Objectives and Key Results (OKRs) vs Management by Objectives (MBO)
Successful organizations operate like a finely-tuned machine. Each employee has a specific role that complements and builds on the work of their colleagues. Everyone’s collective efforts result in big achievements.
The hitch is employees must fully understand what they’re expected to contribute. Each person has unique skills, knowledge, and experience that got them hired in the first place. They just need to know how to apply their talents in a way that corresponds with their employer’s plans.
That’s where goal setting comes into play. Employees are laser-focused when they have clearly-defined objectives and a detailed plan for meeting them. Especially when they can see how their objectives align with those of their team and the greater organization.
Setting the right goals for every employee requires a systematic approach. In this article, we’ll compare two popular employee goal-setting methods—OKRs and MBO. We’ll outline what each method entails, provide advantages and disadvantages, and review success stories from notable companies.
What are Objectives and Key Results (OKRs)?
Objectives and Key Results (OKRs) is a simple yet impactful goal-setting approach consisting of two distinct parts. The objective is the goal the organization, department, or employee will work toward. The key results are the 3-5+ intended outcomes that will lead to the objective being met.
While other goal-setting approaches call for specific targets, OKRs allow for broad and highly-aspirational objectives. As long as you have realistic key results and a clear strategy for meeting them, you’re free to set your sights high with an ambitious goal.
Take Google for example. The company implemented OKRs when it was a small startup and set out to achieve the objective of “organizing the world’s information.” They defined a series of key results that would lead to that happening over the course of multiple years. More than two decades later, it’s fair to say they accomplished their original objective. Co-founder Larry Page has said, “OKRs have led us to 10x growth, many times over.”
While OKRs seem unique, they have many of the same criteria as other goal-setting methods. First of all, objectives need to align throughout the workforce. Every employee should have OKRs that contribute to those of their team, department, and ultimately the organization.
And while objectives are free of the specificity requirement, key results are not. Each of the 3-5+ that support a single objective must be clear, quantifiable, measurable, and achievable based on the employee’s professional background. They should also be broken down into specific time periods, usually quarterly, so progress is easy to monitor and targets can be adjusted as needed.
OKRs advantages and disadvantages
To recap, let’s review the advantages experienced by organizations that use OKRs
- Ambitious targets lead to fast organizational growth.
- Employees are highly motivated to deliver big results.
- Employees are excited to do work that makes a difference.
- Different employees and teams collaborate to achieve organizational objectives.
Now let’s consider a few disadvantages of using OKRs to set employee goals:
- Objectives can seem excessive and unrealistic.
- Employees can work too hard and burn out.
- Ambitious objectives have a high failure rate.
- Creating a realistic strategy for nonspecific goals is challenging.
Make sure to take all these points into account when determining what goal-setting method to use.
What is Management by Objectives (MBO)?
Using the Management by Objectives (MBO) approach, goal setting is a collaborative effort between employees and managers. Both parties agree on how the employee will use their skills and knowledge to help the team meet its goals.
MBO empowers employees to do their jobs as they see fit, while still focusing on relevant tasks that help the department and organization succeed. They get to participate in strategic planning as opposed to being told what they need to do and how to do it.
Hewlett-Packard has long used MBO and co-founder David Packard believes they’ve been instrumental in the creation of the “HP-way” culture. “No operating policy has contributed more to Hewlett-Packard’s success than the process of MBO,” he said. “This gave our people the flexibility to work toward goals in ways that they determined best for their own areas of responsibility.”
Similar to OKRs, effective MBO goals cascade down the org chart. High-level organizational objectives should get more specific as they flow down to individual employees. Even though employees have autonomy over how they do their jobs, they still must do work that aligns with the broader organizational strategy.
When setting MBO goals, the manager meets with each direct report and shares the team’s goals for the foreseeable time period (usually quarterly or annually). The employee’s individual objectives can be assigned to them by the manager or collaboratively defined. Regardless of how they arrive at it, objectives must be clear, quantifiable, measurable, and achievable.
The employee then shares the projects, initiatives, and general tasks they’ll take on to meet their objectives. Lastly, they come to an agreement with their manager on priorities for the given time period and metrics that will be used to measure progress.
MBO advantages and disadvantages
Now let’s review the advantages MBO offer to organizations that use them:
- Employees focus on clear objectives.
- Employees and managers talk about how results will be achieved.
- Goals are always appropriate for the employee’s skills and experience.
- A sense of ownership and trust is felt across the workforce.
Of course, there are a few disadvantages of using MBO, including:
- Employees and managers can disagree on the best way to achieve goals.
- Managers can be unsure of what an employee is working on.
- Employees can get caught up in their own objectives and fail to work together.
- Employees have little motivation to work beyond their individual objectives.
Again, weigh both the pros and cons of any goal-setting approaching you’re considering using.
Takeaways: OKRs vs MBO
Both OKRs and MBO are versatile goal-setting methods. They can be used in tandem (e.g. the employee sets their own key results) or alongside other goal-setting approaches (e.g. OKRs/MBO supported by SMART goals).
Whatever approach you decide to use, always keep the following points in mind when setting goals:
- Ensure employees understand their goals – Employees must know, without a doubt, what they’re working towards and why it matters.
- Make success quantifiable – Strive to form goals where success or failure is measurable using KPIs or other metrics.
- Create a plan – Objectives at every level of the organization must be supported by a detailed strategy for how they will be accomplished.
- Be ambitious yet realistic – Goals should challenge an employee to work at full capacity but never be out of reach.
- Set appropriate goals for employees – Employees must have objectives that are within the scope of their skills and the responsibilities outlined in their job profile.
- Celebrate accomplishments – Recognize when a goal is met or exceeded so employees know their hard work was worth it.
Even though OKRs, MBO, and other goal-setting methods differ, they all essentially lead to the same results—specific, measurable, and relevant goals for every employee. Figure out what approach makes sense for your organization, stick it to it, and reap the benefits of a consistent goal-setting process across your workforce.