What Are OKRs, MBOs and KPIs?

How Professional Managers Set Goals and Get 56% More Productivity from Their Teams

The Father of Management, Peter Drucker first invented a formal goal setting process called Management By Objective (MBO back in the 1960s. Human beings have not change much at all since then. Most people require supervision and managers. MBO is both a process and very specific goal.  An "MBO" is also a single company or personal objective. A goal is turned into an objective by making it very specific. Even binary "done" or "Not done".  It is the secret great mangers do well and most managers fail to do at all. 

OKR is the same as MBO, just a rebranding in more recent decades. And Key performance Indicators are just the metrics that can be measure and tracked over time to see trends, good and bad. I always separate metrics (pure numbers) from other MBOs or goals because they can be crammed tightly into a spreadsheet and act as a heatlh indicator of a business. A good dashboard tells you everything you need to know about a company. Not just its status today but the direction it is going too. 

Do not confuse OKRs with ongoing metrics or KPIs. OKRs have a limited life and time as a specific goal to achieve with an end date. An MBO or OKR can be achieving a particular number like sales, profit, volume, conversion rate or some quality measure. Every department with more than a few people should have a dashboard with between 10 and 40 metrics that is used to manage and improve that area of the business.

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KPIs are the numbers that live on forever to see longitudinal trends (good and bad) to focus management attention on issues for the coming months. An OKR can use a KPI as a measurement of success (metric of achievement) but more often an OKR is a goal that defines Who, What and When. Or often the acronym SMART - For Specific, Measurable, Attainable, Realistic and Time Bounded. More on this later. 

Defining good OKRs is a monthly process, quarterly process AND annual process for management that should be a team activity to enhance communications and leveraging the brain trust of the management team. So, MBOs can be small, medium or large. The more experience a person is the larger an MBO they should get and be in charge of accomplishing. For example a General in the army's job might be to conquer a country, while a Captain or Colonel might get a more limited "mission" to take that hill or capture that gun placement. 

MBOs are very specific to any given business but here are some examples:

• Achieve a 10% reduction in the product return rate by March 31st.
• Reduce call hold time by 15% by April 15th.
• Reduce number of second service calls (error rate of service calls) by 6/1/2018
• Hire 3 staff, onboard and train them in Procedures X-Y by 5/12/2018
• Reduce service calls, working with product development to improve directions included with product by 9/15/2018.
• Reduce software bugs to X per release using regression test automation by release V2.3 scheduled for 9/21/2018.

Notice ALL must have a specific deliverable DAY/DATE. NEVER a month, quarter, or other non-specific time. Literally, it is due "End of Day" that date. And these should be scattered, never all due end of the month.

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I took MBO/OKR to a new level by adding a couple of my own innovations that I find make a huge difference in practical implementation.

The first innovation is that I separate numbers from objectives that can be defined in text. Yes, you can use KPIs to define goals/MBOs achieve, but you always need to track and document both separately. It becomes the language of the business. Which causes great accountability, focus and easy tracking. The Key Performance Indicators are tracked in a dashboard and become a weekly or monthly cycle to check. They show a trend too. And as such, we can identify good and bad trends quickly and apply management time to the issue.

Innovation #2 is in Objective/MBOs I always separate “Working in the Business” from "Working On” the business. This gets people to think more about long-term impact and value, since working on the business has ongoing (forever) impact and is therefore far more valuable. As you move up in an organization, more of your MBOs or OKR ought to be about “working on” the business. A complex topic covered in our Management By Objective course.

I believe doing and dashboards well really separates the also-ran companies from the big winners. 

Companies that do both well constantly improve - raising the bar. 

Winners have the discipline to do MBO/OKR well, and measure the metrics. This forces Kaizen, which means constant improvement in the business. Which eventually results in being a market leader, not a market follower. 

It's NOT easy to come up with an objective and also a measurable key result. It requires “Forethought” and planning. And an ability to see the future and the steps needed to get there. See my course on Vision. Research has shown that many people totally lack the ability to have forethought. So, they really can never be a good manager. This is especially true if you're working in a team. But I do believe that almost anyone can learn this with practice too. 

And so, what is the definition of a good MBO or OKR? It must have at least four unambiguous characteristics:

1. A task name or descriptor for reference (i.e. The widget improvement initiative) 
2. A person responsible for achieving in objective - One person's name only allowed. 
3. A specific day for a deadline when the project is due - Yes only a date, never a month, quarter or year, that is a goal not an MBO. 
4. An exact definition of what the deliverable is. This can be anywhere from a single number to a complex document with a specification for a software product. But it must be very clear. 

Your goal-setting process is also done annually by the senior management team, and often approved by the Board of Directors. These bigger objectives are then broken down and distributed in smaller pieces to appropriate departments, teams and individuals. That is a lot of what managers need to do well. It is about clear goals and communications. It is about alignment across departments and teams.  When people have clear expectations, they perform better. 

And another secret most people fail miserably at when doing an MBO or ORK process. MBO/OKR should be a collaborative process where the person doing the work sets the time deadline, not the boss.  Not only is the psychology of this very important but only that person can imagine all the details needed to deliver the result. When this is not done people do not “own the result” and you see a lot of missed deadlines. They will not work long, extra hours for your goal, but good people will work to make “their goals”. Because they made a personal commitment. 

Another Acronym for this concept is SMART, meaning:

1. Specific
2. Measurable
3. Attainable
4. Realistic
5. Time bounded

Essentially this is the same process and includes all the key elements of an objective too.

The annual plan should be updated quarterly and adjusted based on new learning or circumstances, and reconfirmed as reasonable and appropriate given any changes. Any problems or changes need to flow up and down the chain of command to make adjustments, as other departments and/or people can be dependent on other deliverables.  So, a good manager communicates any changes or risks immediately.  

We have in-depth courses on OKR/MBOs, Dashboards and more to grow managers to be great leaders. And these are a very leveraged investment since they will set a good example and grow more managers from within. Contact us for access to these courses. 

Also check out my blog where I have loads of articles on entrepreneurship, scaling and raising capital.

Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.

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