Take the adaptive OKR approach to achieve more ambitious and innovative goals or use the quantitative MBO goal-setting method for setting up objectives. Learn the key differences between OKR and MBO.
Objective and Key Results (OKRs) and Management by Objectives (MBOs) are two goal-setting systems popular among organizations with a high-performance culture.
OKRs evolved from MBOs. Another similarity between OKRs and MBOs frameworks is that the process requires an organization to set specific outcomes it wants to achieve.
There are a set of differences between MBOs and OKRs. MBO goal-setting is limited to “what,” while OKRs expand further on this question by adding a number of measures to evaluate success. Other key differences include a degree of autonomy, structure, the review process, and how often and quickly goals are admissible to changes.
We have already covered what are OKRs, so in this article, we will explain what is MBO, the differences and similarities between OKRs and MBOs, OKR versus MBO benefits, and which of the two frameworks is better for strategic goal setting.
Management by objectives (MBO), also known as management by planning (MBP), is a management framework that emphasizes the importance of setting measurable objectives. The framework was created by Peter Drucker in 1954 and has been adopted by many organizations as a way to measure success and set goals.
In MBO, the leaders are the ones who specify the organization’s objectives for a cycle, where a cycle usually has a duration of 12 months (which isn’t very Agile). Within that cycle, leaders set the objective for each team. The only autonomy the employees have is to choose their tasks so they can meet the goals set for them.
As part of an MBO goal cycle, achieving the objective is expected, so performance reviews, increased compensation, and bonuses are frequently connected to the achievement.
Let’s take a look at the following MBO goal examples.
MBOs, unlike OKRs, do not always explain why they are important and describe no additional details about how progress is measured. In OKRs, objectives are linked with Key Results that explicitly define when the Objective is achieved.
If we use the MBOs examples above, the OKRs examples will be:
OKR (alternatively OKRs) is an acronym for Objectives and Key Results. OKR is a goal-setting framework used by organizations, teams, and individuals to define measurable goals and track their results. OKRs consist of an objective (a goal) and key results, which measure progress towards achieving the defined goal. Objectives should be inspiring for the organizations, teams, and individuals that work towards them.
Additionally, objectives can be supported by initiatives, which are plans and activities to achieve the key results. The clear measurement of key results is essential, and it is done either on a scale or with numerical values. The precise values assist decision-makers in determining whether those involved in working toward the key result have succeeded or not.
Let’s take a look at this OKR vs. MBO example and compare how a goal-setting process will look like for a Marketing department using each framework.
|Department||OKR Goal Setting Example||MBO Goal Setting Example|
Objective: Become the leading content platform for healthcare professionals seeking the most up-to-date research papers in healthcare.
1) Increase the number of published healthcare research papers per month from 10 to 20 articles.
2) Increase the number of our platform being featured on industry-specific digital media per month from 15 to 20 features.
3) Increase our platform’s uptime each month from 94% to 99%.
|Be the leading content platform for people working in healthcare.|
We can distinguish seven major differences between MBO vs. OKR.
Defining what you're trying to accomplish is at the heart of the MBO approach. The way an employee or team achieves a goal, and the measurement of their performance towards achieving that goal, are mainly open and flexible. In contrast, OKR drills down much more deeply. OKRs have two components: The Objectives and a set of key results to achieve them. Key results identify what success looks like and what needs to be done in order to reach the goal, resulting in quantitative measures of success.
While most OKRs have monthly or quarterly cycles, MBOs are reviewed annually. The result is that MBOs are not tracked frequently. In an MBO cycle, it is harder to make changes. Since the pace of monthly or quarterly reviews is faster in OKRs, there are much more opportunities to adapt and unlock agility through OKRs.
An employee and their line manager set MBO objectives in a private discussion, and the objectives are confidential. Compensation is one reason for this confidentiality.
OKRs, on the other hand, are much more transparent and are often created through team discussions, so the entire team decides how to support the company's overall objectives. OKRs can be viewed by anyone, from the CEO to the front desk manager.
People are expected to achieve their objectives fully if their compensation is linked to their objectives, as is the case in MBOs. This means that employees’ objectives are often set in the safe zone. A key advantage of OKRs is the "dare to fail" mentality, which promotes innovation and stretching beyond existing capabilities since compensation is not tied to them.
MBO places the responsibility of setting company goals on the executive level. Based on these high-level goals, departments, teams, and employees are then given their own goals. Goal setting is, therefore, a top-down process in MBO.
When utilizing OKRs, executives set goals for the company as a whole, and then departments, teams, and employees align their goals with them. In addition, employees at each level set their own objectives, which are aligned with the goals of their teams, departments, and organization. Consequently, the process of setting goals involves both a top-down and bottom-up approach.
A MBO does not specify success parameters, only the final result. There can be unintended consequences when an MBO is purely quantitative. Unlike MBOs, OKRs recognize that success is rarely a number but a combination of qualitative and quantitative success.
MBOs are usually set in relation to bonuses and salaries. OKRs separate rewards from objectives to foster innovation. In MBOs, individuals’ annual performance determines their compensation. OKRs, in contrast, emphasize the importance of shared goals.
Using OKRs over MBOs can be beneficial for your organization in the following situations.
for outcome-driven enterprise agility.