Management by Objectives (MBO) is an approach that aims for companies, teams, and individuals to work with clear, measurable, and aligned goals. It’s a model popularized in 1954 by Peter Drucker, who emphasized the importance of synchronizing personal and organizational goals.

MBO helps organize priorities, improve performance, and bring more meaning to day-to-day work. In this guide, you’ll see what it is, how it works, its principles, pros and cons, and how to apply it. Just keep reading.

Management by Objectives (MBO): What It Is, How It Works, and How to Apply It

What Is Management by Objectives (MBO)?

Management by Objectives (MBO) is a methodology that aligns individual goals with the company’s goals to boost performance. It’s based on agreements between managers and employees regarding measurable, achievable objectives within a defined period.

The main purpose is for each person to understand what is expected of them in their job and how their results contribute to the achievement of overall objectives.

• Other terms: management by objectives, administration by objectives, or Management by Objectives, depending on the focus and the company.

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  How Management by Objectives (MBO) Works: Key Principles

MBO works by creating a direct connection between what the company wants to achieve and each person’s work. This avoids isolated tasks, ensuring every daily effort pushes in the same direction.

The process unfolds in simple, collaborative stages that guide efforts, measure progress, and adjust strategies when needed.

These are the key principles behind how MBO works:

• Alignment of objectives across levels. General priorities become objectives for departments, teams, and roles, creating a clear chain of responsibility.

• Active participation by everyone. Managers and employees agree on objectives through open dialogue that strengthens commitment and avoids confusion.

• Specific and measurable objectives. Each objective is defined clearly, is quantifiable, and has a concrete deadline to make later evaluation easier.

• Ongoing tracking. The method isn’t limited to an annual review; it also includes regular check-ins and feedback to correct deviations in time.

• Evaluation and learning. At the end of the period, results are compared to the objectives set at the start. Based on that analysis, future goals, processes, or strategies are adjusted and learnings are documented.

These principles allow the MBO model to function as a clear, practical system. Everyone knows what they must achieve, how to measure progress, and what adjustments to make throughout the process. This way, the organization maintains focus, improves results, and learns from each cycle to plan the next one better.

Management by Objectives: Steps to Apply the MBO Model

To apply the MBO process, follow these steps:

1. Define the organization’s strategic objectives. Leadership sets what the company wants to achieve in the period: growth, profitability, clients, innovation. This serves as the basis for establishing clear, measurable goals across the system.

2. Assign objectives to areas, teams, and individuals. Global objectives are broken down by department, team, and role so each person is clear on their part in the results. Here, personal and professional goals are refined so they’re truly aligned with MBO.

3. Set goals together. All stakeholders discuss to define clear, achievable goals. During the dialogue, they establish the desired outcome, how progress will be evaluated, and the deadline to meet it.

4. Design action plans and metrics. At this point, detail the actions needed to achieve each objective, available resources, KPIs, and timelines. Deep-work blocks help execute these plans without getting scattered by minor tasks.

5. Conduct periodic check-ins and provide feedback. Schedule monthly or quarterly reviews to assess progress, spot blockers, and adjust tactics. In distributed teams, tools like Jibble can facilitate objective tracking of hours, activity, and progress.

6. Review performance and redefine the course. When the established period ends, analyze what was achieved versus what was agreed at the beginning.

In that final analysis, highlight wins and weak points, and adjust objectives for the next cycle, integrating lessons learned.

Advantages of Management by Objectives (MBO)

For many, MBO is an approach that can simplify management and bring more clarity to daily work by offering multiple benefits:

• Everyone knows what’s important and how success is defined.

• Individual objectives connect with organizational ones, avoiding isolated efforts.

• Participating in goal setting makes people feel part of the result, increasing motivation.

• Each person works with goals suited to their skills and experience.

• Frequent conversations about progress strengthen the relationship between leaders and teams.

• Periodic tracking makes it possible to spot improvements and evaluate performance based on results, not just subjective perceptions.

• Continuous adjustments allow timely course correction and improve overall performance.

Also, working with concrete goals makes time management easier.

