There is plenty of management wisdom around the world. Business leaders, researchers, and publications create theories and design new strategies all the time.
Take for example, goal-setting strategies. OKRs, KPIs, balanced scorecards, SMART goals, Get Things Done method, the WOOP framework, etc., are just a few of the many available today. As the market and the economy evolves, new frameworks are being developed everyday.
Despite heavy competition from multiple new systems, the two goal-setting principles that have stood the test of time are Objectives and Key Results (OKR) and Management by Objectives (MBO).
In this blog post, we’ll explore them both in detail and examine the differences of OKR vs. MBO.
OKRs vs. MBOs: What’s the Difference?
Summarize this article for me pleaseWhat Is MBO?
Management by Objectives (MBO) is a performance evaluation approach that helps the entire organization set clearly defined goals and strategically work toward them over the course of time.
Designed by management consultant Peter Drucker in his 1954 book “The Practice of Management,” MBO is characterized by:
- Alignment: Individual goals are aligned with the organizational objectives, ensuring everyone is working to achieve the same outcomes
- Planning: MBOs allow managers to plan the right approach to achieve said goals
- Collaboration: In MBO, managers and employees work together to set their own objectives based on historical performance and a vision for the future
- Flexibility: MBO is not rigid in its recommendations; organizations are free to design their objectives and achievements plans to suit their needs
How does the MBO process work?
In its simplest form, management by objectives is a way to set goals and work toward them. However, over time and scale, it can get incredibly complex. The following five-step process helps operationalize it effectively, irrespective of the size of your organization.
Objectives: Managers and employees collaboratively define specific, measurable, achievable, relevant, and time-bound (SMART) objectives. These objectives align with the overall goals of the organization.
Action plans: Managers create action plans to achieve the objectives of their teams. Employees do so for themselves. This step typically includes defining resources, timelines, and responsibilities.
Monitoring: Teams use performance management frameworks and review processes such as check-ins, evaluations, one-to-one meetings to ensure that objectives are on track.
Evaluation: At the end of the specified period, teams assess the performance of each objective they’ve set. If necessary, they adjust the goals or action plans along the way.
Feedback: Based on the evaluation, managers give feedback to their employees. This is also the step where the employee’s rewards, such as hikes, promotions, etc., are designed.
The cycle repeats with new objectives for the next period, continuing the process of alignment and improvement.
What are the pros and cons of MBO?
Like every goal-setting system, MBOs have their pros and cons. Based on your organization’s size, structure, goals, etc., you can choose to adapt MBOs to capitalize on what works and minimize what doesn’t.
Pros of MBO
Alignment: MBOs align individual, team, and organizational objectives. This dramatically minimizes the chances of people doing their own things without a unified direction.
Clarity: Setting clear and specific objectives tells the employees what’s expected of them. This reduces ambiguity and the emotional load they need to carry as part of their job.
Commitment: Goal setting in MBO is done in collaboration with the team, increasing their commitment, ownership, and overall motivation to achieve their targets.
Cons of MBO
Tedious: The process of setting, reviewing, and evaluating objectives can be time-consuming, especially in large organizations.
Complex: The trickle-down of goals from the organizational level to each individual demands a complex process. Any loss in translation can make the entire process futile.
Narrow focus: MBO prioritizes quantifiability. As a result, focusing too much on specific, measurable objectives can lead to a neglect of other qualitative areas, such as innovation or team collaboration.
Short-term mindset: MBO can sometimes encourage a short-term mindset, where employees prioritize immediate goals over long-term growth or sustainability.
All that’s good, but what does MBO look like in practice, you ask? Here’s what.
Real-world MBO examples
If you were to apply management by objectives to various aspects of your organization, here’s what that might look like.
1. MBO in sales
Objective: Increase quarterly sales revenue by 10%.
Action plan:
- Identify X no. of additional high-potential leads
- Increase customer outreach efforts by 25%
- Improve conversion rate from 20% to 23%
Monitoring: Implement a new CRM system to improve lead tracking and follow-up.
Evaluation: At the end of each quarter, you would measure the percentage increase in sales revenue and compare it to the 10% target.
2. MBO in marketing
Objective: Boost website traffic by 35% within six months.
Action plan:
- Create three pieces of net new content each week, including blog posts, infographics, and videos
- Optimize website to improve search engine rankings
- Run targeted online ads to drive traffic
Monitoring: Set up real-time website analytics with accurate reporting.
Evaluation: Measure the increase in traffic and assess whether you meet the 35% target.
3. MBO in customer service
Objective: Improve customer satisfaction (CSAT) score by 20% over the next quarter.
Action plan:
- Reduce average response time to customer inquiries to under 2 minutes
- Reduce wait time to under 10 seconds
- Introduce a self-service chatbot for commonly raised queries
Monitoring: Implement a customer feedback system to track CSAT scores.
Evaluation: Measure CSAT and compare with the 20% improvement goal.
With that, we have a complete picture of what MBO looks like. Let’s see how OKR compares.
Summarize this article for me pleaseWhat Is OKR?
