Let’s look at the difference between OKRs and other traditional planning methods.
If the final objective is your destination, your OKR is the vehicle and your KPI is the dashboard. Your OKR is what gets your car to the final destination, whereas your KPI tells you how your car is doing as it makes its way toward the goal. One can use OKRs and KPIs to achieve the same objective – but they perform different functions. KPI stands for key performance indicator. However, just knowing what the initials stand for isn’t enough.
Let’s dive deeper:
- Key: provides a means of achieving or understanding something
- Performance: defines a particular action, deed, or proceeding
- Indicator: designates the state or level of something
Put simply, a KPI is a metric which serves to perform a health check on the productivity, effectiveness, and efficiency of staff, employees and individual teams. Conversely, OKR’s keep a finger on the pulse of the company’s objective while also monitoring activity of its individual contributors via key results.
SMART goals are a recognized method of creating goals that many organizations use to reach success. Let’s examine the difference between OKRs and SMART goals!
The SMART method is a very simple way to structure goals and to measure progress toward an objective. SMART goals hold up every objective to the same criteria to manage progress and gauge effectiveness.
- Specific. Each goal must be framed such that the objective is very clear and spelled out.
- Measurable. This eliminates abstraction. Each goal must yield quantifiable results .
- Achievable. Goals must be realistic in order to avoid setting oneself up for failure
- Relevant. Prioritize objectives and tasks to eliminate the possibility of wasting time and resources on goals that are irrelevant to the mission, values, or current direction of the company
- Time-bound. Each goal is held to a tightly scheduled structure to prevent fall-out.
SO WHAT’S THE DIFFERENCE?
At first glance, the two methods do, indeed, share some similarities. Both set a specific direction, a framework upon which to measure success, streamline objectives across all departments, and fix hard timelines for implementation.
However, the SMART method takes more time to define goals, focuses more on the individual, and doesn’t push beyond what is attainable. In contrast, the OKR method is quicker, more flexible, and encourages cross-functional interaction across multiple teams, departments and projects. With OKR, an entire organization can streamline key results and work toward achieving clarity, unity, and focus.
We all know what a goal is. Simply put, it’s something you want to accomplish.. They can be as abstract or concrete as you want them to be, as realistic or unattainable as the vision of the individual who sets them, or as simple or complicated as you want. Goal setting is a way to establish expectations, to have “something” to “work toward.” However, the OKR method encourages users to break down goals into measurable, trackable and quantifiable parts of the overall objective – these parts are called key results.
- The objective: “Save money.”
- And the key result: “Save $100 for the month of January.”
For example, if someone sets the goal: “Save more money,” that’s as far as that goal goes.
But the OKR framework takes that goal and splits it into:
The power of the OKR method lies in its application of a structure to the practice of setting goals, and the management of concrete, quantifiable milestones toward achieving that objective.
OKR’s emerged as a powerful and effective objective management tool back in the 1970s. As the popularity of OKR’s increased, users of the older management method, MBO, or Management By Objectives, had to evaluate which method worked better — and whether it was worth it to switch to OKR.
The term was first coined by Peter Drucker in his 1954 book, The Practice of Management. The MBO method, which rewards personal growth and development, consists of 5 steps:
- Review organizational goals
- Set challenging yet achievable objectives with the help of employees
- Stimulate employee participation.
- Monitor progress
- Evaluate and compensate/reward employees. Ask for honest feedback during annual reviews.
This method was groundbreaking. Finally, a bridge was formed between managers and employees.
This technique dates back to the 1970s when it was first introduced by the president of Intel – Andy Grove. Similar to the MBO method, OKR’s entail defining and establishing clear goals in a collaborative effort between managers and employees. However, they differ in several ways.
OKRs are more cross-functional than MBOs. The MBO method isolates communication between a manager and his employee. OKRs are publicly shared within the company, therefore measuring performance more transparently with customizable timetables for every key result and every department responsible for its participation.
MBOs measure performance more arbitrarily, as one can use quantitative or qualitative assessments. With OKR, the measurement is precise as it is always quantitative. You can more easily and accurately evaluate your key results with OKR.
Furthermore, MBO only asks for feedback at the end of the year, OKR keeps progressing toward the main objective by providing a framework for regular reporting, tracking, feedback, and redirection – all of which are necessary to keep up with the ever-changing goals of many companies.
The MBO method provided a crucial framework for the development of the OKR method in its trailblazing methodology towards establishing clearly defined goals in a collaborative effort. Prior to the establishment of the MBO method, many organizations followed the older, traditional model in which leadership passed down orders and team members carried them out.
Historically, there has been a stark lack of collaboration among levels, and the MBO sought to remedy that. However, the OKR method took this underlying principle and built a robust objective management system that has proven invaluable to businesses all around the world today.