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OKRs versus KPIs versus MBOs
What are they, and which one is best for your business?
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D E COD I NG THE D IF F E R E N T TOOLS
There are a great number of ways you may choose to manage your business. Some
companies rely on KPIs or OKRs to keep track of their goals, while others choose to enlist
the practice of MBOs, or maybe a combination of these. It is important to understand the
differences between these tools and methodologies before deciding which to utilize in
your organization. Let’s begin with OKRs.
First of all, what does OKR stand for?
O B JEC T I V ES A N D K EY R E S ULTS
The OKR framework is ultimately made up of two pieces. Your company objectives are
what you are looking to accomplish. The Key Results focus on what you are going to do to
achieve those objectives. Key Results also serve as your tool for measurement–i.e. If you
do not meet an Objective, what went wrong, or fell below plan according to your Key
Results?
Now let’s take a look at KPI–
K E Y PE RF O R M A N C E I N D I C ATO R S
KPIs are essentially your metrics. When you are looking at KPIs, you will likely see numbers,
charts and graphs.. All KPIs are directly measurable. They are a means of measuring how
well an individual, team or organization is performing against their goals according to the
numbers.
Last but not least, what is MBO?
M AN AGEM EN T BY O B J ECTIVES
Rather than being a piece of the management practice, as are OKRs and KPIs, Management
by Objectives is the management practice itself which aligns objectives with subsequent
goals, and subgoals throughout the organization. Managing by objectives helps you to set
employee objectives that are strategically aligned to the overall objectives of the
organization.
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WHI CH ONE DO I USE?
Now that we understand the difference between the
KPIs: different tools/methodologies, we can examine which
Leading & Lagging one, or combination of them, fit best with a customer’s
Indicators process, methodology and current state. What benefits
does each tool carry, and which benefits would provide
All KPIs will fall into one of two the most value to your organization?
categories: leading or lagging
indicators. First it is important to understand that it is possible to
have some overlap between these tools. For example, a
Lagging indicators are those company that is using OKRs may also be using KPIs in
that are very easy to measure. their Key Results. How would this happen? The example
They are the actual output below demonstrates the elements of an OKR and where
numbers we look back on and a KPI would also factor in.
learn from. For example, when
measuring the success of a Objective:
sales team you may consider - Grow our sales in the Western Region in Q2
Quarterly Sales Revenue as
one of your lagging indicators. Key Results:
Easily measurable, and will 1. Develop new relationships with 20 new
indicate how the sales team prospects in Q2
performed over the quarter. 2. Double sales revenue in the Western Region in Q2
3. Implement incentives program to increase focus
Leading indicators are those in Western Region
that contribute to the success
of the lagging indicators. KPIs from above:
Going back to our example for 1. Number of new prospects
lagging indicators, there are a 2. Sales Revenue
number of contributing KPIs
that could be associated with You’ll notice the third Key Result does not have an
Quarterly Sales Revenue–daily explicit KPI attached to it. KPIs are essentially
outbound calls or proposals interchangeable for the term “metric” and are treated as
sent for example. These are such in the example above. The third key result is not
your leading KPIs. specific enough to tie a KPI to it–it will simply be
accomplished, or not. It does not need a specific metric
to measure a successful outcome.
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B E NE F I TS O F K P Is
Again, we can think of the term KPI as being interchangeable with the term metric. Metrics are
the hard numbers that give context to the success or failure of your business. By using KPIs as
your primary tool for your management operating system, you will have a clear picture of
where your business’ shortcomings and successes are, and you will have the numbers to
prove it. This is only true however if you are choosing the right KPIs.
Use the list of questions below to help determine whether are not you are on the path to
choosing valuable and effective KPIs.
1. Are my KPIs aligned with my overall strategic goals for the company?
You should have different KPIs for different teams, departments and
management levels. Be sure to also avoid KPIs that are too generic. The
purpose of a KPI is to help drive the success of YOUR business, so make it
specific enough to have an impact.
2. Are these KPIs realistic?
An easy way to assess this question is to consider the data points and
resources that would be needed to reach the KPI. Consider new processes
that would need to be in place, and whether or not the time spent on those
processes is realistic for those directly tied to the KPI. Ultimately, you must
determine whether the time put into it, will be worth the potential return.
3. If we could only pick X number of KPIs, would this one make the cut?
Be deliberate with your choices, and prioritize KPIs that will benefit the
company as a whole. By determining which KPIs are truly important early on,
you will have less maintenance in the long-run.
4. Is this within our control?
A good KPI has to be something that you can be actively working on. If your
business realistically can not change it, why is it a measure of your success?