Objectives and Key Results (OKR) is an organizational goal-setting framework introduced in the 1970s. The framework consists of two key components: high-level qualitative objectives, and nested, measurable key results.
How does the OKR process work?
Teams within an organization come together to define two specific things, i.e., objectives and key results.
Objectives: High-level, qualitative goals that define what you want to achieve. They are ambitious, inspirational, and designed to push the organization or team forward.
Key results: Specific, measurable outcomes that indicate progress towards achieving objectives. Each objective typically has 3-5 quantifiable key results, allowing teams to measure progress and determine whether they met the objectives.
In connection with OKRs, you might have heard about the balanced scorecard. Here’s a primer on what OKRs vs. balanced scorecards will look like.
Pros and cons of OKRs
Popularized by Andrew Grove, the former CEO of Intel in his book ‘High-output Management’, the OKR framework is highly common in the tech industry, used by Google, Microsoft, Twitter, Uber, and others. Here’s why.
Pros of OKRs
Alignment: Like MBO, OKRs help align individual, team, and organizational goals, ensuring everyone works towards the same strategic priorities.
Transparency: OKRs are typically shared across the organization, promoting transparency. This visibility fosters accountability, as everyone can see what others are working on and how it’s going.
Adaptability: Usually, you set OKRs for shorter periods (e.g., quarterly), allowing organizations to quickly adapt to changes. Teams can revise or set new OKRs as priorities shift.
Despite that, OKRs aren’t perfect.
Cons of OKRs
Number-focused: Prioritizing measurable key results can lead to a “numbers-driven” culture, where qualitative aspects of work, such as creativity and innovation, are undervalued.
Short-term outlook: Since you set OKRs for shorter periods, sometimes you might overlook long-term strategic objectives, leading to potential misalignment.
Complexity: If not managed properly, the OKR process can become complex and overwhelming, especially if there are too many objectives or key results. This can lead to confusion and turn counterproductive.
Real-world OKR examples
What does this highly popular goal-setting framework look like in reality? Here are some OKR examples to demonstrate that.
1. OKR in sales
Objective: Increase quarterly revenue from new customers.
Key results
- Close deals with at least five new clients
- Achieve $500K in revenue from new accounts
- Increase the average deal size by 10% compared to the previous quarter
2. OKR in product management
Objective: Launch a new feature to improve user retention.
Key results
- Increase user retention by 30% within three months of the feature launch
- Get 90% of customers to have used the new feature at least once
- Get a CSAT score of seven or higher on the new feature in post-launch surveys
3. OKR in engineering
Objective: Improve system reliability and reduce downtime.
Key results
- Reduce system downtime by 60% compared to the previous quarter
- Achieve a 99.9% uptime for mission-critical applications
- Resolve 95% of critical bugs within 24 hours of detection
Bonus: Here are some project management goals for you to consider.
If you’re paying attention, you’d have noticed the slight difference in the processes of OKRs and MBO. Here are the details.
Summarize this article for me pleaseDifference Between MBO and OKR
Both MBO and OKRs focus on breaking their own organizational goals into measurable team/individual level targets for more effective implementation. The commonality ends there. Across various parameters, here are the key differences between the two.
| Aspect | MBO | OKR |
| Structure | MBO goals are set for each individual/department, in alignment with overall organizational objectives. Then, they create action plans, monitoring, evaluation, and reward processes. | OKRs consist of high-level objectives supported by 3-5 key results (or targets). How teams achieve these goals are left to them. |
| Timeline and implementation | Objectives in MBO are set for a year, focusing on planning and defining the steps necessary to achieve them. The process can become rigid or even outdated during the course of the year, with less frequent updates. | OKRs are set for the quarter. This framework encourages setting stretch goals and emphasizes regular check-ins and updates. The focus is on flexibility, agility, and evolving with market demands. |
| Performance appraisal process | MBO sets evaluation and rewards at the end of the process. Reviews happen at the end of the year, tying performance closely to compensation and promotions. | In OKRs, performance management is dynamic and ongoing. You will regularly review the achievement of key results, using this as a tool for continuous improvement and alignment. |
| Transparency | MBO keeps goals private. There’s little emphasis on transparency across the organization. | OKRs are typically transparent and visible across the entire organization. This transparency fosters alignment and accountability. |
Application
MBOs and OKRs are also applied differently across scenarios. For instance, let’s say the objective for the HR department might be to reduce employee turnover.
In MBO,
- The action plan would be to perform compensation normalization, implement an employee engagement platform, streamline exit interviews etc
- Teams will monitor exits from the organization and the corresponding reasons
- They will evaluate employee turnover against goals
In OKR,
The key results would be
- Employee satisfaction scores
- Retention rates
- Completion of onboarding processes, etc.
As you can see, these two frameworks take slightly different approaches to achieving goals. Is one better than the other? Maybe it’s based on what you’re applying it to.
Summarize this article for me pleaseAdvantages of OKRs Over MBOs
OKRs are extremely popular. In fact, Larry Page, the co-founder of Google, goes as far as to say, “OKRs have helped lead us to 10× growth, many times over.” So, naturally, it has got something going for it. Let’s see what.
