Important Differences Between MBO and MBE

Recently updated on August 20th, 2023 at 11:49 am

Management by objectives (MBO)

Management by objectives (MBO) is a management strategy that involves setting specific, measurable, and achievable goals for an organization and its employees. The goal of MBO is to align the goals of the organization with the goals of the individual employees, and to provide a clear framework for decision making and performance evaluation.

MBO typically includes the following steps:

  1. Setting organizational goals: The first step is to establish the overall goals of the organization. These goals should be specific, measurable, and achievable, and should align with the mission and vision of the organization.
  2. Setting individual goals: Once the organizational goals have been established, individual goals are set for each employee. These goals should align with the overall goals of the organization and should be specific, measurable, and achievable.
  3. Developing action plans: With the goals in place, action plans are developed to achieve the goals. These plans should include specific tasks, timelines, and resources required to achieve the goals.
  4. Monitoring progress: Progress towards the goals is regularly monitored and evaluated. This allows for adjustments to be made to the action plans as needed and for progress to be tracked.
  5. Evaluating performance: Performance is evaluated based on the achievement of the goals. This allows for feedback to be provided to employees and for decisions to be made regarding promotions, bonuses, and other rewards.

MBO is often used in business and government organizations, and it has been adopted in various forms by many organizations.

It is important to note that MBO can be effective when implemented correctly, but it can also be criticized for being overly bureaucratic, rigid, and for focusing too much on short-term goals at the expense of long-term strategic planning.

Management by objectives types

There are several types of Management by Objectives (MBO) which include:

  1. Traditional MBO: This is the original form of MBO, developed by Peter Drucker in the 1950s. It involves setting specific, measurable, and achievable goals for the organization and its employees, and then evaluating performance based on the achievement of those goals.
  2. Team MBO: This type of MBO involves setting goals for teams or departments within an organization, rather than for individuals. The goals are aligned with the overall goals of the organization and are used to evaluate the performance of the team or department.
  3. Participative MBO: This type of MBO involves actively involving employees in the goal-setting process. Employees are encouraged to set their own goals and to develop action plans to achieve them.
  4. Strategic MBO: This type of MBO focuses on long-term strategic planning, rather than short-term goals. It involves setting goals that align with the overall strategy of the organization and are used to evaluate the performance of the organization as a whole.
  5. Continuous MBO: This type of MBO is a continuous process, instead of a one-time event. It involves regularly reviewing and updating goals to reflect changes in the organization and its environment.
  6. Balanced Scorecard MBO: This type of MBO is a performance management system that balances financial and non-financial goals. It uses a set of measures, such as customer satisfaction, internal processes, and employee development to evaluate the performance of the organization.

Management by exception (MBE)

Management by exception (MBE) is a management strategy that focuses on identifying and addressing deviations from established standards or expectations. The idea behind MBE is that managers should only be involved when something goes wrong or when there are significant variations from the expected results.

MBE typically includes the following steps:

  1. Setting standards or expectations: The first step is to establish clear standards or expectations for performance, such as budget, quality, or productivity.
  2. Monitoring performance: Performance is regularly monitored against the established standards or expectations. This can be done through the use of performance metrics, key performance indicators (KPIs), or other monitoring tools.
  3. Identifying exceptions: Any deviations or variations from the established standards or expectations are identified and flagged as exceptions.
  4. Investigating exceptions: Exceptions are investigated to determine the cause of the deviation and to identify potential solutions.
  5. Taking corrective action: If necessary, corrective action is taken to address the exception and to prevent similar deviations from occurring in the future.
  6. Communicating results: The results of the monitoring, investigation, and corrective action are communicated to the relevant parties, such as employees, managers, or stakeholders.

MBE is often used in business and government organizations, and it is particularly useful for identifying and addressing problems or issues that could have a negative impact on the organization. The main advantage of MBE is that it allows managers to focus on the most critical issues and to take action when necessary, rather than getting bogged down in routine tasks and minor issues.

There are several types of Management by Exception (MBE) which include:

  1. Financial MBE: This type of MBE focuses on monitoring and analyzing financial performance, such as budget, revenue, and expenses. It is typically used in accounting and finance departments to identify and address financial exceptions.
  2. Operational MBE: This type of MBE focuses on monitoring and analyzing operational performance, such as productivity, quality, and efficiency. It is typically used in manufacturing and production environments to identify and address operational exceptions.
  3. Compliance MBE: This type of MBE focuses on monitoring and analyzing compliance with laws, regulations, and industry standards. It is typically used in industries that are heavily regulated, such as healthcare, finance, and energy.
  4. Strategic MBE: This type of MBE focuses on monitoring and analyzing the alignment of organizational goals and strategies with the overall performance of the organization. It is typically used to identify and address strategic exceptions that could have a negative impact on the organization’s long-term success.
  5. Performance MBE: This type of MBE focuses on monitoring and analyzing the performance of individual employees and teams. It is typically used to identify and address performance exceptions and to provide feedback and coaching to employees.
  6. Continuous MBE: This type of MBE is a continuous process, instead of a one-time event. It involves regularly reviewing and updating the standards or expectations and monitoring performance to identify and address exceptions.

Important Differences Between MBO and MBE

Management by Objectives (MBO) Management by Exception (MBE)
A process in which management sets specific and measurable goals for the organization and its employees, and then monitors progress toward those goals A process in which management focuses on identifying and correcting significant deviations from established plans and standards
Emphasizes on proactive management and goal setting Emphasizes on reactive management and problem solving
Involves setting targets, monitoring progress and making adjustments as needed Involves monitoring performance, identifying variances and taking corrective actions
Requires regular communication and feedback between managers and employees Requires monitoring and exception reporting to identify variances and problems
Encourages ownership and accountability at all levels of the organization Encourages centralized decision-making and control by management
  1. Focus: MBO (Management by Objectives) focuses on setting specific, measurable, and achievable goals for the organization and its employees, while MBE (Management by Exception) focuses on identifying and addressing deviations from established standards or expectations.
  2. Approach: MBO is proactive, it focuses on setting goals, developing action plans, and regularly monitoring progress towards those goals. MBE is reactive, it focuses on identifying and addressing problems or issues that have already occurred or deviated from expectations.
  3. Evaluation: MBO evaluations are generally focused on the achievement of goals, while MBE evaluations are focused on identifying exceptions and taking corrective action.
  4. Participation: MBO typically involves active participation from employees in goal-setting, planning and monitoring progress, while MBE is more commonly driven by management or supervisors.
  5. Timeframe: MBO is generally a longer-term process, involving regular goal setting, planning, and monitoring over an extended period. MBE is a more short-term approach, focused on identifying and addressing exceptions as they occur.
  6. Impact: MBO aims to align the goals of the organization with the goals of the individual employees and to provide a clear framework for decision making and performance evaluation. MBE aims to identify and address problems or issues that could have a negative impact on the organization.
  7. Flexibility: MBO is generally considered less flexible than MBE as it focuses on achieving set goals, while MBE can adapt to changes in the environment

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