MBO vs KPI vs OKR: What Are They…And Which One Is The Best Fit For Your Company?
MBOs, KPIs, and OKRs are key components in how a company achieves its goals and they each represent a different way to achieve those company goals. MBO stands for Management By Objectives; KPIs stand for Key Performance Indicators; OKRs stand for Objectives and Key Results.
While MBOs and OKRs play a vital role in how companies manage their employees and reflect the values of the company and the work environment expected within, KPIs are paired with more specific business objectives.
Let’s define each different strategy (with examples!), list the benefits of adopting the strategy, then follow the provided steps to implement your chosen strategy.
What Are MBOs, KPIs, and OKRs (with examples!)
MBOs, KPIs, and OKRs are all different ways of planning goals and measuring success. Both MBOs and OKRs focus more on the objectives of a business, however, they have very different approaches in doing so. KPIs on the other hand, aim to measure the success of a company’s ventures.
MBO – Management By Objectives
Management By Objectives, or MBO, is a goal-driven system with a heavy focus on results. Goal success is defined as 100% completion at the end of the objectives assigned lifetime.
MBOs are made up of one large overarching goal the company has set. These are then broken down into various supporting goals to be assigned to particular departments, teams, or employees. Because the objectives are formed and assigned from the top down, this strategy often performs best when employees are aligned with the company’s goals and overall values. This creates a company that is working as a whole towards one final objective, at all levels. The main objective in this framework is often set for a long period of time; most commonly they last for a full fiscal year. The results are measured at the end of the year and those who found the highest rates of success are provided compensation for their efforts.
Benefits of MBOs:
MBOs provide a range of benefits to the companies that adopt them as their chosen framework. Some of these benefits include:
- Provides the company with the ability to match specific goals with corresponding departments, aligning them with the core responsibilities of that role in mind.
- Allows for greater autonomy in employees, as they can focus directly on their own progress towards the objective they’ve been personally assigned.
- Helps the company hire and assign tasks with a specific skill set in mind.
Ensures structure and consistency in the workplace.
Examples of MBOs include:
- Decrease operational costs by 5%.
- Gain one new departmental executive.
- Increase win ratio by 8%.
KPI – Key Performance Indicators
KPI stands for key performance indicators, which are pre-determined sets of values used to evaluate a company’s success and effectiveness in achieving its goals. KPIs are paired with specific business objectives and offer a clearly defined way to determine success. This can be in regards to the business as a whole, a specific project, or even individual employees.
In order for KPIs to be effective, they must be specific and relevant. KPIs are often reflective of a collaborative environment because many roles use the KPI to determine success as a whole. This requires different departments and teams to come together to clearly define the KPIs in a way that everyone can understand, and clearly utilize in their own individual tasks to monitor progress towards a common goal.
Benefits of KPIs:
KPIs provide benefits for the company as a whole, as well as individually to your employees as well. Some of the most notable ones include:
- KPIs give you valuable and quantifiable insight into your company’s success in various areas.
- Ensures teams continue moving in the same direction.
- Makes evaluating your objectives easier.
- Clearly shows where improvements can be made.
- Provides you with a way to assess your teams and hold them accountable with definitive data.
- Helps you get a full understanding of your company’s overall health and the likelihood of future growth.
Examples of KPIs:
When deciding on your KPIs, it’s important to clearly define your goal and be specific in your measurable values. For example, if your company’s goal is to increase your yearly revenue by 30%, your KPIs could be:
- The number of new customers.
- Cost per lead.
- Funnel success rates.
- Total revenue compared to previous years.
OKR – Objectives And Key Results
Objectives and Key Results are one of the more popular frameworks; they’ve been adopted by large corporations like Amazon, Google, Spotify, and LinkedIn. OKR is a strategic framework for defining and achieving a goal. Unlike MBOs that focus solely on the goal itself, OKRs go beyond that. Not only do OKRs set main objectives, but it also puts a strong emphasis on creating the action plan to help you reach success.
OKRs are also designed in a way that allows employees to determine their individual action plans and work within their own preferred style. Just like in the MBO framework, overall objectives are defined by the CEO and higher-ups. However, in an OKR framework, employees then get to create individual goals to help them meet the overarching goals given by their leadership team.
When utilizing OKRs, teams meet more regularly to discuss and measure the progress towards the goal. They then use the information gathered to make any adjustments as necessary. Most often, these meetings are held on a weekly or biweekly basis because the objectives in an OKR framework are often expected to be met over a shorter period of time, usually quarterly. OKRs often define success as achieving 60-70% of goal completion, reflecting the increased difficulty of the assigned goals. This makes learning experiences and personal growth a more valuable asset to the company.
