Four ingredients are common to MBO programs:
- Goal specificity.
- Participative decision making,
- An explicit time period, and
- Performance feedback.
The objectives in MBO should be concise statements of expected accomplishments. It is not adequate, for example merely to state a desire to cut costs, improve service or increase quality. Such desires need to be converted into tangible objectives that can be measured an evaluated for instance to cut departmental costs by 8 percent to improve service by ensuring that all insurance claims processed within 72 hours of receipt. or to increase quality by keeping returns to less than 0.05 percent of sales.
In MBO the objectives are not unilaterally set by the boss and assigned to employees, as is characteristic of traditional objective setting. Rather, MBO replaces these imposed goals with participative determined goals. The manager and employee jointly choose the goals and agree on how they will be achieved.
Each objective also has a concise time period in which it is to be completed. Typically the time period is three months, six months. or a year.
The final ingredients in an MBA program are continuous feedback on performance and goals that allows individuals to monitor and correct their own actions. This continuous feedback is supplemented by periodic formal appraisal meetings in which superiors and subordinates can review progress toward goals, which lead to further feedback.