5 Differences Between MBO and OKRs

How to manage and measure performance of employees are critical in company and team management. And there are diverse methods to help business leaders to achieve that. MBO (Management by Objectives) and OKR (Objective and Key Results) are two popular ways in today’s business management and performance measurement. This article will explore the main 5 differences between MBO and OKRs, aiming to help you guys to understand and apply the MBO and OKRs better.

What Is MBO?

MBO (Management by Objectives) is a popular goal-setting management methods according to a business goals and needs. Specifically, MBO is an method to performance management and improvement, aiming to compare employee performance to the goals of company. It’s proposed by Andy Grove in the 1950s and accpet by losts of famous companies gradually such as HPE and Intel.

MBO has seveal features that indicats how it works.

A clear goal. Each company or organization has a clear goal to guide how its employees to strive for it.

Set and discuss the goal together. Different from the traditional goal setting, MBO allows the excutives and staff making the goals by discussion for their own. The goals are set for each corresponding level from overall organization, business unit, department and individuals.

A specific period time, usually a 12 month. In a typical MBO cycle time, leaders set objectives for evey employee below them, and employee also can adjust the tasks to fullfill their benchmarks. Of course, the MBO also need to coherent with the main goal of the organizations.

Evaluate the performance. In a MBO system, everyone take personbility for their own performance, and need to have a clear recognition that how to push the company goal by achieving their owns. And MBO aims to offer continuous feedback of the goal progress to staff, so that they can adjust their actions to achieve their own objectives better.

Here are some examples of MBOs:

Increase product sales by 20% in 2022

Raise $3 million in funding for online expansion

Improve the quality of online course

What Is OKRs?

OKR stands for Objectives & Key Results, which is a suit of methods to realize goal management, push the task down and team cooperation. The “objective” show the goal that your team want to achieve, the “key results” shows the pieriod results and tell your team whether they have achieved their goals. With the help of OKRs to clarify persional goals, the employee will make sense their focus and devote their limited enegry to work that really helpful for their goals achieving.

Here is an examples of OKRs:

Objective: Improve the quality of our online course

Key Results:

– Reduce the average number of new bug reports from 80 per month to 60 per month

– Increase the crash-free ratio from 95% to 99% for the new release

– Improve the good review feedback to 70%

5 Differences between MBOs and OKRs

Though MBO and OKRs are similar to set and manage team goals, they still different in the following four aspects.

Goal Structure

The goals of MBO is more detailed than that of OKRs. MBO shows the main goal of an organization in a year, while OKR gives each key results in a specific period. And MBO aims for 100% objective completion, but OKR usually aims for 60-80%, which indicates that OKRs are more suitable for more ambitious goal-setting. Furthermore, the analysis of MBO can be qualitative or quantitative, but OKR analysis is always quantitative, which make the results measurement is more accurate.

Frequency of Performance Review

Companies using MBOs tend to conduct performance evaluate annually. They set annual goals for employees and analyze and measure their performance. Different from the MBO, the performance review of OKRs is often monthly or quarterly, which can ensure employees have a chance to make corrections if they misunderstand the goal.

Measurement Method

The scoring model of MBO are flexible and can be adjust based on the whole organization requirements. And it is open in measuring employee performance because of the use of quantitative or qualitative analysis, or both. While OKRs are different. The measurement of OKRs is always accurate because it is quantitative. Leaders can easily evaluate key results using its scoring model.

Openness

The objectives of MBO is set for every individuals, which is not make public for others. The MBOs are closely tied to Humance Resource because its performance directly affect compensation. While the OKRs are public. At different levels of the organizations or company, the goals of individuals need to align with the company’s, so the OKRs are visible to everyone in the whole team, and everyone are clear about the relationship between their own objectives and the company’s. This transparency encourages thems to work together to achieve the goals and can generate more solutions.

Compensation

MBO performance will affect the employee’s salary while the OKRs won’t. OKRs directly indicates the corridence of company’s goals and employee’s, and how each employee contributes to their own goals, therefore the OKRs performance evaluations is independent from the whole company’s OKRs.

To give you an clear comparison between MBO and OKRs, here ‘s a table plainly highlighting them.

	MBO (Management By Objectives)	OKRs (Objectives and Key Results)
Focus	Defining goals only	Defining goals and how to achieve them
Cadence	Annually	Quaterly or Monthly
Openness	Confidential	Public
Goal Direction	From the top of company to employee	Designed across all levels of company
Compensation	Resulsts are tied to compensation	Results are not tied to compensation

Summary

Simple put, MBO and OKR are goal-setting frameworks. They share several similarities and are benefical for goal achievements of organizations. MBO seems more simple but it cannot provide concreat results to guide goals achiemement like OKRs. OKRs are more instructive and focus on teamwork and organization goals, not persoanl performance.