Table of Contents
As the business world continues to grow, traditional frameworks such as Management by Objectives (MBO) are becoming increasingly questionable. Not transparent enough, too sluggish, too ineffective, according to the usual accusations of the ageing management strategy. The criticized method is increasingly being replaced by Objective Key Results (OKR). Not least because companies like Intel or Google rely on this current management strategy.
In increasingly complex business situations, the shortcomings of MBO are becoming apparent again and again in all industries, regardless of the size of the company. Instead, more and more companies are moving to OKR, which is understood to be modernizing and improving goal management. And there are not only clear but serious differences between the two methods.
Everything about performance management can be found here: Setting goals with goals, KPIs and OKRs: the big overviewTopic of performance management
MBO as traditional corporate management
Management by Objectives (MBO), the full name of the established management system. “Leadership through target agreements” is the German translation of the concept, which was introduced by Peter Drucker in the 1950s, the pioneer of a modern management theory. According to its principles, the activities in a company are based on defined goals, also called goals. The way in which these requirements are met is open to employees, and the results provide information on the success. The goals are set by the management level and formulated step by step for the child levels up to the last unit, the individual employee. The principles therefore relate not only to the corporate strategy, but also to performance management.
And what is OKR?
OKR consists of the terms “objectives”, the goals of the company, and “key results”, the key results. The development of the company and its management are recorded and presented using the key figures. The method assigns two to five key results to multiple targets. These overarching objectives are identified with high standards and high quality, while the key figures ensure measurableness in particular. At any level of an organization, goals and results can be defined: for the performance of the entire organization, for a department, or for an individual employee. In addition, the specifications and results are accessible to everyone and can be viewed on the dashboard or in the materials at any time.
Differences and similarities
At first, the two methods seem very similar. The two frameworks organize the activities through goals they have previously set. Both models also refer to all levels of a plant. But at second glance, there are clear differences. The goals are usually only quantitatively formulated in the established method, with OKR the measurability of the results is in the foreground. And the achievement of objectives in particular is the essential aspect of the assessment here, because the objectives are structured in detail. For management by objectives, on the other hand, only the result is important. This particular difference between the two principles does not only concern the technique of the objective. On the contrary, the effects of the different approaches are clearly visible at all levels of the company.
Management or coaching?
In the traditional corporate strategy, the objectives are set for a period of one year, usually one year, and then organised from top to bottom. Management takes care that employees act in accordance with the requirements. At the end of the period, it is measured whether and in what way the goal has been achieved. The established process thus consists essentially of planning, control and control and is thus oriented towards the classic philosophy of management.
The OKRs, on the other hand, are focused on the way to the goals. At least the results are reviewed every quarter, even weekly checks are not uncommon. Feedback on the performance of employees is also given here again and again. In retrospectives, the company analyses whether goals have been correctly defined in terms of content and form. And the results will be included in the next period. OKRs thus pay much more attention to the development of the employees than the implementation of the targets.
Top Down or Bottom Up?
But not only the achievement of the objectives, but also their definition, is done in different ways with the two methods. Management by Objectives expresses a company’s intentions from the management level. These specifications result in the tasks of the departments, the teams and the individual employees. The structure is therefore top down, from top to bottom.
In the case of OKR, the management level has the same function. It is also responsible for the direction of the company. And here, too, the regulations have their impact on the entire company, on every level with all departments. But unlike traditional management, employees are also taking action. They define their own goals and design their tasks. Thus, the definition of the processes no longer only takes place top down, but also in the opposite direction, namely bottom up.
Exploit synergies in the interests of employees
Differences in goal management and performance affect the collaboration of departments and employees. If clear and structured objectives are set for a longer period of time, as is traditionally the case, employees are given a clear picture of their tasks. The need for enquiries and consultations is therefore low and employees can concentrate on their activities. In the case of OKR, goals are constantly being developed and discussed with the employees.
In addition, the definition of qualitative, ambitious goals often overlaps the tasks of different employees or departments. In response to this maladministration, employees are beginning to coordinate their work areas more precisely. Synergies are used in this way and employees avoid duplication of work.
The target horizon and the close-knit revision
The big advantage of the established method for the corporate strategy is reliability over a longer period of time. If the objectives are defined and queried only once a year, the procedures and procedures will inevitably be consistency. A quarterly review, supported by weekly meetings, results in a much higher agility. This also gives employees and teams the opportunity to react more quickly to market developments, to redefine goals and to influence performance at all times.
The different concepts also have an influence on communication within the companies. If MBO mainly demands that the employee act in accordance with the pre-formulated objectives, there are also consequences for the internal responsibilities. The departments are essentially isolated. In most cases, control over the achievement of the target is carried out only by the respective manager and the employee concerned. On the other hand, if OKR is used, all employees have insight and control over the results. This will result in more efficient cooperation. The necessary feedback is generated at shorter intervals. Not only during weekly meetings, suggestions and criticisms can be done more closely, even during the course of the day depending on the occasion.
Implementing OKR in Enterprises
Despite the disadvantages of the known method, many companies are still organized according to this management method. Consider a hierarchically organised insurance company, the steel or car industry. However, several American companies, including and especially IT companies, have said that they already set half of the goals set by employees.
There are several ways to implement OKR in an organization. An essential component here is the OKR list with the corresponding meetings and functions of the participants. This list lists all personal and group-specific goals, but also the goals or objecives of the company. The expected results, the key results, can also be found here. This OKR list is available to all employees, for example on the dashboard at meetings or in the daily workflow.
Proposals for implementation
The transition to OKR should start on a small scale. First, a child unit, team, or department should begin with the new method. Gradually, other business units can be integrated. After all, it makes little sense to cut off established habits through abrupt restructuring, thereby risking disruption sitdowns. Planning is required here more than elsewhere.
Changes are often a sensitive issue even in operational processes. Sensitivity is required when functions are changed, employees are relieved of tasks or their field of activity is limited. Performance management in particular affects all employees, and frictions can often result in friction. It is usually useful and helpful to have a coach who has the appropriate experience and can act with a sufficient distance from the company.
A team in the company may already be familiar with Kanban or Scrum. This can be an introduction to the changeover of management systems. And the team leader should then also have the appropriate attitude and be prepared for employees who are now helping to shape the processes with their proposals.
The two methods of organizing a company are not only different in technical matters. Rather, one should start from two different philosophies of running a business. MBO stands for control, consistency and reliable structures. At OKR, the focus is on creativity, flexibility and improved communication in operation. Due to the increasing digitalization and the accelerated market development, the latter features in companies have become increasingly the focus. This, too, is a possible explanation for the growing interest in OKR.