Primary differences between OKR and MBO

Today, the term OKR is increasingly used and associated with MBO. In this short article, I would like to explain how this methodology of goal setting differs from that of “Managed by Objectives (MBO)”.

Frequency of retrospectives

Companies that use MBO style performance management usually review performance annually. The goals are set at the beginning of the year and assessed at the end of the year. The goals are broad and strategic rather than focused and tactical. OKRs, on the other hand, work under the premise that goals must be reviewed much more frequently. Instead, they are set quarterly and reviewed and updated up to every week during Team OKR Punch-In. This enables the organization to seize significant opportunities and make decisions based on up-to-date information, rather than waiting an entire year to address important issues.

Measurement and evaluation

MBO measurements and assessments are a mix of “what I'm going to do” and “how I'm going to be rated.” This evaluation is narrowly focused on a specific person and prioritizes output (how much effort was produced) rather than outcome (how did this effort impact the business). With OKRs, the key results are always quantitative and focus on measurable results. Key Results can be used to prove whether a specific goal has been achieved or not. OKRs focus on outcomes and not on activities (outputs).

The role of the manager

Within the MBO approach, leaders and managers tend to discuss feedback and results privately with employees. All goals are set on a personal level and the manager does not share them with the team. OKRs are team-oriented and not defined at an individual level. They are also transparent and are shared and reviewed together — i.e. with the rest of the company.

remuneration

MBO creates the conditions for the level of remuneration of an employee to be determined on the basis of the annual performance evaluation model. Such goals always focus on individual performance and their progress is assessed based on the goals set for employees at the beginning of the year.

OKRs should never be linked to remuneration. Otherwise, employees would fall back into their comfort zone and set themselves less ambitious goals to ensure that they can definitely achieve them. This contradicts the meaning and original idea of OKRs.

Why OKRs are becoming more and more preferred

MBO is a famous approach and it may work for some organizations. This methodology has been around since the early days of performance management. However, the OKR framework makes the goal-setting process much more appealing for corporate teams as they align their goals with the overall corporate goals.

Here are a few more reasons why OKRs are — and rightly so — on the rise:

OKRs bring focus to and for the team

OKRs aren't “business-as-usual”; they're focused on growing and improving the team. OKRs are like the guiding star for the team, these are the priorities for the quarter. Projects and other things that people will be working on should be compared with the OKRs: if a project doesn't help achieve the goal, maybe it shouldn't be worked on anymore. The methodological framework helps the team set priorities and work together towards specific results.

With OKRs, the entire company can be aligned

Corporate goals set the course for everyone (top-down AND bottom-up). That means teams can be better coordinated because they're all trying to achieve the same things at the end of the day. Each team only contributes from their own perspective, based on their expertise. This is sometimes the successful way to solve complex business challenges.

OKRs drive growth, improvement, and innovation

It's about solving small challenges or trying out new opportunities. Setting goals and strategic planning in organizations was very vague for many years and meant only communicating high-level expectations. Knowing what's expected doesn't mean people know how to achieve it. The OKRs significantly help to decide together what the things are that would help to achieve these expectations more quickly, with fewer resources and happier and more motivated people.

Final thoughts and considerations about OKRs vs MBOs

The most important similarities and differences between OKRs and MBOs are:

• The MBO approach is used for performance management, the OKRs for improving the company and teams.
• Objectives in the MBO framework are set annually at a personal level, while OKRs are set quarterly at company and team level.
• Goals in MBO are linked to compensation and therefore have a more risk-averse effect on the workforce, while OKRs are detached from compensation and should be ambitious.
• Objectives in MBO are private and “siloed,” whereas OKRs are transparent, while alignment is achieved through cooperation and communication.

dominique is a senior consultant at Linkyard and has some experience with the introduction of Objectives & Key Results (OKR) as a replacement for traditional Management by Objectives (MBO).

‍