Agility
The OKR framework recommends quarterly review, sometimes even less. This is great for rapidly evolving industries, like tech, because it enables frequent adjustments and realignments. In essence, it makes teams agile.
Continuous improvement
The shorter review cycles in OKRs mean that performance is discussed regularly. Teams conduct retrospectives, identify root causes of problems, and address them almost instantly. This enables continuous improvement, which is the foundation of agile software teams.
Ambitiousness
OKRs are generally ambitious objectives, i.e., stretch goals that push the boundaries of what teams can achieve. This fosters a growth mindset, as teams are motivated to think bigger and challenge the status quo.
Whereas, MBOs tend to be more risk-averse, focusing on achievable, often conservative goals.
Non-measurables
Despite focusing heavily on metrics, OKRs also offer space for qualitative objectives. In fact, objectives in the OKR framework are recommended to be qualitative and aspirational. This helps teams think beyond the limitations of what already exists.
Summarize this article for me pleaseBringing OKRs and MBOs to the Team
OKRs having a slightly upper hand doesn’t mean that MBO is ineffective. Depending on your organization’s goals, industry, size, product, etc., one might have the upper hand in the game of OKR vs. MBO.
So, we have put together a comprehensive framework for implementing both within your organization using goal-setting software like ClickUp.
Define objectives
The first step in implementing MBO or OKR is defining the objective. Make sure they are:
- Aligned with the company’s mission, vision, and long-term goals
- Relevant to the organization’s overall strategy
- Clear enough for all team members to understand and embrace
Objectives in MBO
If you’re using the MBO framework, you might want to set SMART goals. This means you would set specific, measurable, achievable, relevant, and time-bound objectives for each individual and team.
ClickUp Goals offers a great virtual space to set, track, manage, and achieve all your goals in one place. In fact, it gives you a goal management framework to break down objectives into action plans and set them as tasks for easy monitoring. If you’re new to this, try any of these goal-setting templates.
Objectives in OKR
On the other hand, if you’re using OKRs, set more aspirational and qualitative goals. Use ClickUp Docs or ClickUp Whiteboards to collaborate with the team on what to measure and how.
When you’re ready to set it, don’t build it from scratch. Use ClickUp’s OKRs Template to set planning cadence, list goals, monitor progress, and more. This easily adaptable template offers a variety of views, which help you manage the entire OKR plan with ease. You can choose the view that suits your needs.
When in doubt, get help. Use ClickUp Brain to ideate and brainstorm strategic goals. Ask the AI to generate OKRs based on the existing tasks of any project. Use it to create multiple OKRs and MBOs at no time.
Setup monitoring
Whether you use MBO or OKRs, you need to monitor progress. In MBO, you’ll track the progress of action plans. With OKRs, you’ll evaluate success on key results.
The ClickUp Dashboard is the perfect place to monitor and improve organizational performance across various goals and metrics. This highly customizable dashboard allows you to add widgets of goals that matter to you.
If you’re using OKRs, ClickUp has a predefined OKR dashboard to visualize your performance, identify bottlenecks, and detect risks early.
Conduct effective reviews
Performance reviews in MBO
MBO encourages teams to conduct formal performance appraisals at the end of each year. You might add quarterly meetings to discuss progress in shorter periods. Either way, consider choosing evaluation tools to automate parts of this process.
Take the time to discuss feedback, adjust plans, and keep objectives on track. Use ClickUp’s Performance Review Template to streamline discussions, track individual employee performance, and drive incremental improvement over time.
Draw a clear line of sight between goal achievement and rewards, such as compensation, bonuses, or promotions.
Continuous improvement approach in OKR
OKR goal-setting systems encourage shorter review cycles, typically a quarter. However, agile teams conduct retrospectives for each sprint (two weeks) or each month. This helps in continuous performance management, staying on track with the various moving parts, and gaining greater control.
To conduct effective reviews,
- Collect data around key metrics
- Discuss reasons for non-achievement (if you’ve overshot targets, consider if your goals were too easy)
- Explore strategies for improving performance
- Re-commit to your objectives and key results
ClickUp’s OKR framework template helps you handle the entire process effortlessly. Use this highly customizable template to clarify your team’s objectives, pinpoint key result areas, set targets, and achieve them.
If this template doesn’t meet your needs, check out ClickUp’s other OKR templates.
Summarize this article for me pleaseMove Your Goals From To-Do to Done with ClickUp
The industry’s shift from MBOs to OKRs reflects a growing need for agility, transparency, and ambition in today’s business. OKRs are better suited for fast-paced engineering teams, while MBO might be the right approach for sales teams who need clarity and unwavering commitment.
In essence, if your focus is on long-term planning with a clear execution path, MBO is the right fit. Conversely, if you need to adapt quickly to changes and encourage ambitious, cross-functional collaboration, OKRs are more effective.
Irrespective of the methodology you choose, you need a comprehensive project management tool that acts as OKR software to plan, manage, and achieve your goals. ClickUp does precisely that. Try ClickUp today for free!
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