Primary differences between OKR and MBO

Today, the term OKR is increasingly used and associated with MBO. In this short article I will explain how this method of goal setting differs from that of "Managed by Objectives (MBO)".

Frequency of retrospectives

Companies using MBO-style performance management usually review performance annually. Targets are set at the beginning of the year and assessed at the end of the year. Targets are broad and strategic rather than focused and tactical. OKRs, on the other hand, work on the premise that targets need to be reviewed much more frequently. Instead, they are set quarterly and reviewed and updated up to every week during Team OKR punch-ins. This allows the organisation to seize drastic opportunities and make decisions based on current information, rather than waiting a whole year to address important issues.

Measurement and evaluation

MBO measurements and assessments are a mixture of "what I will do" and "how I will be assessed". This assessment is narrowly focused on a specific person and prioritises the output (how much effort was produced) rather than the outcome (how did this effort impact the business). In OKRs, Key Results are always quantitative and focus on measurable outcomes. Key Results can be used to demonstrate whether or not a particular objective has been achieved. OKRs focus on results (outcomes) and not on activities (outputs).

The role of the leader

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

Compensation

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 targets always focus on individual performance and their progress is assessed on the basis of the targets set for the employee 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 make sure they can achieve them in any case. This is contrary to the purpose and the original idea of OKRs.

Why OKRs are increasingly preferred

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

Here are a few more reasons why OKRs are - rightly - on the rise:

OKRs bring focus to and for the team

OKRs are not a business-as-usual thing, they focus on the growth and improvement of the team. OKRs are like the guiding star for the team, they are the priorities for the quarter. Projects and other things people will be working on should be checked against the OKRs: if a project is not helping to achieve the goal, maybe it should not be worked on any longer. The methodological framework helps the team to prioritise and work together towards specific outcomes.

With OKRs, the whole enterprise can be aligned

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

OKRs bring growth, improvement and innovation

It is about solving the small challenges or trying out new possibilities. Goal setting and strategic planning in organisations for many years was very vague and meant communicating only high-level expectations. Knowing what is expected does not mean that people know how to achieve it. The OKRs are instrumental in helping to decide together what are the things that would help to achieve these expectations faster, with fewer resources and happier and more motivated people.

Concluding thoughts and reflections on OKRs vs. MBOs

The main similarities and differences between OKRs and MBOs are:

• The MBO approach is used for performance management, the OKRs for business and team improvement.
• Targets in the MBO framework are set annually at the personal level, while OKRs are set quarterly at the corporate and team levels.
• Targets in the MBO are linked to remuneration and thus tend to have a risk-averse effect on the workforce, whereas OKRs are detached from remuneration and should be ambitious.
• Goals 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 implementation of Objectives & Key Results (OKR) as a replacement for traditional Management by Objectives (MBO).

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