How MBO works

Ideally the process starts at the top of the organization with the top management setting the overall organizational goals.The overall goals are then communicated to all the employees at all levels.

Each employee then meets with his superior to discuss the superior's goals and how the employee can help achieve them.The two together then set them and agree on the subordinate goals.

The superior advises the employee on how to tackle the goals.They also decide on what resources the employee needs to achieve the goals.As the employee works towards the goals they hold periodic meetings to review and assess progress.At the end of the specified period, the superior and employee hold a meeting to evaluate the degree of goal attainment.

If the employee has succeeded, he is rewarded and they start the process again for the goals of the next period.
So in MBO the manager and his subordinate work together in setting goals, deciding what resources are needed to achieve the goals and evaluating the progress.