Have you heard the acronyms ‘MBO’ and ‘OKR’ used in your workplace? Well, these terms are generally used in reference to human resources. MBOs and OKRs are used when businesses are attempting to measure the performance of their employees.
What does MBO mean?
MBO stands for Management by Objectives. It’s a goal-setting framework, and it was established in 1954. The founder of this method devised MBOs as a way of evaluating and enhancing employee performance over a period of time, and it became very popular with companies wanting to get the most out of their employees.
So how does it work? Well, if a company uses a Management by Objective approach, it sets objectives for each employee to meet. The employees’ performance is reviewed on annual basis with the purpose of determining the level of compensation (salary) they should receive. The review is conducted between the employee and his or her manager, and the results of that review are kept between them and senior managers. A good review (i.e. the goals were met) may result in a pay rise, a promotion or other benefits. A poor review might result in pay and job roles remaining the same, as well as extra goals and interventions being set.
What does OKR mean?
On the other hand, OKR stands for Objectives and Key Results. It’s also a goal-setting framework, but this type was established in the 1970s after people began to notice that MBOs had some shortcomings. It’s a method of evaluating employee performance, but with a very different purpose to MBOs.
Instead of using reviews to determine the salary an employee should receive, the primary aim of reviews is to increase operational efficiency. As a result, reviews are conducted on a quarterly or even monthly basis and, unlike MBOs, the results are shared across the company. Goals are set using SMART objectives, and whereas the MBO method demands to see 100% of objective met, OKRs expects to see 60% to 70% met. That’s because OKRs set harder objectives, and 100% achievement would indicate that employees are only operating within their comfort zones.
Here’s a helpful infographic if you’re still not quite sure you’ve understood what MBOs and OKRs are and what the difference is between them.
Which is better for businesses?
MBOs have been around for a very long time, and because it’s the ‘traditional’ method of setting objectives in an office environment, it’s the management style many businesses still use.
However, the OKR method is gradually being implemented instead, reflecting the reality of the business environment. While employees still hope for an increased salary every year, once-yearly performance reviews based on the MBO method can leave employees feeling despondent, unappreciated or overwhelmed with the need to meet 100% of objectives and demonstrate it in a short meeting.
As a result, the OKR method is preferred by many employees. It ensures that goals are actually attainable, and progress is measured much more regularly. This has the effect of making employees feel valued, supported, and driven by enhancing efficiency – things that contribute to a much happier working environment overall!
Businesses may continue to use the MBO method if they’re uncertain about trying something new, but don’t be surprised if you see more and more companies adopting the OKR method instead.