What is the difference between MBO and OKR

What is the difference between MBO and OKR

Since the time Management became a discipline in itself, most of the companies have been using techniques to efficiently manage performance of their human resources. Although many of them may not be aware of its name, MBO is the prevalent management philosophy adopted by corporates.

While there are number of famous techniques in academia, only a handful of them have gained prominence among the business teams. OKR is one such emerging framework.

OKR (acronym for Objectives and Key Results) is evolved from MBO, taking the best practices out of it and adding a few on its own. Management By Objectives (MBO) was introduced by Peter Drucker in 1954 while OKR was introduced by Andy Grove in the 1970s. In essence both, MBO & OKR are Goal setting frameworks. Their basic principle is to evaluate and enhance performance of employees over a period of time. However, they differ in many ways like the manner in which they measure performance, frequency or their end purpose.

 

MBO and OKR


Let us look at a few important differences between the MBO and OKR methodologies:


Frequency of review:

Companies using MBOs tend to have yearly cadence for performance review. They set objectives for employees for the entire year, at the end of which the performance is analysed and evaluated. These goals are broad in nature.

OKRs recommend higher frequency of reviews. They are set for a month or quarter and evaluated accordingly. This ensures that the stakeholders have an opportunity to make course corrections while there is still a chance. Agile performance management shares a few fundamentals with OKR.

Mode of measurement:

MBO scoring models are flexible and can differ according to the organisational requirements. They are open ended in measuring performance as they use quantitative or qualitative or both measures.

With OKR, the measurement is precise as it is always quantitative. You can easily evaluate your key results with this model of scoring. OKR heavily rely on SMART goal setting techniques.

OKR goal setting

 

 

Confidentiality:

MBO is a strictly confidential affair between a manager and his employee. Objectives are set individually for each employee and are always undisclosed. It is more of an HR process as the performance directly influences compensation.

OKR is always aligned at different levels. Key results of individual employees are aligned with team & company objectives. There is no question of maintaining confidentiality as these cannot be created in silos. They need to be linked together to achieve company level goals.

Purpose of review:

The main purpose of MBOs is to determine the compensation of employees based on their annual performance. The focus is always on the individual performance. Sometimes leading to efforts pulling in opposite directions.

Compensation remains unaffected by the level of achievement of OKRs. Here the main focus is to push the boundaries to achieve excellence. Alignment helps people understand the ‘why’ behind their ‘what’ making everyone look in the same direction.

Expected performance:

As compensation is directly related to fulfillment of set objectives, you are expected to achieve 100%, or more if possible. Any less, and your compensation will be lowered.

An average 60% to 70% achievement is expected with OKRs. If you are able to achieve 100% consistently, it means you are just playing in your comfort zone. Your goals should be ambitious yet realistic.


While MBOs have been around for a long time and more popular, OKRs are widely being adopted to suit the changing environment. The management needs to determine which philosophy is more suited to their organisation. The need of the hour however, is more frequent reviews to boost performance.


 

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  • Reaver

    From the motivational standpoint the 2 approaches are night and day, MBO works perfectly when reviewing and looking back at your achievements in linear way, sort of: I wanted to do x, I did x, I’m proud of it. But the reality is different, most of the times you don’t know 100% what’s achievable, you have vague idea what you want and that’s it.

    MBO is an outdated model for corporate structures where everyone aspires to do 100% of objective – this image of perfection is paralyzing to people so they try to decrease their level of responsibility or include as many people as possible in it to dilute ownership.

    OKR is saying: you need to start now to get some tangible results soon, once you get more than 50% that’s ok – you’re not done because you’ll never be done 100%, but more than half that’s good enough. OKR doesn’t give you permission to wait endlessly in planning/analyzing/delaying mode, there is simple 0-1 per task, when summed up you know whether you did 60% of your objective or not.