Disadvantages and Risks of MBO

Although MBO can provide structure and clarity, it isn’t a perfect system. It’s important to consider common risks:

• If poorly implemented, it can prioritize quick wins and neglect quality or team well-being.

• Forms, reports, and constant reviews can make the process tiring and impractical.

• In low-trust environments, objectives can feel like control rather than guidance.

• Unrealistic or misaligned goals can cause demotivation and unhealthy behaviors.

In short, its effectiveness depends on how it’s implemented and the team culture.

Examples of Management by Objectives for Small Teams and Freelancers

MBO isn’t only for large corporations. It can also apply to a freelancer’s daily routine, small agencies, or remote teams.

Here are some MBO examples:

Example in a small marketing agency

• Company objective: increase marketing project revenue by 30% for the quarter.

• Team objective: the digital marketing area must bring in several new clients during that period.

• Individual objectives: each team member has a specific number of proposals to send and deals to close.

At quarter’s end, results are reviewed and those who meet or exceed agreements are recognized.

Example for a freelancer

• Main objective: increase revenue by 30% versus the previous year.

• Quarterly objectives:

• Contact 5 potential clients per week.

• Launch 1 new service offering per quarter.

• Dedicate 2 hours per week to improving the freelance portfolio.

If you want to be a successful freelancer, you should also review metrics—revenue, leads, accepted proposals—monthly. Depending on that, adjust your actions to stay on track.

Example in a remote team or call center

• Company objective: increase customer satisfaction by 10% and reduce average call duration by one minute.

• Team objectives: respond faster and meet certain quality indicators in every interaction.

• Individual objectives: each agent follows clear metrics, receives periodic feedback, and those who meet or exceed objectives get rewards.

Periodic reviews help identify improvements and support the team in achieving goals with greater consistency.

Management by Objectives vs. OKRs and Other Goal Systems

MBO is a traditional method for setting clear goals and measuring organizational progress. More modern systems like OKRs build on that foundation but use short cycles and focus on a few objectives that set the quarter’s direction.

Key differences:

• MBO. Works with annual goals and relies on formal performance evaluations. In some companies, these results influence bonuses or incentives.

• OKR. Proposes ambitious objectives and a few key results, reviewed quarterly and without such a direct link to monetary rewards.

Combining elements of MBO and OKRs allows you to define simple, actionable goals without complicated processes. This blend helps maintain focus and increase success for freelancers or small teams.

Conclusion

Management by Objectives (MBO) helps connect what the organization wants to achieve with each person’s daily work. It uses clear, measurable goals and, when applied well, brings order, motivation, and a more transparent view of performance.

But like any method, it can also generate bureaucracy if used without judgment. That’s why it’s crucial to design solid objectives, provide close follow-up, and adapt it to the reality of each situation.

Adopting MBO logic means turning daily planning into clear goals related to revenue, clients, and projects—especially for freelancers and remote teams, since it helps decide where to invest time and how to manage resources better.

This is especially important when you charge in different currencies and use tools like DolarApp to manage payments.

Frequently Asked Questions about MBO

What is Management by Objectives (MBO) in simple terms?

It’s a way of working where the company and employees agree on clear, measurable goals. At the end, progress against those goals is reviewed to improve results and adjust what’s needed.

Who created Management by Objectives?

The concept was developed by Peter Drucker in the 1950s through his book The Practice of Management. From there, his proposal became popular among employees and leaders to improve organizational performance.

What are the basic steps of MBO?

They include defining overall objectives, adapting them to each team and person, and agreeing on them jointly. It also requires periodic tracking and a later evaluation of results at the end of the cycle.

What are the advantages of MBO?

The main advantages are clarity, focus, and better communication. It also helps motivate the team and evaluate performance using objective criteria when goals are well designed.

What are the main disadvantages of MBO?

It can become a heavy process if it’s bogged down with reports and metrics. At the same time, it may create friction if objectives are imposed without conversation or context.

Sources:

The Practice of Management

PMC Study

Participation in goal setting influences motivation

OKR