of an employee’s performance, which can be valuable for HR purposes, such as promotions or terminations, or even in the form of providing support in legal proceedings.

Higher Standard of Legal Compliance

Traditional appraisals can help meet legal requirements for performance evaluations, such as those related to employment law.

Long-term Improvements in Developing Skills

Through traditional appraisals, it’s easier for supervisors to see the ‘bigger picture’ and provide guidance to employees on how to improve their performance or develop skills that may be necessary for the future of the job. By setting out a clear roadmap for advancement, both managers and employees can be better prepared to meet their long-term goals.

Greater Team-Building Potential

Since this type of appraisal is more generalised, it will necessarily apply to more staff members. This can offer an increased sense of camaraderie, an idea that ‘we are all in this together’ that an MBO approach might lack.

Comparative Analysis

While both MBO and traditional performance appraisal have their merits, MBO offers several advantages – but some disadvantages – for employers seeking to enhance employee performance and contribute to organisational success:

Alignment with Goals

MBO excels in aligning individual and organisational goals, which is essential for achieving strategic objectives. Traditional appraisals often lack this direct alignment.

Continuous Improvement

An MBO’s emphasis on regular feedback and coaching fosters continuous improvement, whereas traditional appraisals can be perceived as a once-a-year judgment, limiting growth opportunities and corrective measures.

Employee Engagement

Active participation in goal setting and ongoing feedback in MBO can boost employee engagement, leading to higher motivation and productivity, as well as a sense that they have a say in what employers can reasonably expect from them.

Team Goals

What MBOs do lack is the application to the wider team: since the goals are highly individualised, employees may lose the sense that they are being measured in accordance with their peers, which can lead to competition rather than cooperation.

Adaptability

MBO is better suited for rapidly changing business environments, as it allows for goal adjustments and flexibility, unlike the more traditional annual review.

Conclusion

In conclusion, the choice between MBO and traditional performance appraisal should be driven by an employer’s objectives and the organisation’s culture. What may be suitable for one business will likely not be for another, and vice versa.

Traditional appraisals still certainly have their place, but an MBO offers a more dynamic, employee-focused approach that offers unique advantages compared to the traditional method.

Ultimately, employers should carefully evaluate their needs and perhaps consider implementing a hybrid approach that combines the strengths of both methods to achieve the best outcomes if neither works well enough on its own.

Regardless of the chosen method, when introducing a new system or process, employers should provide adequate training and guidance to their employees in order for them to understand the objectives and expectations of management. This will help ensure that the chosen performance appraisal system is properly implemented and adopted within the organisation.

Employees should also be encouraged to actively track their progress towards meeting their goals and objectives in order to stay on track and ensure that their objectives are realistic, achievable and relevant. This will help employees to increase their engagement in the performance appraisal process, leading to improved performance and better results overall. After all, there’s nothing quite so demoralising as an unattainable or unrealistic goal.

For advice and tips on how to implement an effective appraisal strategy in your organisation, why not get in touch with HR:4UK’s dedicated team of expert professionals today and find out how we can boost your business. Simply call 01455 444 222 or email [email protected] to find out more or alternatively you can visit our Services page.