OKRs vs. MBOs: Key Differences Every Manager Should Know

Performance management is a discipline in and of itself. Many companies see value in measuring time, results, and big-picture progress over the short- and long-run horizons. The majority of these organizations use a management philosophy known as management by objectives, or MBOs.

MBOs are the prevalent choice between academics and business managers alike. However, there are new approaches on the horizon. The rising star among the pack are OKRs, or Objectives and Key Results. There are several compelling reasons for this change in preference.

Jump right in:

Since giving rise to OKRs, let’s begin by understanding what MBOs are first:

What are MBOs?

MBOs aim to improve company performance by defining goals to which both management and employees agree. The theory encourages goal-setting and participation. Plus, it creates a level of commitment on behalf of the employees which theoretically motivates them more.

What Are OKRs?

OKRs evolved from MBOs and took its best practices with it. Both frameworks focus on goal-setting. However, OKRs offer further clarity by outlining how the company defines success. It also determines which steps are necessary to achieve its goals.

The primary purpose of OKRs is to cascade goals from the top down through a company. Every individual, team, and project aligns with the business’ strategic objectives.

How to Set Good OKRs With Examples

Primary Differences Between OKRs and MBOs

The first part of this article focused on defining what OKRs and MBOs are. Now, let’s shift our attention and see what their key differences are:

Frequency of Milestone Reviews

Companies that deploy MBO-style performance management review its performance at an annual cadence. Objectives are set at the beginning of the year and then evaluated at the end. Goals tend to be broad and strategic versus focused and tactical.

OKRs operate under the premise that goals need reviewing more frequently. Instead, they are sent monthly or quarterly and analyzed as such. It allows an organization to change course and make decisions based on current information rather than wait an entire year to address it.

Measurement and Scoring

MBO measurements and scores are flexible and can adapt to the company’s needs. They tend to use quantitative and qualitative measures.

OKRs are always quantitative. The idea is that if you can quantify your performance indicators then you can accurately see the results your resources produced. 

Managerial Relationship

Managers tend to discuss MBO feedback privately between him or her and the employee. Goals are personal since the manager does not share it with the team 

OKRs set goals that align with team objectives. Confidentiality is not always an option since team members may need to be aware of what the others are trying to achieve. OKRs are more team-focused.

Compensation

MBOs set the stage for determining an employee’s level of compensation based on the annual performance review model. They always focus on individual performance compared to the goals set for the employee at the start of the year.

Compensation does not change based on an individual’s OKR review. Instead of personal gain, OKRs seek to achieve excellence. In theory, it helps people understand and appreciate why they are doing what they do while keeping everyone on the same page.

However, compensation does not fall on deaf ears. The quantification of OKRs allows managers to measure how much they are contributing to the company by percentage.

Why OKRs Are Becoming Preferential

MBOs are great and work for a lot of organizations. Plus, they have been around since the dawn of performance management. However, the rise of OKRs makes it exciting for business teams since they align their objectives with modern needs.

Here are a few additional reasons as to why OKRs are on the rise:

Results Measure Accomplishments

OKRs rely on SMART goals to fuel their measurement efforts. As a refresher, SMART goals stand for:

  • S – Specific
  • M – Measurable
  • A – Achievable
  • R – Results-Driven
  • T – Time-Sensitive

Since managers can measure the goals, they can quantify their employees’ reviews which makes it an excellent approach for OKRs. It gives measures a close-up look at how their people are performing.

Cross-Department Communications

OKRs seek to coordinate efforts across departments and business units. For example, sales can cross-align with marketing in achieving the goal to generate more sales. It makes a ton of sense from an operational standpoint to function in this manner.

Self-Directed Objectives

OKRs encourage employees to set self-directed goals that promote a pattern of high-performance. The objectives chosen by the employee are generally aspirational, so it is not an expectation to perform at maximum capacity 100 percent of the time.

Read more about OKRs

What Are OKRs?
By: Maddie Harke, Jason Dydynski, Mirell Põllumäe
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What are OKRs: The Guidebook

OKRs are not the easiest methodology to pick up, as countless articles and books out there would have you believe. Most books on the subject start by highlighting how they can revolutionize your company and boost productivity across your entire company, but they don’t give you much info on how to actually go about it.

Final Thoughts and Considerations on OKRs vs. MBOs

So, in summation, these are the most significant similarities differences between OKRs and MBOs include:

  • OKRs review performance more frequently while MBOs operate on an annual scale
  • OKR scoring focuses on performance and teamwork instead of compensation and individual performance
  • OKRs focus on companywide goals while MBOs serve individual performance
  • MBOs set goals based on strategy while OKRs align with specific steps

As you can imagine, OKRs can become more complicated than MBOs quickly. Due to their heavily involved nature, managers are leveraging the options available on today’s market with connectivity and software solutions that aim to assist in defining, tracking, and measuring the performance across an entire organization.

These solutions save companies both time and money by tracking employee progress closely while remaining at a non-interfering distance. The right application can even alert him or her to kinks in the performance to correct them before getting too far off track. This function allows everyone to accomplish their goals and perform like a rock star.

Consider Weekdone to Accomplish Your Goals

Weekdone is an OKR-based application that focuses on helping you achieve your goals, coordinate your teams, and simplify the weekly planning process. We take it to the next level by offering easy-to-track activity options that allow your team to connect with each other across your entire organization.

Want to learn more about meeting your objectives? Check out our case studies to find out why OKRs work and how Weekdone can help you manage them.