Goal Management 101: OKRs vs KPIs vs MBOs vs SMART
Learn the differences between goal methodologies and identify which one is best for your organization
Managing your employees’ and organization’s objectives is critical for success, as it ensures that everyone is aligned and working towards common goals. Having a clear goal setting and tracking methodology encourages accountability, ownership, and transparency, while also supporting the organization's overall strategy. There are multiple ways to manage this process. We know that teams work best when they have as sense of purpose, but how do you know which methodology is right for you and your business?
The teams at There Be Giants and Koan tend to favor OKRs versus other goal methodologies, but here’s a breakdown that compares the differences between OKRs, KPIs, MBOs and SMART.
What are OKRs?
OKRs are all about business growth, change and innovation, but what does OKR actually mean? Put simply, it stands for objectives and key results. When we break it down, the objective part is the organizational goal or objective you want to achieve. The key results, on the other hand, are the markers of success which are attributed to said objective.
OKRs can either be aspirational or committed. Committed OKRs are goals that the team has agreed will be achieved no matter what. On the other hand, aspirational OKRs are less fixed and describe desirable objectives rather than committed ones. Once you’ve set your OKRs, you can then create strategies (also known as initiatives) that will help you to achieve your objectives and key results.
OKRs vs MBOs
What are MBOs?
Management by Objectives (MBOs) is a goal management framework based on a business’s needs and goals. MBO goals are tailored to identify an employee’s or team’s main goals and help to prioritize alignment between activities and outcomes.
Differences between OKRs and MBOs
OKRs and MBOs are two common goal-setting frameworks designed to track, manage and evaluate outputs. While MBOs and OKRs share a lot of similarities, they operate differently in terms of structure, goal orientation, and implementation. While MBOs analysis can be quantitative or qualitative, OKR analysis is always quantitative.
MBOs aim for 100% objective completion, whereas OKRs typically aim for between 60-80%, confirming that OKRs encourage more ambitious goal-setting and innovation around which goals are set.
A third difference is that an MBO is solely a detailed objective, compared to an OKR, which details the objective itself as well as the initiatives needed to help a team reach the goal. With OKRs, performance is reviewed regularly (this could be quarterly, monthly or even weekly), while MBO performance is typically reviewed annually.
Finally, OKR plans are team-based and public; there's no concern around confidentiality here, and organizational transparency is encouraged. In contrast, MBO plans are individual rather than team-based and they are confidential. This particularly applies to MBOs being tied to bonuses and compensation, where OKRs should not be directly tied to performance management or compensation.
OKRs vs SMART
What is SMART?
The SMART framework is a well-established tool that can be used to plan and achieve your organization’s goals. While there are a number of different interpretations when it comes to what the acronym stands for, the most common definition is that goals should be Specific, Measurable, Achievable, Relevant, and Time-bound.
Differences between OKRs and SMART
Although OKRs and SMART goals look similar on the surface, they actually have some key differences. Where SMART views goals in isolation and only focuses on the core objective, while OKRs are usually connected to the larger organizational strategy, and draw connections between the objective and how to measure progress towards it by using key results.
Traditionally, OKRs are suitable for developing longer term goals, whereas SMART goals are better suited for short team goals. With OKRs you connect the objectives to key results and with SMART, you solely define the objective.
Generally speaking, SMART goals are not a framework, they are a set of guidelines. Although they offer a structure of criteria which is used to inform goal processes, it is not a goal process in and of itself, but rather a guiding set of principles for setting goals.
OKRs vs KPIs
What are KPIs?
KPI stands for Key Performance Indicator. This term refers to the measurable value that shows how effectively an organisation is achieving its overall company objectives. KPI’s are generally used for business measurement activities, things like revenue, active users, or uptime of a service.
Differences between OKRs and KPIs
KPIs are used to track business as usual metrics, while OKRs are used for growth initiatives or for areas of the business that need particular focus. Your key results are similar to KPIs, as they also provide a quantifiable value to indicate whether you’re meeting your objectives, but they’re only a small piece of a puzzle. OKRs provide the full picture and are multifaceted, connecting the strategic outcome with a key result on how you’re going to achieve it. KPIs are generally more rigid and used as an individual tactic used to track metrics.
While KPIs focus on individual aspects of a team’s duties, OKRs allow for teams to solve bigger issues, advance more readily, and take on more ambitious goals without losing sight of the minutiae.
If you’re looking for a brief overview of the main differences between these goal methodologies, here’s a quick snapshot:
There are many pros and cons to every methodology, but understanding the differences, coupled with what you’re trying to achieve as an organization, could help to assess which approach is best for you. Implementing any new methodology can provide some challenges, so looking at your current team culture and processes may help to determine which structure fits best.
If you have any questions or want to have an external consultant assess which approach might be best for your organization, please reach out to There Be Giants. And remember, no matter which approach you choose, software can help to make every methodology easier on your team.