MBO vs. OKRs: What Are The Differences?

Managing your employees and organizations objectives is critical for success. It ensures that everyone is aligned and working towards a common goal, it encourages accountability, ownership and transparency, and ultimates supports the organizations overall strategy. There are multiple ways to manage this process. Two common goal-setting frameworks are MBOs and OKRs -- both inherently designed to track, manage and evaluate outputs.

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 activity and outcome. According to Andy Grove’s book, Measure What Matters, MBOs were developed by Peter Drucker in the 1950s with a human nature approach: when people help choose a course of action, they are more likely to see it through. A very common framework, MBOs have seen popularity with corporations, including Hewlett Packard and Intel.

OKRs evolved from MBOs, offering further clarity by outlining how the company defines success. Developed by Andy Grove and John Doerr in the 1970s, OKRs help teams and organizations reach their goals through identifiable and measurable results. By design, the OKR framework works across teams to create a standard the whole company can adopt. OKRs give purpose to teams and organizations.

The main similarity between the methods is the use of ‘objectives,’ with both frameworks focusing on goal-setting. Both share a belief in the motivating power of setting explicit goals and offer adaptability of format for different departments in a business. 

MBOs and OKRs have proven to be successful over the past several decades and been championed by some of tech’s biggest names, but which is the best for your organization? In this post, we’ll dive into the primary differences between MBOs and OKRs to help you understand the right goal management approach for you. 

MBO vs OKRs: Practical Differences

While MBOs and OKRs share a lot of similarities, they operate differently in terms of structure, goal orientation, and implementation. Here are some of the key differences:

Goal structure

• Strategy: an MBO is a detailed objective while an OKR details the objective and the tasks that will help a team reach the objective. The tactical approach with OKRs is built into the framework, while MBOs are typically focused on a higher-level ambition. 
• Scope: MBOs aim for 100% objective completion while OKRs generally aim for 60-80%, essentially confirming that OKRs encourage more ambitious goal-setting and innovation around which goals are set. 
• Metrics: MBOs analysis can be qualitative or quantitative, while OKR analysis is always quantitative. The data-driven approach with OKRs leaves no room for ambiguity when gauging success or failure. With OKRs (particularly if you’re managing goals with software) you can also gauge success both quantitatively and qualitatively, providing anecdotal feedback and analysis next to the numerical rating. 

Goal orientation

• Individual vs. Team: MBOs are assigned to individuals while OKRs are intended to be shared among teams. There is typically a lead and contributors on key results, but overall, OKRs promote team mentality and mutual success across the group. 
• Confidential vs. Public: MBOs are discussed between an employee and their manager, while OKRs are discussed openly throughout a business. OKRs encourage collaboration and generate more solutions.
• Relationship to compensation: MBO performance tends to affect an employee’s paycheck while OKR performance does not. OKRs are about the company’s goals and how each employee contributes to those goals, encouraging performance evaluations to be independent from the company’s OKRs.

Goal Implementation

• Schedules: MBOs are traditionally structured on annual schedules while OKRs can be scheduled on a quarterly basis (and sometimes monthly or annually). Most commonly, quarterly OKR schedules allow objectives to stay prioritized. The risk with annual timelines is that the MBO loses priority or priorities can shift over the course of the year, ultimately detracting focus. 
• Dialogue: MBO status updates are communicated in isolation, between manager and employee. OKR status updates are shared openly among teams, with transparent discussion keeping goal achievement as an active part of company culture.
• Revision: MBOs are set at the beginning of a cycle and remain the same. OKRs – especially the Key Results component – are subject to revision as the team sees fit. OKRs promote an agile approach to problem-solving and encourage success by constantly reviewing the effectiveness of chosen methods.

MBO vs OKRs: Features

Adapted from Measure What Matters, here’s a table plainly highlighting differences between the two methods.

To give you an example of the differences between an MBO and OKR, here are a few examples.  

Marketing MBO Example: Ensure the company meets the revenue targets

Marketing OKR Example

Objective: Ensure the company meets the revenue targets

Key Results:

- Increase new inbound sales from $25k to $50k per month

- Attract 500 new marketing qualified leads

-Attract 100 new marketing qualified leads from EMEA

- Generate >$30M in new qualified pipeline from Marketing sourced leads

- Document and implement the new Account Based Marketing (ABM) process

Product Management MBO Example: Successfully Launch the New Product

Product Management OKR Example

Objective: Successfully Launch the New Product

Key Results:

- Conduct 30 customer development interviews

- Review 10 usage videos via UserTesting.com and summarize it internally

- Do 2 training sessions on the new product for Marketing and Sales teams

- Review 15 customer requirements documents from Product Marketing

Engineering MBO Example: Improve the quality of our product

Engineering OKR Example

Objective: Improve the quality of our product

Key Results:

- Reduce the average number of new bug reports from 72 per month to 60 per month

- Increase the crash-free ratio from 96% to 99% for the new release

- Reduce average QA rejections per-feature from 1.7 to 1.0Increase code coverage from 35% to 50%

Conclusion

Overall, MBOs and OKRs are goal-setting frameworks that share several similarities and have powered many organizations to achieve success. While on the surface, OKRs can appear to be more complicated, ultimately, OKRs provide a tactical plan to achieving goals and are more focused on teamwork and company-wide goals instead of individual performance.

If you think OKRs are the right approach for your team, we would be happy to talk you through the process. Start designing OKRs with your team.