Objectives and Key Results and Management-By-Objectives are some of the strategies companies have used over the past three decades to set company goals. Achieving company goals on time has always been a matter that organizations try to get right.
There have been many management strategies for setting company goals and monitoring the progress over the last few decades. Objectives and Key Results (OKR) strategy is the most popular current strategy after it ousted Management-By-Objectives (MBO). This post explores the critical differences between the two strategies, including some examples.
What is the Difference between OKR vs. MBO
1. Setting Goals and Objectives
Both frameworks have objectives that a company should meet within a certain period. OKR defines the tasks that employees and teams undertake to reach the desired results. The goals are set for the overall organization, broken down to team targets, and distributed to employees.
MBO objectives are set to suit an employee and align with the organization. The goals are not distributed to individuals directly, and there aren’t teams involved in the structure. Also, the employees are left to their own devices to decide how they will achieve the targets.
For example, if an organization has 20 sales employees during the objective setting exercise, it sets a sales target of $1.2 million per year. Management by objectives strategy would allocate an annual target of $60,000 to each sales department employee and leave it at that.
OKR strategy would break down the target per quarter to $300,000 per quarter. It would further allocate a sales target of $15,000 for the quarter and a weekly sales target of $1,250. Additionally, management would outline the tasks an employee should undertake to achieve the weekly targets.
2. Tracking of Progress
OKR tracks progress openly among teams, and the discussions are open throughout the organization for information sharing purposes. MBO tracks progress in private, and discussions on challenges are between a manager and employee. Moreover, management by objectives doesn’t track progress every week, nor does it have a schedule that breakdown targets into milestones like OKR.
For example, progress towards achieving goals may be checked monthly or quarterly through management by objective strategy. Sometimes, it’s too late to correct the course of non-performing employees in an attempt to attain annual company goals. OKR tracks progress weekly and supports employees who lag on their weekly targets to get them back on schedule.
3. Measurability of Goals
MBO objective setting activities allow for qualitative and quantitative ways to measure achievements. OKR ensures all objectives have results that are measurable quantitatively. Therefore, the results have a figure in the key results, and target achievement is calculated on 60-80% of the expected results.
For example, management by objectives can measure customer service using three smiley faces, not good, neutral, and happy. OKR framework would use a star rating system, where the overall rating depends on the total rating score divided by the number of customers served. A customer service representative may be expected to score 4.5 and above to meet their target.
Understand MBO and OKRs
OKR has proven to be a better objective setting system because it sets overall objectives, breaks them down, defines the tasks necessary to achieve the goals, and tracks weekly progress. MBO is a good tool for setting objectives, but it doesn’t motivate employees to achieve the goals, nor does it help them stay on course to achieve their targets.
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