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BE NE F I TS OF O K R s
OKRs are clearly favored as they have gained popularity in recent years. It is the method
originally implemented by Intel, and now widely used by Google. OKRs give you a big picture
look at what you are trying to accomplish–or at least a bigger picture than you would have
with KPIs as those tend to focus on the numbers. OKRs require you to set a primary objective,
and develop Key Results based off of that objective. They are created with a single goal in
mind, and map out the stepping stones needed to get there.
Setting your OKRs require that you follow a few best practices to get the most out of them.
First, you have to think of your objective as a goal, and goals come with their own set of best
practices–think, SMART. Your objective needs to follow the SMART goal-setting practice of
being specific, measurable, attainable, relevant, and time-bound. Once you have your
objective set, you can begin to create a list of action items necessary to get to the Key Results.
OKRs encourage weekly check-ins, quarterly review/optimization of current OKRs, and
cascading OKRs throughout the organization. For a company that values transparency, and
clear ties from individual, to team, to company-wide objectives, OKRs may fit quite nicely into
your business practices.
BE NE F I TS OF MB O s
MBOs will certainly be the broadest practice we will examine. Rather than a tool or single
metric, MBOs is the practice of cascading goals and sub-goals throughout the entire
organization. Every goal is tied to a plan or sub-plan above it, and every sub-goal is tied to a
goal. At the top level, you will have your company plan, then your top company objectives are
created based off of that plan. Your overall plan may have many sub-plans, that come with
their own set of goals and objectives. This cascade continues all the way through the
organization from the goals of the CEO to senior executives, managers and front-line
employees.
The key benefit to employing this methodology is the comprehensive view it provides. This
view is not just a benefit to the CEO or top executives. Team leaders clearly see how their
team’s performance fits into the top-line goals of the organization, and if there is a problem
this system allows them to see where and how this may have come about.
It gives context to the metrics to provide a complete overview of the business performance
goals and results.
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T HE B AC K B O N E O F YO UR M OS
Before deciding to fully commit to any of these methodologies, organizations must take the
time to consider their desired results, and how they measure success. Whichever tool you
choose will provide the backbone of your Management Operating System (MOS) so you
should be sure to pick one that will provide the best long-term solution.
DE FI NING M ANAGEM E N T O PE R AT I N G SYST E M (M OS ):
An M O S i s a s t a n d a r d i ze d p ro ce s s to m anage the
a c com p li s hm ent of c o rp o rate and s trate gi c go al s and
c ul tu re a l l t h e w a y t o fro nt-l i ne e m p l o y e e s .
The MOS includes a communications plan, a series of evaluation-related
activities and ensures that employee evaluations will align employee
performance to the organization’s culture, strategy and requirements. The
MOS can be as simple or complex as either the organization or individual
managers desire.
The tools and/or methodology you choose will feed directly into your MOS to create the daily,
weekly, or quarterly (etc.) processes, goals and procedures that your organization puts into
practice. Understanding how these tools and processes will work together to impact your
business is vital to successful execution and positive results.
One important distinction–the MOS referenced here is not any form of technology
application. It is the process and procedures used to execute on your corporate strategy. The
technology application you choose to organize all of these tools is not your MOS. There are a
number of applications you may choose from for this purpose, and it will of course impact
how you organize your tools and present your MOS, but the technology is not and should not
be the main driver behind your best practices and methodologies.
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T HE T E C HN O LO GY IS N OT THE DECI SI ON MAKER
In deciding which goal-setting methodology to choose, there are many factors to
consider. Maybe you are mainly wanting to focus on forward-looking goals with a growth
mindset–in that case, KPIs may be your best bet. Perhaps you are simply trying to refine
your MOS and day-to-day processes to encourage more specific goals and task oriented
teams–OKRs would then be a good option. Again, the one thing that should not factor
into your decision is the technology. Why use a platform that forces you into one chosen
methodology when your business is ever-changing?
The goal of ETW has never been to box our
clients into any one methodology. Embrace
what works for you.
With ETW you can choose any combination of KPI tracking, OKRs, SMART Goals, 4DX or
any other methodology you can think of. Use one of them, none of them or all of them.
The platform will still conform to your individual company needs.
As a company, we at ETW use our own software, and happen to employ an MBO
approach. However, the software application was developed with an understanding that
every company is different in their approach to goal-setting. The ETW application was
intentionally created to be flexible enough to adapt to any methodology.
We want your organization to embrace whichever methodology best integrates with your
MOS and makes the most sense for your business–the technology should be secondary.
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About ETW
ETW provides a platform to track, evaluate and measure employee
performance against the major objectives of the organization. Easily
execute and translate long-term strategy into clear, actionable goals. With
ETW you can effectively communicate the company’s roadmap to success
and engage everyone throughout the organization with that roadmap.
Using ETW your organization can connect employees to strategy and
culture to drive sustainable winning results.
If you would like to set up a demo with our leadership
team, please email info@[Link]
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