For many years, but especially since spring 2020, the enormous transformation of society and the economy has become the new normal. To keep up with these significant changes and better navigate turbulent times, it is crucial for companies to rely on contemporary and effective management methods. The focus is increasingly on the widely adopted method OKR - Objectives and Key Results, which many innovative companies, including Google, LinkedIn, and Zalando, successfully implement today. But what sets OKR apart from conventional methods such as MbO - Management by Objectives?
MbO - a tried and tested method Management by Objectives, abbreviated as MbO, translates to "Leading through goal setting." The emphasis is on cascading defined company goals down to the employee level, aligning all business activities with these goals. The method was introduced by Peter Drucker in 1954 and is based on an annual feedback conversation that evaluates the progress toward the set objectives. Goal achievement is linked to rewards such as promotions, bonuses, or salary increases. However, when employee compensation is tied to goal attainment, practical problems inevitably arise. Where does OKR come from?
OKR - just a new version of MbO? OKR is a management method known for its agility. It evolved from MbO in the 1970s. Andy Grove, the longtime CEO of Intel, transformed OKR into an agile method by, among other things, setting objectives in short quarterly periods. His colleague John Doerr, who later joined the VC firm Kleiner Perkins and invested in Google as early as 1999, introduced OKR at Google. But why is Google so successful with OKR?
Agility as a means for quick adaptation Annual goal agreements in the MbO method often last for months, slowing down business processes and making it impossible to adjust goals mid-year due to extensive coordination within the company. Agile methods are usually applied tactically in isolated departments. In contrast, OKR sets goals in much shorter timeframes, typically quarterly, and accompanies the goal achievement process with daily and weekly check-in meetings, as well as quarterly review meetings. This makes OKR an agile and effective strategy implementation tool compared to MbO. But what does OKR bring to a company?
More clarity and transparency in an increasingly complex world To ensure a company's reliability and confidence in times of crisis, internal company goals should not be solely agreed upon between executives and respective employees/departments, as is common in MbO. By keeping goals known only to individual parties, silo thinking is encouraged, hindering or even preventing cross-departmental and cross-team communication. OKR promotes transparency and collaboration by defining OKR sets at all levels, openly communicating and agreeing upon them. This way, everyone knows all the goals of the departments and teams in the company - enabling more clarity, transparency, and team spirit. Collaboration is also fostered, as cross-departmental and cross-team goals are also addressed. OKR is in tune with the times.
Achieving success through ambitious goals The optimal workplace in the 21st century is built on meaning, intrinsic motivation, and benefits. MbO triggers extrinsic motivation by linking goals to personal bonuses, leading to opportunistic behavior and reinforcing selfishness. In contrast, OKR should never directly link rewards like bonuses or salary increases to the achievement of objectives. This encourages employees to be more ambitious and experimental when creating OKR sets, increasing motivation through intrinsic incentive systems.
Courage leads to exponential growth In MbO goal-setting discussions, the focus is on achieving 100% of the goals, and even exceeding them due to the reward linkage. Therefore, employees often try to keep company goals and related KPIs (Key Performance Indicators) as low as possible to increase the chance of a reward upon goal achievement. As a result, MbO as a risk-averse strategy has only led to incremental instead of exponential growth in past decades. In OKR, the focus is on ambitious and risky goals - also known as Moonshots. Formulating Moonshots makes employees bolder and more willing to experiment, enabling the development of new and innovative solutions and exponential growth. Goals set in the OKR method are considered fulfilled at 70% because they are intentionally formulated ambitiously. The degree of goal achievement is used for learning from mistakes and successes, not for evaluating employee performance. This fosters a Culture of Learning.
OKR - the ideal goal management and strategy implementation method for modern companies Although MbO laid the foundation for the emergence of OKR, the two methods have different approaches to achieving and implementing set goals. OKR has taken up, developed, and improved MbO. It combines modern requirements with the strengths of proven methods, making it the optimal goal management and strategy implementation method for modern companies. Google Co-Founder Larry Page believes, "OKRs have led us to 10x success - time and time again." --- For those who want to learn more: the e-book "OKR is MbO 2.0 - more focus, motivation, and success" with practical application tips and background information, as well as other e-books on the topic of OKR, are available for free at www.okrexperten.de/ebook-okr-vs-mbo.
