Management By Objectives (MBO) in real life:

I was a mid-level manager at a hardware/software company that suddenly embraced a technique called “Management By Objectives.” The President, VPs and directors received a presentation on it, they “got it”, and spent some serious cash and resources to send all us middle managers to a course on it. (Upper management did not feel they had time to take the course, but thought they might take it later.)

MBO is credited to Peter Drucker, who discussed it in his book The practice of management in 1954. The main tactic is that a manager works with each employee to define their work objectives for a year. The employee is involved in defining these, and they are described clearly in writing. People review these objectives during the year and update them if they get out of date. At year-end, the employee's work is reviewed against the objectives. People who fulfill or exceed their objectives can hope for raises, bonuses and promotions. Perhaps more important, this focus on objectives keeps everyone focused on real goals, if they know what the goals actually are.

We came back from the short course prepared to try out MBO, although, knowing our own company, we had misgivings about how it might work out. I had a conversation with my director:
“Do you understand the MBO course?” he asked.
“I think so.”
“Are you ready to try it?”
“Yes.”
“Okay, what are your objectives for this year?”
“I'd like my objectives to fulfill a lot of YOUR objectives, not just be work I'd like to do. What are your objectives?
I had puzzled him, and he looked at me blankly. Then: “I don't know what the company wants to do this year. I'll get back to you.”

My director talked to his other direct reports, and they all gave him essentially the same answer. It wasn't that we had made a conspiracy; rather, we had learned in the MBO course the importance of making these objectives “top down” so that they were relevant.

That was pretty much it for MBO in our company. I was never asked to work to objectives. In the 1990's Peter Drucker nailed this particular situation very well. See the link just above for his neat quote.