Aside from just being acronyms, it turns out that both OKRs and MBOs do have some things in common. But that doesn’t mean that they’re one in the same. Here, we explain the key differences between these two effective business practices so that you can understand the ways in which each approach can benefit your company.
Because the concept of MBO, or Management By Objectives, historically precedes the concept of OKR goals (Objectives and Key Results), we’ll start with that.
Peter Drucker, oftentimes referred to as the “Father of Management,” introduced the concept of MBO. It originated in the 1950s, and it was used as a way for managers and their teams to collaborate in establishing Objectives.
Of course, we should back up a bit here and first define “Objective,” as it differs from a goal in a few critical ways. The way we are referring to an Objective, both in MBOs and OKRs, is: the thing to be accomplished. For OKRs, it is critically important that an Objective is specific, measureable, time-bound, and ideally, quantifiable, but we’ll get into that in more detail shortly.
As with MBO, managers and employees must practice collaborative goal setting with OKRs. This is one critical aspect of MBO that was carried over to OKRs because it’s extremely effective for giving employees an active role in the goal setting process, and therefore leads to enhanced clarity of expectations and better performance overall.
Cascading Goals Down or Aligning Goals Up
OKRs are all about cascading big corporate goals throughout your company. And every individual or team can align their goals up to impact the top company goals so that they can see how their work is moving the needle for the entire company.
Use Key Results to Measure Accomplishments
This is where the Key Results portion of OKRs comes in. While the Objectives portion of OKRs (the things that must be accomplished) are specific, measureable, and time bound, so too are the steps taken to get there. So, not only is the Objective itself easy to measure (for operational Objectives, the measurement could be “complete/incomplete;” whereas aspirational Objectives should ideally have a number assigned to them, as in “drive revenue by X percent by the end of Q1); but the steps taken to get there are measureable as well. This makes it much easier for managers to gain a direct line of sight into their employees’ progress towards goal completion.
OKRs are supposed to be transparent and allow everyone on your team to see what others are working on (not which tasks people are working on but specifically which objectives they are achieving).
OKRs permit cross-functional alignment whereas colleagues in different departments or teams can cross-align and contribute their goals to their colleagues in another part of the organizational hierarchy. Marketing can cross-align to sales when contributing leads to generate more deals just as similarly as someone on the Product team can align to Marketing to help with a product marketing campaign or product datasheets or solution briefs.
OKRs are Collaborative or Social Goals
OKRs allow for more transparent collaboration and teamwork when it’s not just about working together on a project but it’s much more about collaborating on a measurable objective to move the needle. That makes all the difference.
Additionally, OKRs encourage aspirational goal setting more so than MBOs do. A good portion of an employee or team’s OKRs are expected to be highly ambitions (although some may still be aspirational), so it’s not expected that your team will consistently accomplish 100% of their OKRs all of the time. Because OKRs are very agile and operate on a tighter timeline, it makes it easier for them to be rolled over into the next quarter.
So, to sum up, these are the key differences between OKRs and MBOs:
- OKRs encourage cascading and aligning goals – everyone’s goals can align to and support company-wide goals
- The KR portion of OKRs allow for multiple steps to be completed to achieve the Objective
- Some OKRs should be aspirational; so it’s not uncommon for employees to only achieve about 65-75% of the OKR (although they should always be trying to accomplish 100%)
Because OKRs can be more complex and specific than MBO (because they essentially help you achieve more), many executives have employed the help of software solutions to help them establish, measure, and track the progress of company goals. Such solutions can make it even easier for managers to achieve the critical direct line of sight into employee progress that helps everyone accomplish their goals. When used in combination with weekly one-on-one check-ins, this management approach is extremely effective at driving results and improving employee engagement.
Do you manage a company or teams (either as a CEO, a senior executive, a middle manager or even a front-line manager)? Do you set and track objectives? Does aligning employee performance to business goals matter, and are you responsible for driving results? If so, please check out a live demo of Atiim OKR & Goals Management Software and we’d love to hear what you think about it. Thank you!