We briefly look at several approaches to performance management here and how they could benefit your organization.
MANAGEMENT BY OBJECTIVES (MBO)
In MBO model both management and employees work together to create a set of objectives to work towards. Allowing employees to have a say in setting objectives makes them take ownership of the process.
BALANCED SCORECARD (BSC)
BSC is a data driven strategic approach to measure the four primary functions of any business; learning and growth, business processes, customers, and finance.
OBJECTIVES AND KEY RESULTS (OKR)
OKR approach looks to set one or more main objectives and one or more key results that come from these objectives. The aim is to create goals that are ambitious and innovative. These are then assigned to different levels, creating an alignment between the Objectives and the Key Results at different levels.
HOW TO CHOOSE BETWEEN MBO, BSC AND OKR?
One approach or another may be more suitable for your particular business.
The MBO approach can be useful as it provides confidential and individual goals for each employee. However, MBO, like BSC, has annual reviews and most business now recognize that feedback needs to be more frequent to be useful. OKR reviews are typically quarterly or monthly.
OKR and MBO both have an emphasis on what the end goals are, whereas the BSC model includes a strategy map that helps one focus on the how as much as the what to achieve.
MBO and BSC are both risk averse systems that look at large goals that are completed through a series of steps. OKR is aspirational and it only expects you to achieve result, as a stretched goal.
WHAT APPROACH WILL WORK BEST FOR MY ORGANIZATION?
The best strategic approach for you will come down to your organization’s individual needs and goals. MBO is the oldest of the three methods, being developed in 1954.
It became the industry standard and its implementation is far more standardized and well established. While annual reviews are outdated, many aspects of MBO can be adapted to modern needs.
BSC is another well adopted option but with more details and strategic elements. This may mean it is more complicated to implement, but should deliver results.
OKR is a much more recent and innovative approach that has recently seen widespread adoption thanks to being used at new age organizations such as Google.
HOW TO SET OKR OBJECTIVES?
OKR objectives should align between company, team and individuals, providing you with measurable results.
Typically, 3-5 OKR objectives are set; these are not only ambitious enough to be attained but also actionable and time measured. For each objective 3-5 Key Results. These should be quantifiable and based on growth, performance, and engagement.
Progress on Key Results is updated weekly. An objective is typically considered complete at 75%. It is considered that if you are reaching 100% consistently, your objectives are not ambitious enough.
This stretch adds to your performance appraisal process and improve the overall organizational performance.
KEY DIFFERENCES BETWEEN MBO & OKR APPROACHES