1. The dynamic nature of the environment in which the business operates. The environment is never static but dynamic and, therefore, any change in it requires changes in the policies and programmes of the business, i.e., the management should be adaptable to changes or else it will be out of existence very soon. M.B.O. is suitable for activities that are not reflective but where changes are desired to accomplish the goals.
2. The change in the objective of business from ‘profit maximization to growth and survival’ has necessitated that the objective can be better accomplished if M.B.O. is practiced, which aims at better utilization of material, human and physical resources of the organization.
3. The realization of the fact that the aspirations of the individuals should be fulfilled or satisfied if the best is to be drawn out from them. The M.B.O. ensures accommodation of organization objectives with those of the individual objectives.
4. The current thinking that the appraisal of the personnel against the set objectives and in which the person concerned has participated is a more reliable and positive assessment, for it leads to the improvement in the performance of the person concerned.
5. The development of the concept of corporate planning, which is concerned with the top management largely because it requires ability, experience, and need for maintaining secrecy and information, though M.B.O. is concerned with all levels of management by involving everyone in fixing the goals of the organization.
6. M.B.O. has been the result of various supportive concepts, such as Maslow’s hierarchy of needs; McGregor’s Theory of Motivation (Theory X and Theory Y); and Herzberg’s Hygiene Theory. These theories have played an important role in the development of the M.B.O. concept, since they recognize that desire of most managers is to satisfy their higher level needs on the job and to assume responsibility. Managements are achievement-oriented and desire a degree of control over their jobs.
From the point of view of the subordinates, M.B.O. places great emphasis on participation by directly involving individuals in their jobs. The underlying assumption is that involvement leads to commitment and if employees are consulted, they will be motivated to perform the jobs in a manner that will directly contribute to the achievement of organization objectives. Hence, management by objectives develops a framework for participation, since decisions that affect individuals’ jobs are made jointly by the individuals and their superiors.