I often hear that OKRs are nothing more than Management by Objectives (MbO) in a new “little coat”. And indeed, there is a connection between the two models. Andy Grove, former Intel CEO and OKR “inventor”, called OKR “iMbO” in the early days, which means “Intel Management by Objectives”. But that was almost 50 years ago and times have changed. So are OKR really still something like MbO or have they colossally changed into an agile process model?
In order to understand how OKR differs from MbO and why OKR is an agile procedure, I would like to compare both models. You will be surprised how different both methods are!
Indicator of Management by Objectives
Management by Objectives was defined and introduced by Peter Drucker in the 1950s of the 20th century. His goal was (actually) to increase the participation of employees in the definition of goals and at the same time to introduce a uniform management tool. The essential characteristics of MbO are:
- The supervisor defines strategic goals or sets goals based on a superior strategy
- Supervisor and employee define goals (formulation, resource and timeline planning, focus and priorities) in a 1-to-1 conversation
- Supervisor assesses the employee’s prerequisites, qualifications and resources for achieving objectives
- Supervisor clarifies and defines financial framework conditions (bonus etc.)
- Employee is responsible for implementation in “time & budget
- Supervisor assesses the degree of target achievement at the end of the implementation period in a 1-to-1 conversation with employees
The decisive and strongest feature of MbO is the key role of the supervisor in the entire process. He defines and accepts goals, checks the planning of implementation, provides resources, assesses the degree to which goals have been achieved and ultimately releases financial compensation in the form of bonuses or premiums. Although the implementing employee has many opportunities to work on the goals within this framework, his or her own strategic goals are not taken into account. Similarly, X-functional work, transparency in the definition and achievement of objectives across the entire organization are not characteristics of the MbO procedure.
The reason for this is the strong focus on a direct 1-to-1 connection between supervisor and individual employee. The coordination between company-, department-, team- and individual goals follows almost automatically the respective hierarchy levels and silo structures of an organization. Goals are passed on “from top to bottom”!
Ultimately, targets in the MbO model are often defined on an annual basis at the beginning of the year and target achievement at the end of the same is checked. Implementation measures therefore run in long cycles and often with only very limited possibilities for goal adjustment.
I therefore very rarely see companies with MbO (or derivatives of them) that on the one hand successfully pursue goals with MbO and on the other hand can demonstrate a high level of satisfaction with MbO among employees and managers. Most companies already “feel” that the model does not contribute to increasing the motivation of an organization and that long-term goal definitions are often obsolete after only a few weeks.
Indicator of Objectives and Key Results
OKR were first introduced at Intel in the 80’s by Andrew Grove and have been developed and refined over the last decades by prominent tech companies like Google, LinkedIn and Salesforce (an important point: OKR have been and are actively developed like other agile models and therefore have different characteristics in different setups).
Essential features of OKR are:
- Objectives are defined with a strong focus on the customer benefit in order to avoid a “silo-like” definition, which in the end represents organizational structures.
- Objectives are defined and coordinated collaboratively in existing or (new) virtual teams
- Objectives represent both the strategic level (top-down) and the operational level (bottom-up) and therefore cover everything the company should achieve.
- Objectives are made measurable through directly and gradually changeable key results
- Objectives are not linked to bonus payments
- Objectives are defined in adequately short cycles (often 3 months), reviewed regularly (weekly) and adjusted if necessary/sensitively.
- Objectives are processed x-functionally and are not necessarily specified by the supervisor/manager.
- OKR are made visible and traceable through company-wide appointments such as reviews, retrospectives and weekly check-ins.
Essential characteristics of OKR are team- and cross-departmental cooperation in objective definition and implementation and strong visibility and traceability of all goals within an organization with simultaneous cyclical processing and measured adjustment of goals.
Comparison of OKR and MbO
A direct comparison of both procedures brings the differences to light even more clearly!
|Definition of objectives||Collaborative definition of objectives within the entire organization
Objectives based on strategic (40%) and operational (60%) targets
|Objectives set directly by supervisor, agreed with individual employee
Objectives are based on the employee’s individual area of responsibility
|Implementation of objectives||Collaborative and cross-functional implementation within the entire organization
Adjustment of objectives, key results, measures at any time – if sensible – feasible (in weekly check-in)
|Individual (partly “secret”) and silo-based implementation of objectives
Adaptability of objectives until the end of the implementation cycle not or only with difficulty feasible
|Measurability of objectives||Objectives are measured transparently using lead metrics that can be influenced directly by the implementer||Objectives are reviewed in a non-transparent (“secret”) manner between supervisor and employee at the end of the implementation cycle and evaluated for monetary bonuses and rewards.|
|Time horizon||Quarter-based cycle (focus on adequately shorter cycles)||Annual or semi-annual cycles (focus on not too short cycles -> overhead)|
|Transparency regarding objectives and degree of achievement||High transparency and visibility of objectives and degree of achievement within the entire organization (also tool-based)||No transparency and visibility about objectives and degree of achievement for other employees (except for direct implementers and superiors)|
|Monetary bonuses/rewards||No binding to individual monetary bonuses/rewards defined/desired||Direct binding to monetary rewards based on degree of target achievement|
|Risk appetite||Risk-friendly due to positive error culture and decoupling of bonus payments||Low to no risk appetite due to negative error culture (failure to achieve targets results in penalty due to lower compensation)|
Why OKR are not new MbO?
“Form follows function” – This guiding principle from industrial design can also be applied wonderfully to the definition of objectives under OKR or MbO. The function of an organization with disciplinarily and operationally responsible line managers lies in the specification, monitoring and acceptance of the employee’s tasks. The central element here is the role of the supervisor or manager. The form of such an organization is (almost) automatically that of a hierarchical pyramid.
MbO focus on the supvisor in the objective process, OKR on the x-functional organization! Accordingly, all processes change from the collaborative definition of objectives, working together on objectives to the transparent, company-wide review of the degree of goal achievement to a strong team play. With the addition of the review and retro elements in the OKR procedure, we see here a complete agile process model. The form of the organization is (or changes to) a network.
OKR – like other agile models – are shaped by it:
- Planning and working in shorter cycles (OKR: 3 months)
- Regular joint reflection of the process by means of retrospectives
- Increase in customer added value through strong focus on customers, not on organizational units
- Regular collaboration and coordination through Weekly Checkin Meeting
- High transparency and visibility throughout the process
- Flexibility in objective tracking (and not adhering to obsolete plans)
All features that make OKR an agile approach and clearly distinguish OKR from MbO. OKR are not new MbO!
The use of OKR develops enormous energy in a company by strengthening OKR x-functional cooperation, providing a high degree of transparency about goals and target achievement and transforming the organisation into an agile network structure that can react flexibly and successfully to change!
Even though OKR and MbO both use the term “Objectives” and both have something to do with defining and pursuing goals, they differ considerably and should neither be confused nor understood as synonymous.
The essential and decisive difference is the role of the supervisor/manager in defining and working on obejectives. OKR rely on cross-departmental collaboration in all areas and on agile principles such as short planning cycles and regular process optimization through retrospectives. Elements that clearly distinguish OKR from MbO!
So if you would like to use OKR in your company or better understand what power OKR can develop in your company, feel free to arrange an appointment with me!