OKR vs MBO: Differences Explained with Examples

What are MBOs and OKRs?

MBOs (Management by Objectives) technique was developed by Peter Drucker in the year 1950 with a human nature approach. That means MBO goals are personalized to identify a team’s primary objective or goal and help to set a priority between outcome and activity.

Read more on MBO in this blog – Different goal setting methods.

OKRs are a refined form of MBO and they provide more clarity by giving a broad idea about what success means to the organization.

OKRs help teams attain their objectives through measurable key results. OKRs provide purpose to teams and organizations.

OKR VS MBO: How are they different?

After talking about similarities and having a brief idea about both the goal setting methods let us switch to the differences. Both OKR and MBO works differently when coming to structure, orientation, and implementation of goals.

Difference in Structure

In MBO, the objectives are written in detailed form but how to reach those objectives is not clear. In OKRs, Objective is about what you want to accomplish and what is the timeline to achieve it. 

Key Results refers to the actionable plan of action which help you to reach the objective. Key Results, breaks the objectives into specific metrics by quantifying it. These KRs can can be used to measure the achievement of the Objectives.

Let us understand this in detail with help of a few examples: 

OKR vs MBO Differences explained with example

MBO where focuses on the high-level ambition of the organization, OKRs are more integrated with the present framework of the organization.

MBOs focus on achieving 100% target, on the other hand, OKRs focus on innovation and a realistic approach and aims at 60-80 percent achievement of the target objective. 

OKRs are based on a data-driven approach leaving no room for ambiguity when measuring success or failure. 

OKR vs MBO – Difference in Orientation

MBO technique is used more to assign individual goals but on the contrary, OKRs is more about team alignment on goals.

As MBOs are assigned to individuals they are discussed between an employee and their manager, while OKRs are communicated to each and every team member openly. 

MBO performance affects an employee’s salary while OKR does not as it is not much about individual performance and more about the company’s objective and how each team member contributes to those objectives. 

Differences in Execution

MBOs are annual goals wherein OKRs are set mostly on a quarterly basis which allows goals to stay prioritized. Annual goals can detract the focus and often there are chances that MBO will lose priority and focus.

MBO progress is communicated in closed doors by the manager to the employee. OKR updates on the other hand are shared openly between the teams. The culture of transparency is inculcated through this.

MBOs as said earlier are set yearly and are generally set at the beginning of the year and remain the same throughout. But in OKR key results and objectives can be modified according to the challenges and scenarios the teams are in.

Conclusion

OKR is a more advanced form of goal-setting method. The only challenging part is that it is new to many and people are still adapting to this goal-setting approach. It takes a few cycles for teams to frame OKRs but once understood it is the best goal setting technique for any organization.

Frequently Asked Questions

1. What is OKR vs KPI vs MBO?

• OKR is a goal-setting framework that aligns objectives across the organization. 
• KPI helps you track and evaluate the performance of specific processes or activities within an organization. 
• MBO helps managers and employees collaboratively set specific, measurable objectives hassle-free.

2. Is MBO the same as KPI?

No, MBO (Management by Objectives) and KPI (Key Performance Indicators) are not the same. MBO is a goal-setting framework whereas KPI evaluates performances across the organization.

OKR VS MBO! We can see both have O of “Objectives” in common. Is there any other similarity between the two? Yes, both the goal-setting methods believe in setting explicit goals. 

So what are the characteristics that differentiate both the goal-setting methods? 

A similar question going in your mind? Let our experts answer it.

Proper management of Objectives is crucial for the success of any organization. It is necessary to ensure that each team member is aligned to the company’s central goal.

Proper goal alignment ensures accountability and transparency culture in the organization. 

The two common goal-setting methods MBO and OKRs are designed to manage, track and evaluate the objectives. 

So the question now arises is how are they different? Before getting into MBO VS OKR let us know how they are used.