The Effects of MBO on Performance and Satisfaction in a Public Sector Organization

This field study examined the effects of MBO on measures of quantity and quality of performance and satisfaction with the work and supervision among employees in a human services agency. Although not all the quantity measures improved significantly, the combined measure for quantity of performance and one of two quality measures showed significant improvement following implementation of MBO. Satisfaction with supervision also significantly improved but not satisfaction with work. The study lends support to the use of MBO in public sector organizations. Management by objectives (MBO) has been advocated as a tool to improve management effectiveness for over twenty-five years. Drucker (1954) first advocated MBO as a systematic approach to setting objectives that would lead to improved organizational performance and employee satisfaction. A multitude of private sector business organizations and public sector organizations have implemented some form of MBO. A number of descriptive articles provide testimonials to the effectiveness of MBO, but few comprehensive studies have tested these claims. Most of the MBO literature has focused on describing the technique, suggesting the steps for implementation, and listing the advantages and disadvantages of adopting an MBO program. For example, McConkie, (1979), has a comprehensive summary of thirty-nine experts’ descriptions of the nature of MBO. MBO—State of the Art This study analyzed changes in performance and employee satisfaction resulting from an MBO program in a state vocational rehabilitation agency. A review 54 thompson, luthans, & terpening in journal of management 7 (1981) of the MBO literature shows that there are basically three types of research in the area. The first type examines the impact of MBO on employee satisfaction. The second focuses on the influence of MBO on performance as measured by subjects’ perceptions. The third relates the MBO intervention to objective measures of performance. Additionally we have many anecdotal accounts of the effects of MBO satisfaction, but these studies will not be considered here. Several studies have tested the effects of MBO upon satisfaction without examining performance. In a quasi-experimental study of 166 managers, Ivancevich, Donnelly, and Lyons (1970) found that need satisfaction improved in one company but not in another. Extending this study, Ivancevich (1972) found that the improvement in need satisfaction was short lived and disappeared 18-20 months after the initial intervention. Similarly, Tosi, Hunter, Chesser, Tarter, and Carroll (1976) found conflicting results when they surveyed two organizations, one under an MBO program (n= 117) and one not (n = 73). In general, there seems to be support for the premise that MBO programs lead to at least short-run satisfaction improvements. Other research has focused on the relationship between MBO, self-perceptions of performance, and satisfaction. Performance in these studies measured only subjects’ perceptions of performance improvement; no objective measures of performance were made. Meyer, Kay, and French (1965) and French, Kay, and Meyer (1966) indicated that MBO improved satisfaction and performance, but no tests of significance were made and the definition of the criterion for performance was not indicated. Additionally, the second study found participative goal setting to be important to satisfaction and performance improvement if the respondent had a high need for autonomy. Steers (1975) found, through questionnaire data acquired from 133 female first level supervisors, that satisfaction and job involvement were enhanced by an MBO program. Steers (1975) identified goal specificity and need for achievement as important components of the improvement process. In a similar vein, other studies (Tosi & Carroll, 1968, 1969, 1970, 1973; Shetty & Carlisle, 1974a) have found support for associating MBO with satisfaction and performance improvements. Several of these studies, however, did not statistically test performance changes (Tosi and Carroll, 1968, 1969, and 1970) and none of the studies used a control group or examined changes longitudinally. Studies that have used objective measures of performance include Raia (1965, 1966), Ivancevich (1974), and Muczyk (1978). Raia’s studies reported a performance improvement but no statistical tests were used. Ivancevich (1974) used archival records to measure performance for two experimental groups and a control group. He found a statistically significant improvement in performance in one of the experimental groups but only directional support in the other. Ivancevich measured satisfaction through the use of the grievance rates at each of three plants. A significant increase in grievances was experienced. Muczyk (1978) evaluated MBO in a bank setting and over several performance measures found no statistically significant differences between the experimental and control groups. In summary, the research seems to point toward improvements in perforeffects of mbo in a public sector organization 55 mance and satisfaction resulting from an MBO intervention. The relationship for performance, however, has been less consistently found when objective measures rather than perceptual self-report data were used.