Goal Setting or Management by Objectives (MBO)
First created by influential business thinker Peter Drucker in 1954, management by objectives (MBO) is still an extremely popular appraisal system because of its focus on results and the activities and skills that truly define an employee's job. Even more recent forms of appraisal that require reciprocal feedback, such as the increasingly popular multi-rater assessment I describe later in this section, are in large part based on the principles of MBO.
In a typical MBO scenario, an employee and manager sit down together at the start of an appraisal period and formulate a set of statements that represent specific job goals, targets, or deliverables.
What makes MBO so powerful is its direct link to organizational objectives and priorities. In the case of MBO, goals, targets, and deliverables should be as specific and measurable as possible. For example, instead of "improve customer service" (too vague), try something like "reduce the number of customer complaints by 5 percent." And instead of "increase number of sales calls" (too vague), go with "increase the number of sales calls by 5 percent without changing current criteria for prospects."
This list of targets becomes the basis for an action plan that spells out what steps need to be taken to achieve each goal. At a later date - six months or a year later - the employee and the manager sit down again and measure employee performance on the basis of how many of those goals were met.