Impact of Management by Objectives on Organizational Productivity

Abstract

Goal setting, participation in decision making, and objective feedback have each been shown to increase productivity. As a combination of these three processes, management by objectives (MBO) also should increase productivity. A meta-analysis of studies supported this prediction: 68 out of 70 studies showed productivity gains, and only 2 studies showed losses. The literature on MBO indicates that various problems have been encountered with implementing MBO programs. One factor was predicted to be essential to success: the level of top-management commitment to MBO. Proper implementation starts from the top and requires both support and participation from top management. Results of the meta-analysis showed that when top-management commitment was high, the average gain in productivity was 56%. When commitment was low, the average gain in productivity was only 6%.