[2] According to George S. Odiorne[citation needed], the system of management by objectives can be described as a process whereby the superior and subordinate jointly identify common goals, define each individual's major areas of responsibility in terms of the results expected of him or her, and use these measures as guides for operating the unit and assessing the contribution of each of its members.
[1] While the basic ideas of MBO were not original to Drucker, they pulled from other management practices to create a complete 'system'.
Objectives can be set in all domains of activities, such as production, marketing, services, sales, R&D, human resources, finance, and information systems.
The goals set by top-level managers are based on an analysis of what can and should be accomplished by the organization within a specific period of time.
MBO has its detractors, notably W. Edwards Deming, who argued that a lack of understanding of systems commonly results in the misapplication of objectives.
There are limitations in the underlying assumptions about the impact of management by objectives[citation needed]: That context includes everything from the availability and quality of resources, to relative buy-in by leadership and stake-holders.
As an example of the influence of management buy-in as a contextual influencer, in a 1991 comprehensive review of thirty years of research on the impact of Management by Objectives, Robert Rodgers and John Hunter concluded that companies whose CEOs demonstrated high commitment to MBO showed, on average, a 56% gain in productivity.
The limitations mentioned above, combined with the challenges faced by modern service companies, have led to the development of methods that integrate aspects of MBO but appear to be significantly more effective in application.
These include, for example, the objectives and key results (OKR) method, which was developed by John Doerr (among others) and has been used successfully in many companies, notably at Google.
[20][21] In addition, following criticism of the original MBO approach, a new formula was introduced in 2016, aiming at revitalizing it, that is the OPTIMAL MBO, which stands for its components, namely: (O) Objectives, Outside-in; (P) Profitability (budget) related goals; (T) Target Setting; (I) Incentives & Influence; (M) Measurement; (A) Agreement, Accountability, Appraisal, Appreciation; and (L) Leadership Support.