Benefits of OKR:
An OKR framework brings strong benefits to employees, which often bring a significant boost in company success over shorter periods of time. These benefits include:
- Promotes creativity and flexibility within the workplace.
- Provides a level of freedom for employees to work in a way that best suits them. This allows for greater personal involvement in the company’s goals.
- Creates opportunities to adjust the strategy if it’s not tracking the way you anticipated. This leads to higher success rates and more refined strategies for future projects.
- Increases the difficulty level of goals while removing the expectation of 100% success. This provides a unique opportunity to encourage your employees to take on larger challenges.
- Regular meetings increase feedback, supporting employee growth and success
- Encourages collaboration between various members of your company (which brings its own set of benefits!)
Example of OKR:
Objective: Increase sales by 20%
- New promotional item
- Increased social media presence and adverts
- Grow marketing leads by 10%
Which Framework Is Best For Your Company?
Choosing an objective framework that is best suited to your company’s needs is a personal choice that reflects how you’d like your business to be managed. You must take into account many different factors, including:
- What are your company’s growth goals?
- What is your management style? How would you like your employees to be influenced by that?
- What are the primary values of your company?
- What stage is your company currently in?
- What direction do you want to take your company?
- What are some of the most important objectives you’d like to work towards?
- When would you like these goals to be achieved?
Once you’ve answered these questions, you should be able to clearly determine which strategy is best suited for your company’s needs.
(Keep in mind; while MBO and OKR systems are unable to be combined due to their different approaches, KPIs can be included in either system, providing a way to quantifiably measure the success of your system over longer periods.)
How Can You Implement MBOs, KPIs, And OKRs Successfully
Implementing a new framework to guide and measure the success of your goals can be a slow but worthwhile process, especially if you’re trying to adopt a style that doesn’t currently exist within your workplace. Once you’ve chosen which system you’d like to adopt, you can start taking the steps to implement it successfully for your next objective!
- Define Company Objectives
- To gain the best results, MBOs must be clear, realistic, and measurable.
- They must align with the company’s core values.
- Create Employee Objectives
- Break your main objective into smaller ones and assign them to your employees. This will ensure each employee’s actions will directly impact the success of achieving your overarching goal. Ensure you communicate with employees clearly and provide them with the necessary resources to find success.
- Monitor Progress
- Throughout the MBOs lifetime (often yearly), measure each employee’s performance and consider if they are likely to meet their assigned objective.
- Evaluate & Provide Feedback
- Review the efficiency of your employees in meeting their objectives. Provide feedback to them, focussing on positive aspects to encourage productivity in future objectives. This will allow your employees to track their progress within the company, and adjust their work habits as necessary.
- Reward Performance
- MBOs have a heavy focus on positive recognition and often reward those who performed the most effectively. This will help reinforce the positive work ethic, and provide growth in individuals’ career paths as they grow within the company.
- Define your main objective
- Ensure your objective is clearly outlined and achievable.
- Identify your KPIs and define how they will be used
- Create a clear-cut definition and role for your KPI that reflects the objective it is tied to. It is imperative that you know exactly how your main objectives are being measured, at what interval they will be measured, and what success will look like.
- Review your KPIs regularly
- When reviewing your KPI, consider not only the current measurement of your KPIs but also their effectiveness towards your final objective. Use the information gathered to influence any adjustments your team may need to make.
- Educate Your Team
- Before you can begin implementing an OKR framework, it is essential that you show your team what OKRs are all about. Include the benefits of OKRs from a company perspective and also how they can benefit individual employees as well. Highlight how adopting an OKR approach can meet the unique needs and challenges of your team.
- Define & Organize
- Decide on the timeframe you want for your OKR. Then, define what you want to accomplish – along with a couple different ways you will accomplish that objective. Objectives need to be concrete and measurable.
- Set Company OKRs
- The head of the company will be responsible for creating the overarching objectives. They know what’s most important for the company to achieve as a whole, and can shape them to fit the values of the company.
- Set Team OKRs
- Once the main OKRs are communicated to the managers, they can begin working with their team to create their own OKRs to reflect the company’s. This helps each team create an action plan that fits their skill set, strengths, and their role within the larger goals.
- Review and Improve
- Over the lifetime of the OKR, meet with your team regularly to review the current success rates. Discuss and plan any adjustments that may be necessary.
MBO, KPI, and OKR are frameworks that have provided the corporate world with options when it comes to choosing their ideal approach to achieving their objectives. Whether your company is looking for a reliable way to track and measure performance or manage objectives in a way that fits into your company’s ethos, there’s a system that will fit your needs. When you use the right framework, you can stay on track and achieve your short and long-term goals with greater ease, while creating a better workplace in the process.