Difference Between Objectives and Key Results (OKR) and Traditional Goal Management

OKR, or Objectives and Key Results, is a goal management model originally developed by Intel and then popularized by Google. In this model, clear and inspiring objectives (Objectives) are defined along with Key Results that serve as measurable steps towards the objectives.

To understand the difference between OKR and other traditional governance models, we can compare it with Management by Objectives (MBO), which is often used in Swedish organizations.

Overall description of the models

MBO focuses on setting specific, measurable goals for all employees, which can promote productivity and efficiency. But this model may be less flexible and adaptive than OKR. MBOs tend to be more top-down, with managers setting goals for their subordinates. These goals can be difficult to change or adapt based on rapidly changing market conditions or organizational needs as they are often used as tools to track individual performance and are linked to various forms of compensation.

OKR on the other hand is more dynamic and flexible. Goals are set quarterly rather than annually, allowing faster adjustment and iteration based on the current business environment. In addition, OKR encourages greater involvement from all levels of the organization in the goal setting. This creates a more inclusive and collaborative corporate culture where every employee's contribution is valued. OKR as a model also stipulates that they must not be linked to compensation - precisely to enable this dynamic.

Another difference between OKR and other models is the transparency. With OKR, all goals and key outcomes are visible to the entire organization, promoting ownership and accountability over results. This applies to everything from the CEO's individual OKRs to OKRs for teams or the company as a whole.

The biggest thing that distinguishes the models, however, is the level of ambition. In OKR, reaching 60-80% is very good, whereas in traditional target management it would have been seen as a failure. OKR is often used by companies trying to do something completely new or reach radical results.

MBO

Under MBO, management may aim to increase customer satisfaction by 10%. This goal is then broken down to each department and individual. For example, the sales department may be instructed to increase sales by 20% to attract new customers, while customer service is instructed to reduce the number of complaints by 15%. These specific targets are set and followed up on an annual basis with the ambition to reach 100%.

OKR

With OKR, the overall goal can be the same: to increase customer satisfaction by 10%. But instead of dividing the goal in the same way, objectives would be much more ambitous and the key results the evidence that we have reached our goals.

Examples of objectives include “becoming an industry leader in customer service” with key results such as “increasing the number of positive customer reviews by 50%”, “reducing response time to customer requests from 2 days to under 2 hours”, and “conducting a customer service training for all employees with an average rating of at least 9". This objective is highly posed and challenging, but not unattainable. If you reach 60-80% of it, it is seen as a successful quarter. If we were to reach 100%, it would have been seen as setting the bar too low.

An additional difference between OKR and MBO is that OKR often includes both the company's overall goals (Company OKRs) and individual or team-based goals (Team OKRs or Individual OKRs). These two levels of goals are linked, meaning that progress at the individual or team level should always contribute to the overall success of the company.

An illustration of how goals are written within MBO and OKR

Let us illustrate the difference between MBO and OKR with an example of how the objectives can be written within the two models of a fictitious production department of a company:

MBO

Target: Increase production by 10% over the next year.
Measures to achieve the goal:

• Hire 2 additional production workers.
• Implement new, more efficient production technologies.
• Conducting training for current staff on the new technology.

Here the goal is clearly defined and measurable, with specific actions to be taken to reach the goal. These actions would then be broken down among different individuals or teams within the department.

OKR

Objective: Become the most efficient production department in the industry.
Resultados clés:

• Increase production by 20% in the next quarter.
• Reduce production costs by 15% in the next quarter through the implementation of new technologies.
• Increase staff knowledge of the new technology to a level where 90% feel confident of using it effectively within three months.

Here the overall objective is much more ambitious and inspiring, but also more difficult to define. However, the key findings provide tangible, measurable steps towards the lens. It also means that success does not necessarily mean achieving all key outcomes at 100% - making significant progress towards them would still be considered a success.

In summary, it can be said that the main differences between OKR and other traditional governance models such as MBO are:

• Time period for goal setting: Quarterly (OKR) vs annual (MBO)
• The commitment of the organization: All levels involved (OKR) vs mostly top-down (MBO)
• Transparency: Full visibility for everyone in the organization (OKR) vs more limited visibility (MBO)
• Ambition level: High, challenging goals (OKR) vs more realistic, concrete goals (MBO)
• Flexibility: The OKR model allows faster adjustment and adaptation based on changing market conditions or organizational needs, while the MBO model tends to be more rigid with fixed annual targets.
• Goal linkage: In OKR, individual and team-based goals are linked to the overall goals of the company, contributing to a greater context and sense of ownership for each employee. The MBO model often lacks this connection.
• Success assessment: In OKR, it is considered successful if 60-80% of the ambitious goals are achieved, whereas traditional goal management such as MBO usually expects 100% of the more realistically set goals to be achieved.
• Culture: OKR promotes a more inclusive and collaborative corporate culture in which all levels of the organization are involved in the objectives. Traditional governance such as MBO can instead contribute to a hierarchical culture in which managers set the goals for their subordinates.

In Swedish business culture, it is common to have a strong focus on consensus and cooperation. This could benefit the OKR model, as it encourages participation from all levels of the organization and fosters an inclusive corporate culture. The OKR model can also be attractive for Swedish companies working in rapidly changing industries, as it allows quick adjustment of targets based on changing market conditions.

On the other hand, the MBO model may be more suitable for companies that have a more hierarchical structure, or where clear, concrete goals that are set at the beginning of the year and then followed up regularly are important. MBOs can also be a good choice for companies in more stable industries, where market conditions do not change as quickly.

Finally, there may also be the possibility of combining elements from both the OKR and MBO model. For example, a company could use OKR to set ambitious, inspiring overall goals, but then use MBO principles to break those goals down into clear, measurable steps at the individual or team level.

Regardless of which model a company chooses to use, the most important thing is that the model fits with the company's culture and goals, and that it is implemented in a thoughtful and consistent manner. A good goal management model can be a powerful engine for growth and improvement, but only if used correctly.

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